Jargons flutter like fireflies in the startup ecosystem. The tech bros and the finance bros collectively coin some new ones every other day. They seem to brighten the trail in the beginning but often steer the founder off-course. One such shiny term that has stuck around is ‘business model’. (immediately imagines self-blabbering in front of a VC 🤭)
Do early-stage startups need to have a business model? Or is it just another fundraising collateral? Let’s figure.
Business model is a hundred percent essential but don’t obsess over it just yet. In the early stages, your model is your true north star. All your resources should rally behind it.
But one might think as early-stage startups are we not supposed to just build the MVP, test the market, fail fast, and move on.. why waste time building a model?
For starters, early-stage startups are no citadels. We are not building the perfect pyramid to last for eons. We are experimenting, working through lean teams, building agile prototypes, and pivoting at Godspeed. Yet, however crafty we founders tend to be, we need to have a basic blueprint. A model that is fluid and can be tweaked with every round of GTM and shift in the market is that blueprint precisely.
Can’t construct without a foundation now, can we? Kind of like the headless chicken!
So having a business model for your startup is the root, not just an overlay.
At early stages, a business model blueprint should be able to answer
- 🚀 The problem we are solving
- 🚀 Who we are solving it for (ICP)
- 🚀 What value are we providing (USP)
- 🚀 How are we reaching our ICP and delivering the value (Sales & Distribution)
- 🚀 How are we generating revenue (Subscriptions, Partnerships, Transactions)
- 🚀 How do we build a cash reserve (Cost Buildup, Revenue Buildup)
This is it. You very first, very basic business model blueprint.
It is likely that the term ‘business model’ can give a false sense of certainty. It is anything but rigid. A successful business model will periodically change. So in the early stages, don’t bother trying to build a one-time revolutionary model. Actually, instead of failing fast in the product side of things,(better go to market with a decent product 🤫) this is where experimentation is worth it. Having a flexible model and testing scenarios.
Take Zomato for example, it started as a restaurant aggregator and quickly adapted to hyperlocal delivery based on market response and trends. Today they stand tall as one of the biggest disruptors in the food delivery space. For that matter, so did Nykaa. It started as a multi-brand beauty store and went on to have its own private label line.
Oh and Ola! Ola has been constantly pivoting its model right from the start and thus has managed to stay ahead of the curve. From radio cabs to ride-hailing, carpooling, and now electric vehicles.
As first-time founders, the idea or rather necessity of a business model strikes us when preparing for a fundraising cycle. Imagine your advisors have told you that investors will deep dive into your business model, your business assumptions, and your projections and now you are panicking and are knee-deep in a battle with numbers and #REF in an awful Excel sheet your interim CFO gave you 😛
A nightmare!!
Business modeling should ideally start much before this situation arises. If not how do we pinpoint our revenue goals, cost, funding needs, and more? It is your true north star. A model should tell you your assumptions as a business, lead you to target numbers in every vertical of cost and revenue, and should help you project for the future. It should be your compass. And then every step in operation that you take leads you back to these goals. You track, you test scenarios, you pivot.
You don’t have to be a giant in the game to start working towards having a viable business model in place, but if you do crack this code at the nascent stages, you will go big eventually. 🙂
So start at the early stages, don’t obsess over it but embrace it and play with it. Work with it at the centre of all your operations.
And if you are feeling stuck in the business modeling labyrinth, we gotcha at PredictGrowth .
Slide into our DMs, drop us an email, or send a carrier pigeon if that's your thing! We're wizards at business modeling and love a good challenge.