You know what? I have no issues looking back at the first start-up I founded and say that I didn’t know shit about creating a business model. If you read this article, you know that I don’t like theory. I learn by doing, failing, and trying again.
I often make that not-so-funny joke to my investors that I now know how to use excel.
The reality of your first start-up is that you might not have a business degree, but you sure are smart enough to put things together and make sense of numbers. Thinking of 2016 when I founded my first venture, I can say that with little experience, putting a business model together is a little bit like browsing on Google. You’ll end up believing in your own BS 🙊.
So what do you need to put a business model together?
Well, the simple answer is what’s your product? How much does it cost? Who’s your customer? How many potential customers do you have? Who are your competitors and how do you compete? What’s your cost to acquire customers? How many times will they come back? Can you eat decently and have a roof over your head while running your business? If you don’t have those answers take a step back and keep reading.
Those questions apply regardless of you creating a small or a large business.
What’s your product?
You might be selling a physical product, an online service, a retail experience, a social platform, or a marketplace. Depending on your choice, your pricing will change and your revenue might need a different approach.
How much does it cost?
How much are your customers willing to pay for your product but also how much are your costs gonna be? Think about shipping, development, time spent, customer acquisition costs. If you sell your product 10€ but all of your costs amount to 10€, you’ll never be able to drive a sustainable business. Sit down and write every single thing that your product involves.
My way of approaching it is per transaction, forecasts are often wrong anyway so try to stick to the scenario where you sell your product to 1, 10, 100 customers.
When I started building Hackyourcloset.com, I looked at how much the clothes I was using will cost, how many times I could circulate them, how expensive the shipping + return was, and then the time I was spending packing the box.
Then I launched a marketing campaign on social media with 100€ to see how many customers I will get for that investment (I will write about how to launch your first marketing campaign and how to measure performance over time, stay tuned).
Who’s your customer?
So who’s your customer? Is it women or men, kids, teenagers, moms? Is it small businesses or large ones? Is it a specific industry? You will need to identify your potential customers prior to your first marketing campaign. This will help you define where to place your ad and how to set your target audience. You might be wrong at the beginning but it’s all about learning step by step. Performance marketing will help you get the answers you need, and help you stop making assumptions.
How many potential customers do you have?
How big is your market? When I build my first company, it took me a while to realize how small/niche the market I was in was (not that small but too small to make a real impact) and how difficult it would be to reach my customers. It’s ok if you have a smaller market, but your average revenue per customer will need to be high if you want to make a living out of it. With a smaller market, you might reach a ceiling quickly and then your acquisition cost will increase.
Who are your competitors and how do you compete?
So you’ll notice that after having figured out your earnings against your fixed costs, it all comes down to the variable costs like marketing (and technical development if that applies to you). Those costs change over time and reduce or increase your bottom line. When you market your product on paid channels, you’re competing against giants who might not have the same product but are targeting the same customers. So how can you set your product apart?
Analyze your competitors, read reviews good and bad ones, look at their brand identity and how/what they communicated to their community.
What’s your cost to acquire customers?
Not everything has to rely on paid ads, it’s just an easier way to access truthful data to build your business model. If you’re an influencer or if you have access to large and engaged communities you might be able to reduce your marketing costs and adopt different strategies. You can try different channels, list them and see how they perform.
If you use your own influence or someone else’s make sure that you can easily track the results so you can measure your returns on investment. If the collaboration is free you can still look at the number of followers/ the engagement rate/ the number of customers you got from that collab.
How many times will they come back?
Our model at Hackyourcloset.com is a subscription model like Spotify or Netflix. Subscriptions allow you to have recurring revenue. You want your customers to come back as much as possible as it will lower your acquisition cost over time. In some cases you might need to retarget them with marketing campaigns, in other cases, it might be completely free of charge and that means your product is amazing!
I hope this first article helps! Stay tuned for more on that topic!
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