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Ask the Expert: Your business model is a key to your startups' success

January 06. 2013 7:27PM

Many startup entrepreneurs I've met put the majority of their focus on their product. While obviously it's very important to develop a great product for your audience, it's just as important how you're operating and getting that product to your market. Creating a great business model is your killer competitive advantage.

There are three important elements to your business model: Value Proposition; Financial Model; and Operating Process.

Value Proposition: Why should customers be excited to do business with you? Intimately understanding your customers is vitally important and then knowing how your products/services fill their needs and relieves their pain is your key.

Financial Model: How do you generate revenue and make a profit? As a business builder this should provide intense excitement. By providing such an overwhelming value to a market here is how you'll reap those rewards.

Operating Process: How do you fulfill your value proposition? You'll need to communicate the value proposition to your market and demonstrate how this fulfills their needs. Here you'll be aligning the business model with how you deliver your value proposition to your customers.

These three elements play heavily on each other and rely on each other. You can investigate innovation in any of these elements of your business model. How can you outmaneuver the competition and provide a better solution to your customers? Remember, customers buy value, not a product.

Here are some examples where companies have innovated various elements:

Zara, the European fashion business, is one of the most innovative retailers in the world. They vertically integrate the design, manufacturing and distribution of their clothing, from design to store shelves in as little as five weeks in order to quickly react to changing market trends. Where most retailers have different seasons, Zara turns the store floor every four weeks. Here they show how they deeply understand their fashion customers and shape the operations process to devastate the competition.

Freemium has changed the landscape for a multitude of software companies. Using this model a portion of the functionality is free to users. This provides an opportunity to gain fast and widespread product awareness. The premium features are available through a subscription service. Many examples use this such as LinkedIn, Spotify and DropBox. Freemium is an example of innovation in the financial model.

Retail is not a stale area for innovation. Look at Apple stores, which are void of checkout counters lines. They disrupted the retail model by empowering all their personnel with the tools to help customers on the floor and simultaneously complete the sale. Apple changed the operating process for a huge win for customers.

By only focusing on products, businesses are vulnerable to being disrupted by competitors who blend products and operations to significantly change the customer's value proposition. Killer business innovation comes from an entirely new type of company that competes not only on its value proposition but aligns its profit formula, processes and resources to greatly enhance that value proposition to grow and block competitors.

If you want to disrupt your market and displace your competition, use a different business model not just a better mousetrap.

I wish you much success with new and existing entrepreneurial endeavors in 2013.

I look forward to answering your questions and/or responding to your comments at or

Ric Pratte is a high-tech entrepreneur currently focused on new business models in the digital world such as social business, e-learning, predictive analytics and game mechanics. Previously he was CEO/Co-founder of JitterJam and Campagne Associates. He is a father of two and an avid skier and backpacker who devotes time to many nonprofit organizations. He earned his bachelor of science degree from Southern New Hampshire University.

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