The Definitive Guide to Business Plan & Business Patterns
The entire universe is built on patterns
So does businesses and startups,
In fact, business plan, and business patterns play a big role in
differentiating market leaders from
Other types of business, and help them grow their brand.
Aren’t you wondering
what kind of startup business plan or what patterns
do successful entrepreneurs follow that helps them
turn their business ideas to a great business?
It was like a mystery to me right before I found this…
Table of Contents.
What Is A Business Plan?
What’s Business Model?
What Is Business Pattern?
Multi Sided Platform Business Model
Google’s Value Propositions
Long Tail Business Model
UnBundling Business Model
Free Business Model, aka Freemium
Open Business Model
The secret behind a successful startup is
to follow a proven growth hacking strategy
and concentrate on four important elements:
- Develop a lean business model (You can get help from business model Canvas)
- Follow the right business model pattern, also known as Business Strategy, tat enables you to innovate, and add value to the market.
- Invest time an effort in market intelligence, and conducting comprehensive market research about your rival, your customers, and your own brand.
- Only implement the right Growth Hacking Strategy that matches your business pattern, and help you get more customers.
In This article,
We focus on business plan, and business patterns,
an I will take your hand and walk you through every single steps to help you learn:
- What type of business plan should you develop?
- What business pattern or business strategies works for your business?
What is a business plan?
Let me start with a very basic definition,
and then later on, I’ll share with you a few more comprehensive ones.
A business plan is your business idea and how you plan to become a great entrepreneur
broken down in a bit of details so hat everyone understands it, preferably on a piece of paper, or in a word document.
The point is that it does not have to die in your mind, you got to pen it down.
Your Business plan, is all about how you want to get to the business that you’ve dreamed about.
A business plan is not for MBA students, or early stage startups.
In fact, whatever business you have in mind is going to need a business plan
Because you need to know how it works.
Traditional business plans were very lengthy,
but you can focus on developing a lean business model
and remove the unnecessary fields,
and write it on a piece of paper, or so
that you list down your key milestones,
Business expenses, and revenue streams,
partners, and resources,
Expenses, and costs,
and key activities, and responsibilities to grow your business.
The trick is that your business plan is not set on stone,
and has to be flexible, and lean.
It as been proven in many cases, that what you plan now
will most probably change in a course of time,
So, make sure not to marry to your business idea, and initial business plan.
But Business Plan is not everything,
You need to know the difference between, business plan, business model, and business pattern.
What’s Business Model?
There are dozens of academic explanation of what is a business mode
And what is not,
But the best way to understand a business model
and it’s components is to refer to The New, New Thing
By Michael Lewis.
Here is how he describes it: “All it really meant was how you planned to make money”.
Let me give you an example,
When Microsoft wanted to capture the market,
Their business model was to sell software for $120
That cost fifty cents. So that way, they make enough money
to pay the sales people, producer, and keep the lights on, and earn profit.
Well, that was a simplified version of a business model and there are, indeed, a lot more into it.
In reality, your business model is a set of assumptions about
what your business will and won’t do.
The main reason that I call it theory is that what you think might work for your business,
Or the way you want to grow your business,
May change over time,
So, you need to test your business ideas, and see how viable they are.
two essential components of business model:
A business model, has two essential components
- The first part is all about making your product
or turning your business idea to a tangible sell-able solution.
That include activities like designing it,
purchasing the raw materials,
engineering, coding, outsourcing, and building it.
- The second component of your business model
is all about finding the best way to sell it.
That includes activities such as customer discovery,
reaching out to potential customers,
Pricing, and delivery of your product
Or rendering your service.
Thanks to business model canvas,
You can craft a lean business model on a piece of paper,
and in no time. [I have already explained everything about business model canvas here]
What is business model pattern?
aka Business Strategy?
before we get to the details of business pattern, watch this video.
Here is a simplified definition of business pattern:
“When you work on your business model canvas and it’s 9 building blocks,
you may find similar behaviors or arrangement of building blocks in different businesses models.
These similarities are called business model patterns.”
Well if that’s too academic for you let me explain it with different terms
as understanding business strategy or business model pattern is very easy.
When you observe different types of businesses,
You can easily see that they all follow different patterns to sell their products.
One business may offer exclusive products.
Another one may do the opposite and offer low price services,
A business may distribute its product directly, and sell it through website
While another type of business leverages on channel partnership, and sales force.
Some businesses do copy cat, and some innovate.
A group of businesses may do everything in-house, and another group may outsource lots of their work.
These are different types of patterns that businesses use. they are also known as different business strategies.
There are plenty of business patterns or business strategy that you can implement in your business
But you have to make sure that you are using the right pattern that enable you to scale easier.
If you have difficulty coming up with new business patterns,
this list should be very helpful.
In this article I’ll walk you through five different business strategies,
and business model patterns that you can use to implement in your start-up or business.
I’ll also provide you with real business plan examples
and support you to develop your business plan,
and define the right business pattern that help you grow your business 10x faster.
The first business pattern has more than 1 side.
That’s why it’s called
Multi sided Platform business model
Multi-sided business strategy is designed for
Businesses that serve minimum two customer segments,
through one platform.
Normally online businesses, that focus on B2C and in a few cases B2B segments
tend to use multi sided business model pattern
to attract visitors with one stunning offer,
and engage them with their platform,
while they target the other segments to pump in money,
and invest in the platform to use their database, and reach out to customers
How does Multi-Sided Platform business plan work?
The main characteristic of Multi-sided platforms business plan,
known as multi-sided markets,
is having two or more distinct but interdependent groups of customers.
In fact, this business plan ties the customers segment together,
so the platform is valuable to one customer segment ONLY IF
the other groups of customer segment is actively involved.
The value that multi-sided business models bring to the table
is through attracting more users and
facilitating interactions between different customer segments,
also known as network effect,
otherwise there will be no business.
There are plenty of examples,
but two good examples are Facebook and Master Card.
The main questions that you, as an entrepreneur, or marketer,
should ask yourself about multi-sided business plan are:
- How big is our target market (for both sides of the platform)
- Do we want to target Mobile users, or desktop users?
- Can we attract sufficient numbers of customers for each side of the platform?
- Which side is more price sensitive?
- Can that side be enticed by a subsidized offer?
- Will the other side of the platform generate sufficient revenues to cover the subsidies?
- What are the core services that we offer on platform, and generate revenue?
- What add-value services should we include in the platform, that do not generate revenue
- How should we monetize the platform?
Let me share a great example of multi sided platform with you that you use on a daily basis.
Google is a multi sided platform.
When you look at google’s portfolio
and the number of services it provides,
i.e. Gmail, Google Docs, Google Search, AdSense, AdWords, Google Plus, Startup Incubators, etc.
You can see an inevitable element that’s included in every single product
and that element generates huge portion of Google’s revenue; Advertisement.
Their platform is free for everyone,
but if you want to use their platform to reach out to free users, you need to pay for it.
Although most of Google’s revenue comes from advertisement,
they have raised the bar to a totally different level
and made it difficult for smaller advertisement platforms
can not compete with them.
In fact, they main factor that differentiates google’s business pattern
from other advertisement channels , apart from its size,
is obviously the intelligence and insights that google leverages on.
Let’s have a look at google’s unique selling point.
Google’s Value propositions:
Since google have access to all user’s data, move, searches, and online behaviors,
We can easily say that Google’s business model is empowered by its Value Propositions.
Google’s business model is based on
providing extremely targeted text advertising in the digital space.
Google has leveraged on this quote from Winston S. Churchill:
“We make a living by what we get. We make a life by what we give.”
The general rule f thumb for every business is that
you need to have a unique value proposition for every single customer segment,
and never generalize everything.
That’s why Google has several value propositions for different user segment.
Let’s examine the further.
Google’s Value Proposition for Webmasters.
One of the most important elements that help business grow,
and get more customers is how visible they are in the eye of search engines.
In fact, when it comes to Search Engine Optimization,
online businesses try different ways to increase their ranking, but the first thing they do
is to register their website, and submit their business in google’s database.
