How to Prove a Viable Business Model

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  • 0:03 A Fresh Idea
  • 0:57 Is This a Profitable…
  • 1:49 Business Model 2.0
  • 4:39 And the Rest Is History
  • 4:59 Lesson Summary
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Lesson Transcript
Instructor: Scott Tuning

Scott has been a faculty member in higher education for over 10 years. He holds an MBA in Management, an MA in counseling, and an M.Div. in Academic Biblical Studies.

Starting a business requires much planning and evaluating, and sometimes many adjustments to your business model. This lesson explores techniques that new entrepreneurs can use to prove that their business models are viable.

A Fresh Idea

As he did every Tuesday night, Thomas pulled his recycle and trash out to the curb for pickup the next morning. A few days ago, his retired neighbor had called him and asked for some help in taking out the trash because of a recent injury. When Thomas obliged, he noticed his neighbor's trashcan was overflowing, but his recycle bin had nothing inside of it at all.

Thomas tried not to be irritated, but he and about six others had lobbied hard to keep the recycle program even though it was not utilized nearly as much as it should be. When Thomas asked his neighbor about his non-use of the recycle bin, the answer surprised him. It's too hard, his neighbor said. I can never remember what I'm supposed to put in there and what I'm not. As Thomas pondered that for a second, an idea materialized from nowhere. Why not open a business that focused on educating corporations, civic groups, and schools about recycling?

Is This a Profitable Business?

A few days after his initial idea, Thomas took his business model canvas and started to sketch out what he saw in his mind. His ideal organization was a business, school, or civic group that would pay a fee for a training course (provided by Thomas) that would teach the basics of recycling. He envisioned these classes being taught on-site using multimedia resources, such as a computer, printer, or projector. Thomas decided he would name his company Everyone Wins with Green.

The initial approach Thomas took to testing his model was appropriate. Consistent with best practices, Thomas approached a few hand-picked customers and pitched his business. Six weeks in, Thomas still had not landed a single customer. Discouraged, but still determined to forge ahead, Thomas went back to his business model canvas and pivoted. To pivot, Thomas had to revise his model using the feedback from his unsuccessful pitches.

Business Model 2.0

Thomas began thinking carefully about whether his business model was viable at all. One day, over lunch with a friend, Thomas was encouraged to go talk with an organization that could help him develop and improve his business model.

SCORE is an organization that helps start-ups by pairing them with highly experienced mentors. Most of SCORE's resources are free, including face-to-face mentoring and online education. After visiting SCORE, Thomas's mentor gave him some specific elements that would prove his business model was viable. He also encouraged Thomas that the feedback from the customers who did not buy was a priceless asset. Thomas walked away from the meeting with specific ideas on how to use that customer feedback to create a better, more viable model.

Customer Development

The customer development model has four distinct domains:

1. Customer Discovery: In the first stage of customer discovery, he discovered his customers when he chose the people he would approach to pitch the business.

2. Customer Validation: When he received an inadequate level of interest from potential customers, Thomas was in the customer validation stage - a stage he did not successfully pass at this juncture. Because Thomas was not able to successfully validate his model with real customers, he was required to pivot and try again. Thomas's pivot required him to revise his business model canvas, re-discover his customers, and validate his business model again.

This is the moment of truth for Thomas and other would-be entrepreneurs like him, and many aspiring start-ups simply fold at this stage. During his pivot, Thomas had to be ready to abandon any or all his assumptions and replace them with new innovations. As we will soon see, for Thomas, the difference between success and failure was being able to retool and move forward.

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