Before you start your business, know what your business model is

Now here is a crazy thought! How about knowing how your going to make money before starting a business? Crazy right? I mean what does making money have to do with business?

And that is why the majority of start-ups become finish-downs.

I know, I know. Just build it for the sake of building it and see what happens. That’s great if you don’t need the money and have a lot of time on your hands, but if you are going to start a business you best know how you are going to make money.

Now before we go into some of the different ways to make money I think it is first important to see that you have multiple ways of making money. If you are going to be putting blood, sweat & tears into something make sure you have many avenues of success while still maintaining focus on your core business. Note: When you launch your company you don’t need to launch every revenue stream, just make sure you have a few as you grow.

The easiest example of this is a Restaurant. A retaurant can have the following revenue streams:

• The basic: People coming in and eating in
• Take Out
• In house catering/parties
• Catering in other locations
• Selling Packaged food through other locations
• Selling a specific product commercially (ie: Our Special Bar-B-Q Sauce)
• Party Planning Service
• Gift Baskets
• Frozen Pizzas

See what I mean? Now mostly I would like to focus on internet businesses since I think it is pretty obvious what your business model is when you are running a retail outlet of any kind, but online we have been brought up with the idea that it is a numbers game and as long as you have a lot of “eye balls” you can figure out the rest later. Now that is a great thought and if you became an internet sensation like Twitter, then that’s great, but for the 99.9999% of the rest of internet start-ups you really need to have a clear business model in order to raise funds and of course to succeed.

Now the problem I have with the “eye balls” theory is that the main business model that people are shooting for is an advertising model and that is a very dangerous place to be for many reasons; the fist being that if advertising revenue dollars were to suddenly drop, so will your revenue. I know of many companies that have gone under in the current recession specifically because the ad revenue dropped by more than 50%. If your going to build a business, build it on a need, something that people want and not something that you are going to annoy them with. That’s just my opinion.

A recent article on Mashable titled “5 Business Models for Social Media Startups” points out some of the main ways to earn money online and can even be used for non social media startups. Let me know what you think!

http://mashable.com/2009/07/14/social-media-business-models/

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