Since this service is free, almost every webmaster is using free submission,
and eve reporting services from google to track its ranking in google.
Since google has a huge database of webmasters,
They came up with a unique value proposition that targets webmasters.
The first Group that google targets is website owners, known as webmasters.
The main benefit that google gets from is
the ability to expand its reach beyond its platform,
And show advertisement across the internet,
But still manages every transaction, reporting,
and advertisement serving mechanism from its platform.
Google’s value Proposition to them is that
we enable you to make money by monetizing your contents.
Google enabled bloggers, content publishers, and journals
to earn money through its AdSense service,
where you, as a content publisher, can place google Ads on your website
and show them your visitors.
In return, google will share with you a percentage of revenue
made from user engagement with ads on your website.
google’s business model is not limited to showing ads
on its pages such as search engine, Gmail, etc.
Now, if you use business model canvas template,
and place value propositions, and customer segments,
It will all look like this.
Google’s Value Proposition for Advertisers.
There is a second target group that google pitches with a different value proposition
and that’s Advertisers.
Google’s business model and its value proposition to advertisers
depends heavily on the number of visitors it can attract.
Since Google’s considered to be the most visited search engine,
achieving good results is inevitable;
In fact, it’s something that Bing and Yahoo have been struggling with.
On the other hand,
Google’s AdWords service encourages businesses and individuals
to promote their service using google Ads.
Advertisers get a chance to optimize their online advertisement campaign
and search for related keywords and demographic target
that increase the chance of user engagement.
On the other hand, Google’s ensures advertisers
that their investments are safe as it only displays their Ads
when users search for their target keywords.
Finally, Google Ads are shown to users who use
any of its services as well as it’s network of content publishers
who earn from AdSense service.
Google’s Revenue stream.
Google business model is definitely a multi-sided platform that has a noticeable revenue model.
Google’s business model is about making money from 1 segment “Advertisers”.
It’s obvious that the more Ads it displays to Web surfers,
the more revenue google generates from advertisers.
Another Differentiation factor that put google in a good position
is the fact that Advertisers can not buy advertising space from Google
and they have to go through a bidding process set by AdWords.
While advertisers optimize their ads based on
demographic, and other factors,
AdWords looks into the popularity of the keywords ,
broadness or narrowness of the target audience
and propose a biding price.
The rule is simple: The more popular a keyword, the more the advertiser has to pay for it.
On the contrary,
google subsidizes free offers to another two segments: “Web surfers and content owners, also known as webmasters“.
Indeed, google’s revenue from AdWords allows them to continuously improve their free offerings
to search engine and AdSense users
which motivates even more content owners to become Google AdSense partners.
The main reason that I used Google’s example is to show you the type of opportunities
that a multi sided platform business pattern brings to the table.
You have to look at your business model and see if this is the right business pattern for your business
or you need to choose a different business pattern.
Long Tail business model
Is Long Tail business model suitable for you startup business plan?
Have you heard about selling less of more?
That expression comes from long tail business models
where the main focus of the business is on producing large number of niche products,
each of which sells infrequently.
When it come to sales and revenue,
the aggregation of sale from each niche items is producing a great deal of profit.
If your business, or start-up fall under Long Tail business model pattern category
you need to get the following factors under control.
- Since your production volume is high, you must be able to decrease inventory costs
- To increase revenue, you need to have a strong platform that delivers niche items to potential buyers.
You can easily use Pareto analysis to monitor your progress.
In fact it is a common practice in businesses with long tail business model
because the top 20% of products can generate most of the revenue if they are sold in high volumes,
where the remaining 80% of products contribute less to the total revenue.
If you’re wondering whether you should implement long tail pattern in your business,
your business matches the following criteria.
- Either your Value Proposition is about offering
plenty of not popular products with less hit
that co-exist with popular products who generate high revenue.
- Or your business strategy is
to facilitate and build your business based on user-generated content.
Let me give you an example of long tail business plan:
In traditional business plans of publishing industry,
majority of hard-working authors who had spent days and nights crafting their masterpiece
have had to go through series of strict reviews by publishers.
