Why Good Products Don't Equal Success
Budding entrepreneur Andrew Strube had a stinky problem, so he wrote to us about it:
"What do you do when you're an accidental entrepreneur and your idea is worth so much that several multimillion-dollar corporations jumped in and start designing around your concept before you ever have a chance to follow a business model? This has happened to me recently... I accidentally moved into a house that was inundated with stink bugs in 2009. After not being able to find a solution to stop the problem , I invented one... I am credited for inventing the world's first indoor stink buglight trap (www.stinkbugtrapsonline.com). [After some positive media attention], orders started pouring in from around the country for our stink bug traps. In two months we took in almost $100,000 in sales [but sales have been flat ever since].
If I had to pinpoint the biggest problem it would have to be that I did not have any time at all to plan a business model...It would be nice to find someone to help me build the business...I have tried to pitch to some of the biggest companies but I think maybe our financial status has held us back from any big deals."
Strube's problem is a classic one that stymies many first-time entrepreneurs. They have a good product and solid customer demand from a proven market. Strube says he has a better product, which is patented, and his market is large. But corporate competitors are taking all the market share with what he feels is an inferior product, and this makes him mad.
Instead of getting mad, Strube should get even. All CEOs who seek to build a growing business need to ensure that they have a solid, logical business model, one that an investor or a corporation would want to invest in or partner with. As a lone entrepreneur, you have limited ability to compete, so you need to build the components of a business model that will make your product a success.
Alex Osterwalder identifies nine elements of a successful business model:
1. Customer Segments
For whom are we creating value?
2. Customer Relationships
What type of relationships do we need?
Through which channels do our customers want to be reached?
4. Value Propositions
What value do we deliver to the customer?
5. Key Activities
What activities does our value proposition require?
6. Key Resources
What resources does our value proposition require?
7. Key Partners
Who are our key partners?
8. Revenue Streams
What value are we adding to customers and what are they willing to pay?
9. Cost Structure
What are the necessary costs in our business model?
Given that Strube has limited resources and a product with the potential to grow quickly, his best bet is probably to find a strategic partner that can build the business model for him. A reputable company in the space that already has manufacturing and distribution partnerships would be ideal. If that's not available, our sense is that he would be best served by partnering with an experienced entrepreneur and/or investor willing to build the business on his behalf.
Do you have a product or a business model? Send us your thoughts and questions at firstname.lastname@example.org.
KARL STARK AND BILL STEWART | Columnist | Co-founders, Avondale
Karl Stark and Bill Stewart are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree.