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Why you should validate your business model

Posted 6 years ago

When you’re trying to get backing for developing a new idea, you need to provide a practical business model and a realistic business plan. Business models and business plans are not the same thing.

A business model is a blueprint for how you will create and capture value.

It helps you to present the relationships between different aspects of your business operations so you can see what might happen if you introduce change: to add value or reduce costs, attract a different kind of customer, or respond to a threat to your market share.

The model informs the action (business) plan.

Even savvy organisations that use Strategyzer’s Business Model Canvas (and its derivatives) can face challenges when it comes to actually making their models work so the business plan has substance.

Documenting all the ideas about customers, value proposition, supply chain, etc. in a visually helpful way is just the start. It’s the same with other tools like the St Gallen’s 55 Patterns and various software options.

But the canvas is just a hypothesis for how the idea will create and capture value. It’s simply a record of assumptions that need to be tested before they can be acted upon as facts.

Without a robust and rigorous validation process, how will you know the model will work, and what can you do if it doesn’t?

Here’s why you should validate your business model:

  • Structured business model validation activities help you make better-informed decisions about how to generate value from an idea and build the right business plan.
  • You gain incredibly helpful insights about what your market wants and your capacity to deliver it – intel that may not otherwise be revealed by other feedback mechanisms.
  • Making decisions based on facts helps to get new products and services to market faster, with fewer costly misjudgement mistakes.
  • Properly conducted business model validation de-risks the project financially and reputation-wise.

And here are three validation essentials:

1. Check if you’re really ready for the market or investment – the Impact Innovation Technology and Idea Investment Readiness Assessment (TIIRA) is a proven tool for understanding what you need to proceed.

2. Test assumptions to shore up the facts – the technical capability, the willingness of the target market to buy, the real costs of distribution channels, and where the best revenues can be extracted, etc.

3. Engage different stakeholder groups in the process and establish a system for capturing and acting on the feedback.

Impact Innovation Group understands the challenges for enterprises operating in high risk, dynamic markets, and a global economy. We can work with you and your stakeholders to validate your business model so that it generates real value and leads to measurable outcomes. Just call us on + 61 (07) 3041 1128 to start.

– Brian Ruddle, Managing Director

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