Obviously, only those manuscripts that were promising a great revenue
or at least meeting the break even point had a fair chance to get published.
How Long tail business model transformed publishing industry?
With traditional monopoly that publishers had created,
the publishers were mostly interested in quantity of sales
and pieces of works that can be sold to large groups
So, if you were not offering such a content,
you would have been out of the equation.
Today, companies with innovative business models like Lulu
started to incorporate long tail business model in their business strategy
but they have chosen to leverage on user contents, and engaging with authors.
Although Lulu’s business model was implemented while ago,
I found it very interesting when I first used it in late 2009.
In fact, I was amazed by the fact that they have turned around
the entire selective process of publishing industry
by introducing a “Market Worthy” concept.
The beauty of business patterns is that you can have different business patterns for each business model.
Although lulu.com uses long tail business pattern, It also uses the multi-sided platform
to connect authors and readers and promote its products.
By giving anyone a chance to bring their work
and get published
they managed to address the barriers of traditional publishing business models.
Unbundling Business Model
let’s take a close look at the third business model pattern:
The “Unbundling Business Model.”
You may consider using unbundling business pattern in your business if
your business have these three different characteristics:
- Customer Relationship businesses: This is where you are searching and finding customers and trying to either build relationship or strengthen your current customer relationship. Most companies do have this first criteria, but the devil is in the details.
- Product innovation businesses: The role of this division is
to design and develop new and attractive products or services
to differentiate your offering from others.
This is where innovative business models come to the picture,
and copycat business models are out of the equation.
- Infrastructure businesses: This part is responsible for building
and managing platforms for high volume and recurring tasks.
How to write your business plan based on Unbundling Business Pattern?
If you meet the above criteria
You need to examine a few other factors before using unbundling business model pattern.
By the way, your business can easily have single or multiple business entities.
Because unbundled business patterns have their own economic, competitive, and cultural imperatives,
they are mostly implemented in different entities of a company to prevent conflicts.
As i mentioned earlier, unbundling business patterns should have 3 essential characteristics.
To analyse your business and decide if unbundling business mode is the right business strategy,
at first you need to look at your core businesses from 3 angels:
- And Cultural perspective.
Let me break it down for you:
If your focus on Customer Relationship Management:
- From Economic Perspective, the main focus should be on economies of scope
due to the high cost of customer acquisition.
Economy of scope is about producing variety of products rather than 1 single product.
- From Cultural perspective, unlike product innovation,
since this market is captured by a few big players
the challenge is more on scope and rapid consolidation.
- From Competition View, due to the nature of this pattern
as it is very service oriented,
the internal team is not the highest priority
because the “customer is king” would be the mentality.
If your core business is around Product Innovation:
From Economic Perspective, If you are innovating a new service or product,
you can Charge Premium fees
and capture the market but you need to make sure that
time is in your control. So your priority would be Speed.
From Cultural perspective, Obviously, you need to have the right talent in your startup or business to succeed,
Since your barriers to enter the market are less than other types of businesses models
your battle in this business pattern is on Talent.
From Competition View, The concentration should be more on employee
as innovation comes from internal resources and you need to embrace a employee-centric corporate culture.
Don’t forget to keep the innovative team motivated.
If your core business relies on Infrastructure Management
From Economic Perspective, you core business and your main focus is on creating economies of scale
by making large volumes and achieving low unit costs.
The more single products you produce and sell, the less your unit cost will be.
From Cultural perspective, since big players have already established their business,
it’d be very similar to customer relationship management business plan
because the battle is all about scope and fast consolidation.
From Competition View, this business plan would be mostly cost focused,
hence automation, Process improvement, standardization
are the most important areas that can add value and increase efficiency.
Free Business Model, aka Freemium
It has been validated by many marketer and economist
that offering anything for FREE has always been an attractive Value Proposition.
In fact, the market demand for offering with price of zero
is much more higher than the demand generated at one cent.
Now the question sis whether freemium business model is
something that helps you grow your business or not?
How can you offer your service for FREE?
