Duamentes Experts share the key principles and effective approaches on how to develop a business model that attracts investments and supports strategic planning.
In the new era where previous growth strategies are no longer effective, startups need to constantly evaluate business and product metrics, and crafting business models becomes the most important and most challenging task.
“Investors have become more conservative, prioritizing concrete, promising business metrics demonstrating potential for growth and profitability before making commitments. The new journey to Series A is now based on the shift, where startups need to show business model at the pre-seed stage and scalability at the seed stage,” states Ksenia Sternina, Managing Partner at Duamentes.
A valid business model is a must have for startups seeking to secure rounds of investment or make informed decisions and manage teams effectively. Without a business model, securing investments is only possible from FFF (Friends, Family, and Fools) perspective as our experience shows.
Besides the fact that a business model provides necessary data for investors about the project, a business model also shows where the team expects the company to be in 1, 3 and 5 years, has a roadmap for strategic decision-making, and manages teams effectively. It also ensures that employees have clear goals and KPIs they need to achieve. That gives business leaders a platform to plan and forecast effectively for sustainable growth.
Duamentes experts share 4 main principles in developing a valid business model:
The First principle is flexibility that includes both adaptability and scalability. The business model should easily accommodate changes in both external factors and internal ones. This includes the ability to modify parameters without significant effort. Besides, the model should effortlessly scale with changes in data volume or when moving to more complex calculations.
Secondly, when it comes to relevance, there should be alignment with business goals, whether it involves forecasting, analysis, or decision-making. The model should consider all unique aspects and nuances specific to the business.
Thirdly, speaking about structure, there should be a clear framework, making it easy to understand and utilize. And last but not least, the model should be transparent and understandable for all users, data and calculations should be clear and free from hidden or complex structures.
Each model needs to be adapted according to business specifics, as it is not a one-size-fits-all template, and it must be customized since each startup is unique, often disrupting existing markets or creating entirely new ones.
Duamentes Partner Fil Rouge Capital and its expert, Ales Pustovrh, shares: “A key factor in building a valid business model is talking to your customers.”
Segmentation is a critical part with detailed customer personas representing the ideal customers, outlining their background, goals, challenges, and how the product can meet their needs. Customer Research is important to gather quantitative data on customer preferences and behaviors via one-on-one interviews or focus groups.
Duamentes states it is necessary to engage with customers in real environments, to observe customers in their natural environments using similar products to understand context and identify usability issues. Experts recomend launching a beta version of the product to early adopters and gather their feedback on the experience.
These steps will get the company to the patterns and trends in the data collected, common pain points and preferences among different segments. and it should be actionable insights for the team, such as feature priorities and pricing strategies. We recommend using iterative feedback to continuously refine the product and business model based on real customer insights.
Steps to Creating a Business Model
Creating a business model involves several stages, and there can be a need to explore various strategies to find the optimal one:
- Gather primary data and conduct interviews with founders to understand their vision for the product and business.
- Draft the Initial Model with relevant data, presented in spreadsheets and create an initial version of the business model.
- Review the first business model and forecast to identify areas that need improvement, such as revenue shortfalls or pricing adjustments.
- Calculate several development scenarios
- Adapt the model to the market conditions
This iterative process should continue, with the business model evolving and adapting as real data comes in from initial sales. Thus, it should be flexible, this is the basic principle of building the right financial models according to international standards.
Investor Focus
Duamentes and Fil Rouge Capital state Investors are currently expecting substantial returns, with a minimum of 10X and ideally seeking 100X with a clear understanding of when they can expect these returns. Therefore, it is important to build a comprehensive business plan and model that aligns with these expectations.
“Without demonstrating this potential, investors are not interested in ideas or proofs of concept. They require extensive documentation to ensure expertise and foresight in the business strategy,” states Ales Pustovrh, Partner at Fil Rouge Capital.
The importance of realistic growth projections and consistent revenue streams becoming a main point for investors, who scrutinize for mistakes, such as unrealistic staffing or sales forecasts, and prefer models that include subscription-based revenue.
Ksenia Sternina, Managing Partner at Duamentes, states, “A realistic customer acquisition strategy is essential, with a clear understanding of the total market and achievable percentage targets. For niche B2B markets, for example, it is required to have a realistic view of potential customers and market penetration rates, aiming for believable and achievable goals.”
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