Want to build a successful software business?

How to start a business?

Surely many programmers will answer that with a good code and ideas, managers - ideas and business plans, artists - inspirations, etc. As you can see, there are a lot of opinions, but in fact the most correct solution would be to build a business model (objections are welcome, but preferably by example and after reading the post to the end).

Methods mass, I personally find the most useful Business ModelCanvas , but I do not insist. I recommend trying to fill out the canvas to anyone who is just starting their own business, and to everyone who is already working and maybe even making money, I suggest checking out their business model with the help of eight questions from Alex Ostervalder .


Of course, the only important judges of your business model are consumers ! However, the long-term competitive advantage of the model can be enhanced by evaluating its design with a couple of questions that go far beyond the usual perception of products and market segments.

I propose to sketch out an existing business model or a startup model using the following Business Model Canvas tool (you can use other techniques or just look at the profit-making mechanism in your business) and then proceed to assessing its design.
')

The basics

Each business model is based on a product and (or) service, focused on the task to be solved by the client. I call it the proposed benefits. Therefore, before evaluating your business model as a whole, ask yourself the basic questions regarding the benefits offered and the customer segments that you are targeting.

• First, ask yourself how well the benefits offered help the target consumer to solve the problem. For example, if a user tries to find in the search engine and purchase the latest Nike sneakers, the measure of success will be how much the search engine has helped the user to cope with this task.
• Secondly, ask yourself how many people or companies there are with a similar task. This will help you know the size of the market.
• Third, ask yourself how important this task is for the consumer and if he actually has the funds he can spend on this task.

This is about the basics. However, even the greatest products are experiencing hard times before gaining a long-term competitive advantage. That is why you need to switch from a pure product / market segment approach to a more holistic approach with a business model. Below are eight questions for evaluating the design of a business model. Assess the effectiveness of your business model on a 10-point scale (0 - bad, 10 - excellent) for each question.

1. As far as the costs associated with changing the supplier, impede the outflow of consumers?

The time, effort, or money that a consumer must spend on switching from one supplier of a product or service to another is called “switching costs”. The higher such costs, the greater the likelihood that a consumer will adhere to the same company, instead of switching to a competitor’s products or services.

An excellent example of cost accounting associated with a change in supplier in the business model is Apple’s iPod presentation in 2001. Do you remember how Steve Jobs notified his new product with the catchy phrase “a thousand songs in your pocket”? It was not just a new storage product. It was a business model strategy designed to get consumers to copy all of their music into iTunes and their iPod, which will further complicate their transition to competitors' digital music players. At a time when something more than the preferences of a brand did not allow people to move from one player to another, it was a smart move that laid the foundation for the subsequent strengthening of Apple’s position in the field of music and subsequent innovations.

2. How scalable is your business model?

Scalability shows how easy it is to expand a business model without a corresponding increase in base cost. Of course, business models that rely on software and network products naturally scale better than models that rely on real products, but there are big differences even between digital business models.

An impressive example of scalability is Facebook. With just a couple of thousand engineers, they create value for hundreds of millions of users. Only a few companies in the world have a similar ratio of users to one employee. The company that managed to push the boundaries even further was the social gaming company Zynga. By creating games such as Farmville or Cityville on the world's largest social networking site, Facebook, they were able to benefit from the range (and scale) of Facebook, without having to build it on their own.

The lesson on scalability was quickly learned by the peer-to-peer communications company Skype in its early years. Their relationship with consumers collapsed under the weight of a large number when they took ten thousand users daily. They had to quickly adapt the business model to become more scalable.

3. Does your business model generate regular income?

Regular income can be explained by a simple example. Revenues from the sale of the newspaper in the kiosks are called piecework, and the income from the subscription is called regular. Regular income has two main benefits. First, you pay the cost of selling only once, earning regular income. Secondly, regular income gives you a better idea of ​​how much you will earn in the future.

A great example of regular income is Redhat, which provides open source software and provides support to businesses with a long subscription. In this model, customers do not pay for new versions of software products, as they are constantly updated. In the world of software as a service (Software as a Service, Saas), this type of subscription has become the norm. However, Microsoft still sells most software products in the form of licenses for each major release.

But there is another aspect of regular income, which is the additional income caused by the initial sales. For example, when you buy a printer, continue to spend money on cartridges, or when you buy a game console, continue to spend money on games. Or look at Apple. Along with the fact that the majority of their revenues come from the sale of hardware products, regular revenues from content and applications continue to grow steadily.

4. Do you earn before you spend?

It goes without saying. The more you can earn before spending, the better.
Dell first launched this model in the field of computer hardware. Starting to build immediately after placing the order and payment, they were able to avoid the terrible depreciation of inventory in the field of hardware. The results show how effective it is to first earn and then spend.

5. Do you make others work a lot?

What could be more effective than making others work while you make money?
In the real world, IKEA forces us to assemble the furniture we buy from her. We are working. They save money. Facebook forces us to upload photos, create and participate in conversations and make a “like” mark. This is the real value of Facebook, completely created by users, while Facebook itself only provides a platform. We do the work. They earn top marks on stocks.

The previously mentioned Redhat has created another smart business model based on the work of other people. Their business model relies entirely on software developed by the open source community. This allowed them to significantly reduce development costs and compete with larger companies, such as Microsoft.

The more parasitic business model in which others do the work is the model that so-called patent trolls practice. In this model, patents are bought with the sole intention of suing successful companies and getting money from them.

6. Is competition protection built into your business model?

A great business model can give you more protection against competition than a great product.
The main competitive advantage of Apple stems more from a powerful business model than simply from innovative products. Samsung, for example, is easier to copy iPhone than to create an ecosystem like Apple's AppStore, which equally serves developers and users and owns hundreds of thousands of applications.

7. Is the cost structure at the heart of your business model that can change as the game rules change?

Cost reduction requires a long workout in the business. However, some models go beyond cost cutting, creating value based on a completely different spending structure.
For example, Skype provides calls and communication almost like a regular telecommunications company, but for free or at a very low cost. They can do this because their business model has a completely different spending structure. In essence, the model of Skype is based on the economics of a software company, and on the basis of a telecom provider model is the economy of a network company. The costs of the first go mainly to human resources, and the costs of the second cover huge investments in infrastructure.

Similarly, one of the world's largest network providers, Bharti Airtel, significantly modified its cost structure, eliminating its entire network and information technology. Having bought network capacities based on variable costs from a consortium of network equipment makers Ericsson and IBM, they can now offer the lowest prices for mobile telephony in the world.
Redhat, which was mentioned earlier, also built a business model on the changing cost structure: intelligently putting the model of other people’s work.

8. How does your business model design work?

Of course, none of the business models will receive a maximum of 10 points for each of the issues mentioned. Some may even be successful in the market, not at all gaining the proper number of points. But asking yourself these questions and getting good points for at least some of them, you are likely to significantly improve the long-term competitive advantage of your business.

Now you just need to check the business model with a real judge: the market.