The question that comes to entrepreneur’s mind is
“How do we offer for FREE and still run a profitable business?”
Let me take you through three Amazing strategies
and business model patterns that enable you
to offer free products or services and still generate revenue.
These 3 innovative business models have different underlying economics,
but they all share follow one simple rule:
“There has to be at least one Customer Segment that continuously benefits from the free-of-charge offer”
The three startup business model patterns are:
- Advertising-based: which is ablt offering your product for free based on multi-sided platforms that we discussed in this article, and generate revenue from one customer segment.
- Freemium Model: that refers to the concept of offering free basic services and charge for premium services, like upgrade, premium membership, or exclusive content.
- Bait & hook business model: that enables you to offer a product for either free or at cost as your bait (sometimes called as the initial offer) and hook customers to return to your brand and make repetitive purchases
Let’s examine them, one by one.
Advertising-Based: A Multi-Sided Platform business plan
As we have discussed above,
one of the globally recognized companies that relies on advertisement is Google.
You have definitely seen other forms of advertisements on TV, Radio, websites, etc.
because for fact, advertising is an amazing source of revenue that
enables you to to offer free services in your startup business plan.
The platform is designed to offer free service to one customer segment
and attract as many users as possible through free products and services.
On the other hand, the revenue is generated through the other customer segments
that are interested in interacting and advertising to the free users.
Facebook is a great Example
Since one source of revenue for Facebook is advertisement,
their Business Model follows the freemium business model pattern too.
In fact, it’s not just about having huge number of free users
since Facebook, as the largest social network, had reported to have over
200 million active users in 2009 but users were less responsive to advertisements.
about Free-based advertising startup business planning, they would be:
offering the Right Product or service and achieving High traffic.
This way, the multi-sided platform becomes interesting to advertisers
and you would be able to subsidize free products and services for free users.
In regards to the Cost structure,
the main costs relate to developing and maintaining the multi-sided platform,
as well as focusing on search engine optimization strategies, and traffic generation strategies
that help you increase your customer acquisition rate, and lower user retention costs.
On the contrary, if you’re a customer of these type of businesses and want to use their service, you need to be able to handle one big challenge
The challenge that advertisers face on Facebook is the fact that
Social networks like Facebook are designed for people to hangout
and is use for entertainment, not business.
Since it’s kind of “Disruptive marketing”,
your success with advertisement on social networks really depends on nature of business
and the right social network platform that you use for marketing.
Freemium business plan: Get the Basics for Free, Then Pay for More
The freemium model which was popularized by Fred Wilson
has some basic characteristics:
Offer something for free and ask for money if a user is interested in stepping up
You need to have a large user-base that benefits from
your “Absolutely free, no-strings-attached offer”.
The truth is that, probably less than 10% of these users will become your paying customers
through your subscription or premium service.
That’s why you need to do the math and make sure that small percentage shall subsidize the free users.
In a freemium business model, you must concentrate on two main characteristics:
- The average cost of serving a free user
- The rates at which free users convert to premium
You can find plenty of online businesses who provide you a free account
that has constraints or offer you limited functionalities,
and they offer you a “Pro” or “Premium” account with full functionality.
Here is a great example
When the world was commercialized with proprietary software
Open Source has changed the Game.
In ICT industry,
developers love to work with so-called open source software developed voluntarily
by thousands of software engineers around the world
and because the core concept of the platform is free,
you may hear that open source is free.
As I always said, the devil is in the details.
Since IT is a great driver for businesses,
using a free service that comes with no guarantee concerns business owners,
but customers felt insecure because no one takes responsibility on the open source.
That’s the trick, because
it’s not completely free as Open source uses the Freemium business pattern, with a bit of twist!
Traditionally, IT companies offered their services through
selling license for every release of their product.
That helped them cover the huge cost of in-house developers
to develop the products.
Red Hat, a famous Open source U.S. based company decided to
leverage on open source and built it’s Linux products on it.
Red Hat, however, used the freemium business model and
addressed the feeling of insecurity among companies
by offering robust, licensing-fee-free, tested, service-ready versions of Linux.
