Valuation Series #14: Business Model and Building Blocks
Updated: Dec 15, 2022
Your business model, the core of your company, intrinsically determines your valuation.
In this instalment of The Startup Club Valuation Series, we will briefly touch on the business model and it's building components.
Business Model is a simplified representation of its business logic. The emerging business model is to create value for its customers and its brand by looking and managing the following set of building blocks.
• Market Attractiveness of the Business
This essentially determines whether or not a market might be a profitable one for investment. The factors that constitute market attractiveness can be the following: market growth rate, the current market size, the current margins in the market, whether or not prices are increasing or decreasing, how many competitors are in the market and other factors that are specific to the company.
• Value proposition
Your business's value proposition is arguably the most important element of your overall marketing messaging. It's a promise of value to be delivered to your customer, what makes your business unique and why the customer should buy your product.
• Revenue Distribution
How many sales channels do you have, and how do they each contribute to your business is extremely important. You cannot put all your eggs in one basket but you need to diversify and serve the different market needs.
• Sales Performance
Do you already have a track record with customers? Excellent, because showing existing sales and production is key to a successful fundraising.
• Competitive Advantage
More than the value proposition, competitive advantage refers to factors that allow a company to produce goods or services better or more cheaply than its rivals. These factors allow the productive entity to generate more sales or superior margins compared to its market rivals.
• Key resources & Cost Structure
It's not only important to know where your revenues come from, but also where do they go first: paying off your suppliers, workers, marketeers. The cost structure and the profit margin makes or breaks a startup.
• Pitfalls & Risks
Any business is inherently facing multiple risks, and it's especially true for startups that are smaller in size and therefore have a smaller weight to protect themselves. Be careful to consider different risks, from legal to environmental.
• Customer Value
Customer value is the perception of what a product or service is worth to a customer versus the possible alternatives. Elaborating on your value proposition, it shows the intrinsic value of your product to the customer.
Knowing the building blocks of the business model will help you better understand your company valuation.
By Dulal Das