After a few tough months, I was recently offered an unexpected and extremely exciting business opportunity.
I arrived at a restaurant for my monthly catch-up session with my mentor and sat fidgeting while waiting for him to arrive; I couldn’t wait to tell him about the big deal that had come my way.
At this stage of my journey as an entrepreneur, I know the importance of getting different perspectives, so I was curious to hear what he would say about this new business opportunity.
We recommend: Keep It Simple Stupid!
After we’d ordered our meals, I started telling him enthusiastically about my new business opportunity. He listened carefully, not showing any emotion. When I’d finished, he said: “The explanation you’ve just given me is too complex. You’re not articulating what you want to do simply enough.”
How could he say my explanation was too complex? It was straightforward to me. I repeated my explanation of the opportunity and watched his reaction. He shook his head, and said: “It’s still not simple enough.”
I was now struggling to hide my frustration.
Ask a six-year-old
My mentor looked around the restaurant. His eyes settled on the table next to us, where a mother and her six-year-old daughter were busy enjoying a tiramisu desert that had just arrived.
He leaned over to the mother, and asked her politely: “Excuse me ma’am, would you mind if we troubled you? I’d like my friend to briefly explain something to your daughter.” After a somewhat awkward pause, the mother gave in to his request.
He turned to me and said: “I want you to explain to this young girl what your new business opportunity is.”
I wasn’t sure why I needed to explain it to a six-year-old, but decided to humour him. I briefly told her about my new business opportunity.
My mentor then asked her to relay my story, and when she did, she provided a completely inaccurate interpretation of what I had just told her.
After listening to her response, my mentor asked me to once again tell the young girl about my new business opportunity, but this time in simpler terms, making sure I explained clearly what I’ll be doing and why I’ll be doing it.
It took three attempts at telling her my story for the young girl to finally understand my new business opportunity.
We thanked her and her mom for accommodating our request, and let them get back to their dessert.
A rule of thumb
Very often, in our heads we complicate what we do by using big, trendy terms like ‘best practice’, ‘best of breed’ and ‘most innovative’ to explain what our business or product is all about.
A good rule of thumb is: If you can’t articulate what you do so that a six-year-old would be able to understand it, you simply aren’t conveying your ideas clearly and simply enough.
Ensure that you start off by providing the context of your business or product in simple terms.
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Once you see that the audience understands your message, move to a higher level of explanation. By simplifying your idea, you create a far better understanding of what you do, and why you do it.
This thought experiment will prove invaluable when you’re meeting new people at networking events or pitching to potential clients.
4 Types Of Business Models To Suit Your Business Concept
There are four main types of business models, see which one suits your business concept.
Different types of business models suit different types of businesses. A business model is the way that a company sells products to its customers. It describes how a business creates, delivers, and captures value.
What type of business model should you adopt?
A business model defines how the enterprise delivers value to customers, gets them to pay for that value, and converts those payments to profit.
There are four basic types of business model that any for-profit business will fall into:
How To Pick The Business Model That Works For You
So, you’ve picked your lane. You’ve decided what you want to do and why you want to do it. You’ve picked something you’re good at. You’re convinced the world needs and values it. You now need to decide how to make money. That’s where business model design comes in.
There are plenty of business model options for the same idea. For example, let’s say your idea is to offer historic tours of Cape Town. You could either do it yourself or hire professional guides to do it. Or you could use mobile technology to provide DIY walking tours. You could charge per tour or you could charge a membership fee. There are so many options. How do you pick the model that works for you?
The Lean Canvas is a great tool for entrepreneurs who are faced with this question. Adapted from The Business Model Canvas, it provides a simple, one page framework for brainstorming possible business models, prioritising where to start, and tracking ongoing learning. It walks the entrepreneur through the business model process logically and ensures the key elements of a successful business are considered.
My co-founders and I have used the Canvas extensively at Simply – for designing our business model, and for communicating it to partners and investors. The only thing you know with certainty when you start a business is that it’s not going to turn out as you expect it to. The Canvas evolves as you go – it was, and continues to be, a very useful guide in our journey.
Recognising an opportunity for disruption
We figured there was an opportunity to do something disruptive in the SA life insurance space. It was clear to us that lots of people were either not covered or getting a rough deal. Guided by the Canvas, we defined our first Customer Segment as adult South Africans, aged between 25 and 45 and earning between R5k and R30k monthly.
We then identified the 3 big Problems – specific to that segment – that needed solving:
- Most of the people in our segment have some form of funeral cover, but very few have life or disability cover.
- The cover they do have is often expensive relative to the benefits provided (i.e. a very small % of the premium goes towards the risk costs).
- There is no simple, intuitive way to buy good value life, disability and funeral cover online.