What’s the Twist?
- Firstly, Red Hat decreases their cost of production
because their software kernel is continuously improved by
the open source community free of charge.
- The company then sells subscriptions to generate revenue.
Interestingly, companies are willing to pay an annual fee
to get continuous access to the latest Red Hat release,
unlimited service support,
and Red Hat, is ultimately offering the feeling of security by working with the legal owner of the product and keeping it checked.
Bait & Hook Strategy:
Majority of companies that offer subscription,
or generate recurring revenue,
Can enjoy the power of the
Bait and Hook business strategy.
The philosophy behind Bait and Hook strategy is this:
Offer an initial cheap offer that leads to follow-up sales.
The Bait & hook pattern can complement your lead magnet.
Since your lead magnet is a free offer to get your customer’s information,
Your Bait can be a cheap offer, let’s say less than $20
that changes your relationship with your customers,
and turn them to a loyal paying customer.
You have definitely seen the bait & hook business plan
as it is one of the most popular business models practiced everywhere in the world.
A great example of bait & hook startup business plan is
Inkjet Printers produced by companies like HP, Canon, and Epson.
The printers are sold in a very cheap price,
And the catch is that as soon as you use your printer
And print a few pages,
You will be out of in
you have to return to the same brand
and buy the ink containers again and again.
Initially you may think that the printers generate revenue for the company,
But using the bait and hook strategy, they managed to guarantee a healthy and recurring revenue.
The secret behind Hook & Bait Business Model:
If you intend to use
the Bait & Hook business model pattern
You must ensure a tight link between the initial offering
and the follow-up products or services.
You must also not offer your bat for free, the bait exist to connect your leads to your brand, and change the free relationship to a professional customer-service provider relationship.
Bait & hook patterns usually work for strong brands, and small companies
but the effort should be put on delivery of revenue generation products: the follow-up products or services.
Open Business Model
This is the exact quote from business model generation book:
“open business models can be used by companies to create and
capture value by systematically collaborating with outside partners.
This may happen from the “outside-in” by exploiting external ideas within the firm,
or from the “inside-out” by providing external parties with ideas or assets lying idle within the firm.”
In other words, it’s all about opening to outside market.
Open innovation business model implies that
when you make your products, technologies, knowledge, and IPs available to the outsiders,
you can monetize them through different ways including JV (Joint ventures), licensing, etc.
There will be 2 amazing approach in open business models.
“Outside-in” innovation happens when we allow external ideas,
technology, process, etc to enter our business or startup.
You don’t have to create all ideas in the market,
instead, your startup business plan helps you win
if you make the best use of internal and external ideas.
Outside-in open business model suits online businesses that have strong distribution channels
& customer relationships along with Amazing Brands.
You can easily partner with companies from other industries
and use their knowledge, patents, or ready-made products for internal R&D.
Another benefit that you get from open business pattern is
that you can easily shorten the time-to-market,
save cost and increase productivity of your internal R&D
by building on top of externally-created knowledge and advanced research programs.
“Inside-out” innovation is the opposite side
where startups or companies license or sell
their (IP) intellectual property or technologies,
and in many cases unused assets.
Inside out companies have plenty of underutilized assets
such as Knowledge or technology.
Companies that own R&D results that are not very useful to them
can monetize their assets by sharing it with others in the same or other industries.
as all these asses are either under utilized or idle.
Selling licenses to other companies in exchange for using their knowledge
is an amazing revenue stream for inside out business model candidates.
There are obviously different types of business patterns that you may use for your business.
The secret behind successful businesses is that they implement the right business strategy,
and keep the company as lean as possible,
This way you may learn from the market, and easily adapt or adopt new strategies.
Here is what to do Next:
Download the business Strategy Checklist:
I’ve put together a checklist and the pdf version of this guide that quickly helps you design your business pattern.
Please also do comment below and share your business strategy with me, and others.
I’d love to hear from you and know what kind of business patterns do you use for your business
Let’s discuss about any tips that I might have missed in this article
and feel free to add it in the comment if you know any other business pattern that works for you.