Crafting our business plan
"Lord Sugar would like you to hand over your business plan."
When the candidates on The Apprentice hand over their business plans for inspection, I suspect most wish they’d done a bit more homework. Future candidates will have the benefit of reading this post first.
For a business to establish and sustain itself, it needs to be able to make and deliver a product that customers want in a viable way. This is the intersection between Desirability (customers want our product), Feasibility (we can build and deliver our product) and Viability (our business is financially sustainable). The business model structure outlined below breaks these factors down into a total of 10 building blocks.
I draw upon the business model framework described in Business Model Generation book by Alex Osterwalder and Yves Pigneur.
A business serves the needs of one or more customer segments. A segment is a group of potential customers which have common needs, behaviours or other attributes. Segments typically are differentiated by distribution channel, relationship, profitability or offer required. Startups should target niche markets - see How to Target a Niche Market.
A business delivers value to customers via communication, sale and distribution channels. Businesses may have their own direct channels, e.g website or shop, and/or indirect ones, e.g. app store, social media and wholesalers. Direct channels allow for greater customer engagement, but are often more complex and costly.
❤️ Customer relationships
Businesses need to define the type of relationship they want with each customer segment. The depth of relationship can range from highly personal to automated, e.g. dedicated assistance, communities, co-creation and self-service. The motivation for the relationship can be customer acquisition, retention or increased sales.
🎁 Value proposition
A value proposition is a bundle of benefits a business offers to its customers to meet a particular need or want. Each customer segment needs a different value proposition. Value propositions may represent a new, innovative offering or variant to those already available from competitors. The value proposition is a combination of: novelty, performance, customisation, price, design, status, risk reduction, accessibility and convenience.
Activities required to develop, offer and deliver the value proposition, plus other business operations, e.g. customer relationship management, problem solving and financial management. The particular activities vary according to the nature of the business. I shared the key activities for an app development business in AppDev Skills Unmasked. For network based businesses, e.g. providing a market for creators and consumers, key activities are driven by Network Effects - Growing Pains.
Assets required to develop, offer and deliver the value proposition, e.g. financial, buildings, computing, equipment and skills/expertise.
Businesses need suppliers and/or partners to operate. These relationships help to optimise operations and provide resources/skills; non-core activities can be outsourced. The third party products I use for app development are detailed in Inside My AppDev Toolbox.
The business needs to generate revenues to survive. Revenue streams will vary according to the business, e.g. asset sales, usage fees, subscriptions, renting, licensing and advertising. Here are some App Monetisation ideas.
Costs result from the company activities, including relationships with partners and suppliers. The nature of the customer value proposition (high or low end) determines the extent to which costs need to be managed.
💷 Profit and cash
Profit is revenues less costs. UK companies are required to pay corporation tax on annual profits. A business often requires upfront investment (money or resources) to cover early operational and product development activities. The amount of runway a business has expresses how much time it has before it runs out of cash. The financial trick is for the business to take off before reaching the end of the runway.
Scarper business plan
Scarper is a grid based game (Tetris meets Candy Crush) that I am developing with my younger daughter.
👫 Customer segments: Smartphone users who like playing games.
🚛 Channels: Apple AppStore and Google Play.
❤️ Customer relationships: Engagement and support via the app and website.
🎁 Value proposition: Free to play. Fun in short bursts of spare time. Kudos for creating grids for others to play. See Designing Free Games post.
🛠 Activities: App development and management.
🧱 Resources: Laptop, web hosting, cloud storage, app developer (my daughter and me).
🤝 Partners: Use of Apple and Google platforms.
➕ Revenues: In-app purchases, e.g. lives, scarper sequences and colour schemes. Revenues are net of the app stores’ 15% charge.
➖ Costs: App developer time (my opportunity cost), Apple Developer subscription, cloud storage, laptop (Mac).
💷 Profit and cash: Only viable as ‘business’ if Scarper has millions of downloads.
Business Model Generation talk by Alex Osterwalder
Value Proposition Design talk by Alex Osterwalder
Testing Business Ideas book by David J Bland and Alex Osterwalder
This post presents a framework for developing a business plan to keep Lord Sugar or your partner happy. Until next Sunday, take a look at the Business Model Canvas video and start to shape up your business plan. I look forward to seeing you on The Apprentice.