Picking a pattern for your business model

Business Model GenerationI’ve been studying business models for a couple years now. The one thing I discovered about business models that’s most useful for entrepreneurs are the patterns.

My introduction to business model patterns started with the book Business Model Generation.

This book covers a variety of business model patterns applicable to both large enterprises and entrepreneurs. The basic patterns from this book that apply to entrepreneurs include:

The long tail business model Selling niche products and services to a large number of customers not being served by the mainstream. This is sometimes referred to as Selling Less of More.

Multi-Sided Platform Selling to two customer segments by offering a (free) product or service to attract a large number customers in the first segment, then selling access to that segment to the second segment.  Selling advertising on an information website is a good examples of this.

FREE as a Business Model Marketing free products or services to attract a large number of prospects, then convincing a small number of those prospects to convert to paying customers. This is sometime referred to as a Freemium business model.

In addition to these business model patterns, there are a variety of traditional patters not covered in the Business Model Generation that apply to entrepreneurs.  For example, there is the foot traffic business model used by brick and mortar shops and restaurants and the seasonal business model used by tax accountants and holiday retailers, among others.

If you look at each pattern carefully, you’ll see that business model patters have nothing to do with a business’ value proposition (i.e. the product or service).  Instead, the pattern has everything to do with the technique used to acquire paying customers.

Discovering this was the Aha! Moment for me.  It helped me notice how first time entrepreneurs (who usually fail) spend 80% of their startup effort on their product and 20% on their customer acquisition strategy. While seasoned (and usually successful) entrepreneurs flip it.  They spend 80% of their startup effort of their customer acquisition strategy and 20% on their product.

With this insight in mind, I now believe that the most important thing first time entrepreneurs (or any entrepreneur who’s struggling) should do is study the business model patterns, then pick one to implement.