When starting a tech business, one of the most important decisions you face is deciding its business model. A business model is an essential element of any new startup, as it’ll help you understand your value over the long term.
Yet, with so many out there, it may feel some-what overwhelming when creating the right business model for your startup. But not to worry - we can help!
4 things to consider when creating a business model for a tech startup:
- Your target market
- Your competitors
- Your cost structure
- Your revenue model
1. Your Target Market
To begin with, you need to take some time to determine whether there is a real demand for the product or service you want to create. Start by defining the value proposition for your potential customers. Commonly, your product or service should solve real problems. For instance, Airbnb solves the issue of expensive hotel rooms while Uber Eats is a response of people not having time to cook.
If you need some assistance putting together a value proposition, take a look at this helpful article.
2. Your Competitors
One you define an issue worth solving, look at the established players in your industry. Imitate what they are doing and make iterations where needed based on the unique aspects of your business. You might want to keep the same revenue model but offer distinct value propositions.
Also, it is likely that all potential niches may already be filled. In this case, focus on a preferable niche. An example of this is Jeff Bezos, founder of Amazon. He initially planned to sell books, but now the platform works by “the everything store” principle. So, if the competition is too high, try and limit your vision geographically at the initial stage.
3. Your Cost Structure
Understanding your cost structure is crucial as it will define your choice of marketing channels and pricing. Ask yourself, ‘how much are competitors charging?’, ‘how much will it cost to develop the product or to run the service?’, and ‘how much will it cost to deliver it to customers?’.
Knowing the exact cost structure will let you price your offering, which in turn will help you choose the right marketing channels and revenue models for your business.
4. Your Revenue Model
Another key thing to understand when creating your startup business model is your revenue model.
There are two main types of revenue models - subscription and transactional models. A subscription model is a business model in which a customer must pay a recurring price at regular intervals for access to a product. Whereas a transactional model allows you to generate revenue by directly selling an item or a service to a customer.
The subscription model is a good choice in the scalable digital world as it provides predictable, consistent revenue, while at the same time requiring a smaller upfront investment by the customer.
So, there we have it! When creating your perfect business model for your tech startup, remember to look at a number of things. Consider other tech startups as a blueprint, look at your cost structure to allow you to select the best marketing channel and pricing, and understand your revenue model.
Written by Kate, for Tramshed Tech.