Developing a value proposition
Next came the Value Proposition. We believed we could use technology, digital marketing and human-centred product design to deliver simple, online life, disability and funeral insurance at a great price. We felt we could be for life insurance in South Africa what Takealot has been for retail.
We thought the world was moving far faster than incumbents realised; that millennials were ready to buy life insurance online; that we could build for the digital world and be in the right place at the right time.
And the rest flowed from there. I don’t have the time or the space to walk you through the other elements of the Canvas here, but you can probably fill in the blanks. Suffice to say, the process was invaluable and enabled us to build our business around a clearly considered business model. It’s early days, but the signs are good – we’re making a positive impact, having fun and keeping our investors happy.
Creating a Lean Canvas
So, how should you go about sketching your own Lean Canvas? The team at www.leanstack.com suggest the following approach:
- Sketch a canvas in one sitting. While a business plan can take weeks or months to write, your initial canvas should be sketched quickly.
- It’s okay to leave sections blank. Rather than trying to research or debate the “right” answers, put something down quickly or leave it blank and come back to it later.
- Think in the present. Business plans try too hard to predict the future which is impossible. Instead, write your canvas with a ‘getting things done’ attitude.
- Use a customer-centric approach. You may need to sketch one Canvas per customer segment. Start with the Customer Segment and go in sequence.
The Canvas has brought clarity and a common language to our business model design process. It’s enabled us to agree upon and communicate our business model effectively – both internally and externally. It’s also allowed us to tune and adjust our model as our story has unfolded – an inevitability for entrepreneurs. I highly recommend the Lean Canvas as a tool for designing your business model. Give it a try – I think you’ll like it.
Want To Change Your Business Model? Answer These 3 Questions
Here are a few pointers on figuring out the best way to grow your business and keep it sustainable for years to come.
To grow sustainably, is it better to take on projects that are frequent and reliable, or sparse but lucrative?
Q: I own a film and production company, and I shot 100 videos last year – 70 weddings and 30 corporate, totaling $330,000 in revenue. The corporate videos are more profitable, but weddings are always happening. I don’t want to turn off a constant source of revenue, but should I spend more time pursuing corporate events to grow my business? – Trevor R.
Welcome, Trevor, to the entrepreneur’s struggle! You build a great product or service, make good money and the next thing you know, you feel like you have to change your model. It’s the age-old question of scale: What’s the best way for your business to grow, and does that mean making less revenue now in order to have more sustainable growth for years to come?
Related: 4 Types Of Business Models
With the bulk of your time being spent on wedding videos, you probably feel stuck in the slow lane, watching better profits pass you by. But remember that scale is not just about margins.
Numbers can be deceiving, and you control what you charge for your services. While your corporate videos are more profitable right now, going all-in might not be the long-term answer.
To figure out the best route for your business, start with a clear vision of your ideal final destination. How much money – and profit – do you want to make per year? It might sound like a frivolous question (who doesn’t always want to make more?), but it will allow you to reverse-engineer your business model and help determine a practical answer.
Let’s say you want $1 million in gross revenue per year. At this time, it sounds like you charge about $5,500 per corporate video and about $2,400 per wedding video. That means you’d need to sell either 182 corporate videos or 417 wedding videos. (That’s a lot of videos!) Use those numbers to guide your vision. Next, consider scale, which depends on a number of growth factors.
First, creating value: Make sure you’re charging the appropriate amount for your services in order to reach your goals.
Second, anticipating growth: Where is the greatest opportunity, not just at the moment, but in the future?
And third, limiting expenses: How can you keep costs down so spending doesn’t outpace revenue?
Related: 3 Types Of Ecommerce Business Models
Answering honestly will help you create several business models. For you, Trevor, those models are (a) weddings and corporate, (b) weddings only or (c) corporate only. As a case study, let’s consider “weddings only.”
Last year, you worked 70 nuptials. Before you consider hitting pause on that side of your business, revisit those growth factors to figure out if you can make it more profitable.
- Should you charge more for each video?
- How many clients did you turn down last year?
- Could you have taken them on if you had extra help?
Weigh the costs, and consider adding another videographer to the staff. If that seems financially impossible, look for ways to at least maintain your current output while trimming production costs.
For a small business, profitability is a mad science of focus, projections, and getting out of your own way. What makes the most money on a per-item basis is not necessarily what will make you the most profit in the long run.
Consider Amazon: It created scale by focusing on smaller margins. It’s a helpful reminder that there are different ways to succeed.
Understand what you can charge, how you should save and who is most likely to buy from you in the future. By simplifying the complicated challenge, you can jump on the fast track to growth.
This article was originally posted here on Entrepreneur.com.
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