Competing Technologies and/or Companies. Once you have a good business idea, you must compare it with the solution offered by competing technologies or companies. Simply put, your idea has to be first, different or better.

 

Fit with Skills and Interests. Perhaps the biggest mistake you can make as an entrepreneur is to try to do something you are not qualified for or lack interest in. Just because something is a good idea doesn't mean it is a good idea for you.

 

MAGIC. If your idea can be easily duplicated, you stand little chance of succeeding. But there are some very logical steps you can take to protect your business idea against competition. These are called MAGIC strategies, which stands for Marketing Actions Given Intelligent Competitors. There are four levels of MAGIC strategies, but only two are relevant to protecting Web business ideas. (Other MAGIC strategies apply to business and marketing plans.) For your business idea, which of the following strategies can you use?

 

• Actions That Cannot Be Matched:
  • Domain name registration
  • Patent on a way of doing business
  • Trademarks
  • Contracts with key customers
  • Unique capabilities
• Actions That Probably Will Not Be Matched:
  • Financial resources beyond competition
  • Product or promotion inconsistent with competitors' product or promotion

Development Strategy. After coming up with a good business idea that compares favorably with competition and can be protected from it, you must decide how you will develop your new business. Without help, your business may get nowhere. But with help you may lose some control over your equity. What you must do if you are to do more than just dream about a new business is choose a development strategy and then pursue it. Another possibility is to work for another Internet company first and use that experience as the springboard for your own business.

 

BUSINESS MODEL

 

A business model is how a business makes money, i.e., profit. Sometimes marketers talk about "the razor-blade theory of marketing." Gillette makes its money by "giving away" razors and making profit on the blades. Similarly, Hewlett-Packard makes a lot of money on high-margin cartridges for printers. Other companies rely on volume to make up for low margins. Grocery stores must have high volumes to make profit on low-margin products. When grocery stores add higher margin goods or services such as prepared food or catering, that changes their business model. Similarly, automobile manufacturers have always had business models based on the fact that they make much more profit on more expensive vehicles. This is because the cost to manufacture an SUV, for example, is not proportionately more than the cost to manufacture an entry-level car. Why do you think auto companies love to sell "fully loaded" vehicles?

 

One way to think about your business model is to figure out the revenue equation, total revenue = price x quantity sold. It's surprising how many companies get into trouble by, say, trying to sell a few items at low margins. The business model for computer retailers has shifted as they have been forced to accept smaller margins. If volume doesn't change, they are in the soup.

 

Basic Business Models. There are just a few basic business models that account for most of Internet commerce:

Advertising (make money by delivering an audience to an advertiser)

• Content (any non-product information on a site)
  • Free
    • Portal (general-content starting point)
      • No registration
      • Registration (allows for higher ad rates)
    • Vertical portal (specific-content starting point)
    • Niche (specific-content site)
  • Free + Premium (additional content available by subscription)
• Service (free services such as Internet access)
• Sales at cost ("zero" markup products for sale)

Sales (make money by selling a product or service)

• Retail only (pure e-tailer)
• Retail + Internet (bricks and clicks)
• Manufacturer

Fees (make money by facilitating sales for other parties)

• Transactions (such as trading stock)
• Auctions
• Exchanges (such as raw material or projects sites)
• Aggregation (such as buying or selling groups)

The "Business Model" for a nonprofit organization is how it meets organizational goals such as membership, attendance, donations or any other measurable goal or activity related to goals.