Over the last few years, we have been witnessing a lot of buzz around entrepreneurship in India.
As the ecosystem continues to grow, I also feel there are a lot of misconceptions leading to people blindly taking a dip into building a ‘startup’. Entrepreneurship is NOT equivalent to building a startup. It is much more than that; a startup is just a subset of entrepreneurship.
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Launching a new business and a startup are two different things.
According to serial entrepreneur and Silicon Valley legend Steve Blank, a startup is a temporary organisation designed to search for a repeatable and scalable business model.
Having clarity on the business model is very important, although it is often confused with revenue model. Let’s get the definition of business model clear to understand why every new business is not a startup.
Business model definition:
A business model may be defined as "a plan for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and details of financing."
For a startup, the business model is not always clearly defined. In the startup phase, the entrepreneur and his/her team are trying to define a business model that can create a business that can be scaled to form a large company. During this process, the team goes through various stages, often pivoting from their initial approach to align their business model based on their learning and inferences gained during this process.
Revenue model definition:
The revenue model is one of the important components of the business model. It is a framework for generating revenues. It identifies which revenue source to pursue, what value to offer, how to price the value, and who pays for the value.
The most popular template for developing a new business model or documenting an existing one is the Business Model Canvas proposed by Alexander Osterwalder. It is a visual chart with elements describing a firm or product's value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.
Not all businesses have to go through this phase of being ‘startups’. They can simply launch as new businesses with clearly defined business models that have adopted existing business models.
Let us take examples of a few popular revenue models:
Freemium model: Offering basic services for free and charging for premium services, this is very popular among SaaS startups. Eg: Slack, Hootsuite, MailChimp.
Razorblade model: In this model, the basic unit is sold at cost or sometimes below cost for revenues from supplies. Another example apart from the razorblades would be printers with expensive inks, different diagnostic testing kits, etc.
Ad revenue: This is a very popular revenue model for many internet offerings including Facebook. The services are offered to users for free and gather a critical mass to monetise via advertising.
These are a few examples of revenue models; you can have a single revenue model or more than one revenue model.
For more examples on revenue models used by web and mobile companies, read:
Launching a new business adopting a proven business model is always more risk- averse than building a startup. Being an entrepreneur running your own venture from scratch is a great learning experience. It takes you through a lot of learning often leading to a lot of personal growth. Not all of us have innovative ideas that could be product innovations or process innovations. Most innovative businesses that we define as success stories are not started with the business model they scale with. The team often goes pivoting from their initial approach to set a business model.
It is perfectly fine to simply launch a new business with a proven business model and spend our time and effort in scaling it. In this approach, you have a greater chance of succeeding. You have a lot of examples to study, you can approach a lot of people who are successfully scaling their businesses, and can set a clear focus on the fundamentals of the business. There is no assurance of 100 percent success in any business, but in such cases the chances of your success are very high if you are persevere, stick to the fundamentals, and steadily grow your business.
In fact, I would suggest that you do not launch a business if you cannot commit the next three years to it, do not have a big vision, or before you clearly define goals and break them into smaller milestones with specific timelines and a promise to devote enough work hours towards building it.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)