Nowadays, young people tend to develop their own startups inspired by other young talented entrepreneurs.
I’m in the same boat!
Let me share my story. I guess that if I can understand the roles of business model earlier, I will save a lot of money and my earlier businesses.
I started my professional marketing career in 2009, at the same time, in 2012, I started some first affiliate businesses. In 2014, I still worked for a big company and started my skincare business on the side.
I want to develop functional skills in sales, business development, and channel development. At that time, I was new in the skincare industry. So my business model, actually I may say my strategy then because at that time, I didn’t know what the business model is and how important it is. So my strategy then was:
Be a middle man between OEM suppliers and my online customers, and my customers then are young KOLs who influenced the purchase of cosmetics and skincare products to end-users. The reason I chose to serve this kind of customer was to learn their techniques in approaching end-users and which kinds of products, which regions, how the consumer profile, etc. Then I can learn in the real business environment while earning money while I could prevent the business loss;
I developed my own brands based on the products I sold to my KOL networks on my own e-commerce website, fan page, and other e-commerce platforms; at the same time, I went out and sold directly to the spas and clinics at night and in the weekends.
Until 2017, I was so confident in the skincare market, product, and skin biology that I decided to make a revolution, and I thought my business concept was the first one in the world. My business concept was Solution-oriented Skincare. The core of the concept was that people had to answer my questionnaire, and my team would consult them on the root causes of their specific problems and then recommend suitable products. And you know, it was a failure.
In terms of marketing, I still thought that it was successful because many people answered the questionnaire month by month, got the consultancy, interacted with the business, and shared my brand, but in terms of business, I admitted that it was a failure. Because they appreciated the consultancy but then decided to buy from the other stores with more competitive price while they didn’t buy my own brand as it was new. For more information, I offered two options: famous brands and my own brand.
From my own experience and my observation, I felt that Entrepreneurs are always too optimistic about how easy it will be to acquire customers. They assume that because they create an irresistible product concept, a great solution for a specific problem, build an appealing website, product, or service, that customers will come to their business automatically. There are different factors that need to consider when you plan to launch your product to market, such as the industry you’re in, whether you’re selling a web-based product or physical product, the channels you use to attract your customers, etc.
When we feel excited about any new business idea, we tend to think that consumers will come. Yes, it may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers, and in many cases the cost of acquiring the customer (CAC) is actually higher than the lifetime value of that customer (LTV).
Yes, excitement is good, it can motivate you to fly further. But wait! Please take one step back and consider the business model first and evaluate its feasibility to generate streams of money to cover all of the expenses.
Now we will discuss the business model.
So, first, what is a business model?
Simply business model is how the business earns money profitably.
The Core of a Business Model is to define a direction to acquire customers scalably and monetize those customers at a significantly higher level than your cost of acquisition.
So, in order to evaluate a business model or the possibility of success, we should answer these two questions:
Can you find a scalable way to acquire customers
Can you monetize those customers at a significantly higher level than your cost of acquisition?
Now, please look at the equation:
There are two key components: cost of acquiring the customer and lifetime value of that customer.
It will be perfect if the cost of acquiring the customers is much lower than the lifetime value of that customer.
If the cost of acquiring the customers is higher than the lifetime value of that customer, it will be a nightmare.
So in order to have an ideal business model, we must know what will increase the cost and consider what the key drivers to lower the cost of acquiring the customers are. For the cost, there may include:
Field sales operating
Indirect sales expenses such as promotion, commission, display, etc
Marketing production such as content development, design, printing, video recording, video editing, etc
Media such as advertising spending in Facebook, Google Adword, Youtube, etc.
HOW TO LOWER COST OF ACQUIRING CUSTOMERS?
In order to lower the cost of acquiring the customers, we can consider:
How to make the content viral. In order to do so, we need to be unique, cute, fun, or weird, anyway, there must be viral elements.
Inbound marketing such as SEO, unique and valuable content for sharing
Free or freemium
Open source to allow customers to use and tailor based on their needs
Free trials
Effective channels or route to market
Strategic partnership
Leverage third-party platforms such as e-commerce platforms
And so on
HOW TO INCREASE THE EFFECTIVE INCOME AND INCOME STREAMS?
While we consider elements to lower the cost of acquiring customers, we also need to consider how to create and manage the income and the income streams, revenue streams, or sources of revenue. In fact, when we do business, we can have different ways to get money from the customers. They may be:
Subscription
Recurring revenue
Scale pricing
Cross-sell or upsell
Product line expansion
Affiliate or referral
And so on
So, in summary, I want you to know what a business model is and its importance in the business. Although our product concept or business idea may be irresistible, it doesn’t meen that we will succeed without carefully considering the business model.
Contact me if you have any comments or idea!
Thanks and best regards