How to Start a New Business Using the Lean Startup Method (part 5 – revenue streams)

Launched in tech university entrepreneur programs in California, the Lean Startup Method is expanding to other universities across the United States. After studying the failures of tech startups, the main goal of the Lean Startup Method is to eliminate all time, energy and money spent on creating products or services that nobody wants to buy. This method is intended for startup businesses, but it can also apply to existing businesses that want to grow.

The fifth step, after focusing on a target customer, choosing a value proposition, evaluating channels, and deciding how you will create and maintain relationships with your customers, is to figure out how your company will get paid – where your revenue will come from.

So how will your new company get paid by each of the customer segments you have chosen? What value is the customer segment paying for? Health, wealth, beauty, comfort, business success, status, or happiness? What can they afford to pay? The answer could be different for each one.

Will you sell a product? Will you act like a utility and get paid through a usage fee like an electric company? Will you charge a subscription fee like Verizon or Netflix, or software companies that provide online access to their software and charge a monthly fee? Will you rent something like hotel rooms or cars? Will you be a broker, like a Realtor or eBay or ETrade? Will you build an audience the way newspapers or magazines or Facebook do, then charge advertisers to reach your audience? There are lots of choices.

And what pricing will you use? Fixed pricing? Per-hour or per kilowatt or per user? Freemium? Volume-based? Auction?

If your new business will enter an existing market, how will your product and price compare to what competitors are offering? How will you persuade customers to buy from you? If your new business will create a new market, what kind of product features and pricing will let you build a growing customer base?

When you have answered these questions, and tested your answers by talking to members of your target customer segments, you are ready to look at the key resources your new business will need.

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