Excerpt

Proposition for This Book

Introduction
Perhaps I can introduce myself by explaining my goal for the book. My goal is to try and pass along what I think I have learned about how to design and implement a successful small business. I have worked with hundreds of men and women and a number of teenagers to help them evaluate their ideas for a business. Most often, the idea can’t stand the test of a rigorous business analysis. The reasons are many, including the concept can’t produce a reasonable profit, the funding is inadequate, the owner doesn’t have the background to manage and drive the business, or the risk from competition is too great. A small portion result in a business startup and many of those still fail within a short time. In the course of these consultations, the term business model surfaces but it is not a term that is clearly understood, even though it is an important business tool. Let me emphasize that we aren’t talking about large, well financed business initiatives that have access to many specialists. These are typically one owner businesses with very limited funds and not a lot of experience in starting or managing a small business. This book is directed toward helping that group of entrepreneurs understand more clearly, at least from one perspective, what a business model is, how to construct one, and how it can help you succeed.

Business Model or Business Plan
A few words about the differences between a business model and a business plan may be helpful in putting this book in the proper business context. The key words are model and plan. Webster’s Dictionary says a model can be “a representation to show construction or an example for comparison”, while a plan is “a scheme or method of proceeding”. In this context the term model is used because the design accurately represents the characteristics of the business and the term plan outlines the future expectations for the business. A successful plan (where you want to go) requires a model that will get you there. An analogy might be if you want to haul freight you need a truck as the model but if you want a fast comfortable ride you may need a luxury car as the model. What you want to achieve over time sets the parameters for measuring the adequacy of the business model you have designed.

I believe designing the business model should always precede developing the business plan. This is because the business model approaches the creation and operation of a business using a logical, sequential process that helps identify both strengths and weaknesses of (1) the idea and (2) the operational resources available to implement the idea. It emphasizes the relationship between the various business elements that are so crucial in creating a strong, successful business.

The use of the business model has the greatest benefit when it is used to determine if a startup business idea is capable of delivering the results intended. For an active business, the business model can be useful in determining if future plans are likely to be successful or whether they exceed the basic capabilities of the existing model. This emphasizes the point that “every active business has a business model”. Determining whether it is a successful business model requires the application of a rigorous analysis to determine if it can live up to the owner’s expectation for the business. The business modeling process in this book analyzes the idea and the resources supporting the idea in both scenarios. The information compiled to create the business model design provides a baseline that can be expanded upon to create an excellent business plan that includes implementation plans and operational details that are important to the owner/manager and perhaps to a banker or investor.

The Small Business Audience
According to the Small Business Administration, there are 26,000,000 small businesses in the United States. Twenty million of those (77%) could be considered mini or micro businesses because they have no employees. These businesses are identified as “Lone Wolves”. Another 3,000,000 have fewer than 10 employees. In addition, there are another 800,000 new startups every year. Fifty percent of these small businesses are home-based businesses. Sixty percent of them are started and financed with their own money. Thirty percent started or acquired their business with no capital at all. The downside of these statistics is that over 50% of the startups fail within two years.

What do these statistics suggest? Overloaded with the myriad of tasks and responsibilities that a single owner must contend with, many haven’t had the opportunity to learn the basic principles of designing a successful business model. At the same time, they need and seek knowledge about business design that can be immediately translated into action plans. The knowledge transfer is more helpful when it is presented in simple everyday business language and includes practical implementation suggestions and tools. Achieving that knowledge transfer is the purpose of this book.

Design of this Book
As a long-time small business owner, I understand that small business owners need practical solutions for their problems that can be developed and applied quickly with minimal resources. They hardly have the time and resources to develop a better understanding of how their small business really works, so they certainly don’t have the time for heavy theoretical treatises. But to their credit, most successful small business owners do have a strong curiosity streak and want to learn all they can to continue their success. In keeping with this philosophy of simplicity, three one-page worksheets are used to document the basic information for your business model. These worksheets will guide you through the questions that will uncover the often missed components and help you understand and build a basic business model. While it may sometimes seem tedious, I encourage you to take the time to do the pre-work required to fully understand the strengths and weaknesses of your current or proposed business.

This book is divided into five parts:
1 - Getting Started - introduces the concept of a business model and how get the most benefit from the effort.
2 - Core Business - describes the characteristics of six elements that comprise the Core Business and explains the relationships between those elements.
3 - Operational Support - describes the characteristics of the four elements that comprise the Operational Support.
4 - The Business Plan - describes how to assemble a Business Plan from the data developed to design the Business Model.
5 - Appendices - contain blank copies of the worksheets required to design and document the Business Model.