Verve! Management Consulting

I want to know that they have an intimate understandingof what the customer's budget looks like. What their buying process looks like. Markets don't buy, people do."

Before you get tempted to project your company's future size on a quote from some industry analyst, remember that companies are founded to create wealth, not simply relocate it from one player to another. If your company is going to be different than all the rest, you have to describe, in detail, what your market looks like, how fast its growing and why you can serve it better than anyone else.

6. Job
Once you've gained an intimate understanding of your target market you'll need to segment it into target customer segments. Doing so is a critical success factor for every company. But many companies approach market segmentation the wrong way. They divide their target market according to age, company size, revenues or any other arbitrary characteristic, and in the process forget that behind every market is a buyer with a job that needs to get done; a buyer with a problem that needs solving. The key to getting segmentation right isn't to focus on characteristics external to the customer (how big is her company, how old she is, where was she born), but on internal ones (what is she trying to get done that she can't because it's taking her too much time/money/effort)?

"When we define our business as helping a customer get a job done, one that he is already struggling to get done and has no satisfactory means of doing it" says Harvard professor Clayton Christensen, "the probability that product will contact with the customer is very high."

7. Buyer
We all have a pretty good idea of what keeps our key customers up at night. Or so we'd like to think. Truth is, when I ask most executives whether they know what the top three challenges their customers are facing, they always answer with a confident 'yes'. But when I ask them to list these out, they usually can't. But understanding what a day in the life of our customers looks like is critical to ensuring we provide them with what they need and, more importantly, that when their needs change, so will our offerings. The best way to find what your customers are losing sleep over is, well, to ask them. You'll find that there's nothing people like to talk about more than their own problems.

8. Budget
Ever heard this line: "I'd love to buy your product, but I don't have the budget for it." If you did, then you know that finding a buyer with a problem you can solve doesn't guarantee success. If the buyer doesn't have the budget, or can't be convinced of finding one to purchase your offering, then you could spend months chasing the wrong target.

How can you find out what your buyer's budget is? There are a number of ways to do this. You could talk to an industry analyst, or someone who used to work in the industry. You could contact industry associations who regularly conduct market research. But often the best approach is to go directly to the source and ask your buyer whether your product's price falls within their budget range or not. The key point is that without knowing if a certain buyer can afford (or wants to afford) what you're selling, you could waste valuable time and money finding out that you're barking up the wrong tree.

Now lets put the pieces of the puzzle together and see the relationships between the eight components we described:

internal and external factors

Using this chart we can see that matching up the technology and the market reveals what the market opportunity is. Remember - don't be tempted into adopting a market that isn't yours. Just because you've developed a new device to peel garlic doesn't mean that you'll own 5% of the home appliance market.

The relationship between the product and the job it is enabling is called the value proposition. It's the description of how your product can do the job that needs to be done or solve the problem that needs to be solved better than anyone else. A winning value proposition will always revolve around one or more of these benefits:

- The product/service will help the customer make more money
- The product/service will help the customer cut costs
- The product/service will save the customer time
- The product/service will help the customer improve relationships (with their customers, employees or business partners)

Connecting your company and the buyer is the distribution strategy. How will your product reach your customers? Will they step into your own store or will they buy your product in someone else's? Will you deliver your service directly, or will you franchise it to other people? For some companies, such as Dell or Wal-Mart, distribution plays a key part in their success. For others, distribution is less of a factor. But no business model is complete without it.

Building a financial model is an activity most entrepreneurs will gladly swap for a root canal. But starting a business without going through some sort of financial modeling is akin to driving blindfold: sure, you might make it to your destination, but you have no idea at what cost.

A basic financial model will match your pricing strategy (which price to which customers) with your sales strategy and leave you with revenues, cost of sales and, hopefully, a profit projection. While it's almost guaranteed that your actual figures will vary from those projected, what you'll now have at your disposal is a way to measure whether your business is on track or not.

The business model won't guarantee your business's success. A lot of other things have to be in place for that to happen (luck, discipline and a patient partner are just a few). But without using some sort of model, chances are your business will join the 95% that never make it.