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How to test the strength of your business model

Ryan Amin

Entrepreneur and business model innovator Alexander Osterwalder led a business model discussion at a Life Science Ventures Summit hosted by the Kauffman Foundation (0:08:50-0:27:55).

"What's important to understand is it is all about creating clarity," said Osterwalder. "It isn't about the technology you have, but which customers you are targeting, how are you reaching them, how are you earning money, and what do you need in the front stage. If you can't sketch that out in your business model, investors won't understand, employees won't understand and maybe you won't understand."

Osterwalder gave these seven tips to assess the strength of business models and gave past company examples for each one:

Switching costs - How easy or difficult is it for your customer to change?

Recurring revenues - How evenly distributed are your revenues through the year?

Earn before you pay - Are you earning money before you are spending it?

Game changing cost structure - Is your cost structure substantially different and better than those of competitors?

Getting others to do the work - How much does your business model get customers or third parties to create value for you?

Scalability - How rapidly and how easily can you grow your business model without hitting roadblocks (e.g. infrastructure, customer support, etc.)?

Protection from competition - How much is your business model protecting you from competition?

After comparing these questions to your business model, Osterwalder stated that the final true test is through the customer and the market.

Weekly Wisdom from Kauffman is a regular feature on eMed highlighting helpful advice from the Kauffman Foundation.

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