The Transitional Business Model
One of the key differences that I see over and over between successful and unsuccessful entrepreneurs is the willingness to use a transitional business model initially as a means of establishing a beachhead in the target industry. Another way of saying this is that smart entrepreneurs understand that they need to learn how to walk before they can run. Too many first-timers expect it all from the get-go. Then when the world fails to shower them with investment capital and customers, they get angry at it.
Smart entrepreneurs understand that you need to prove yourself first before you can expect anyone, especially investors, to take you seriously. This calls for first demonstrating that you can create a cashflow even if it’s a modest one. If all you have to show to people is a business plan no one is going to take you very seriously. Expect a perfunctory pat on the back and “good luck,” as they quickly show you the door. If you should succeed and one day have money to invest you will then find yourself passing on these types as well for good reason.
If you use a jeweler’s loupe to view your target industry as an eco-system it makes it easier to identify low capital type entrance points. Entrepreneurship is all about finding that point and capitalizing on it. Should you find yourself in a position where your business can’t proceed an inch forward without a sizable injection of capital first, you are strongly advised to return to the proverbial drawing board and rethink your business model. Most businesses start off with a basic offering. They then grow by determining what else their customers need and offering it to them. This is the point when investors start showing an interest in providing capital to the business.
Today’s L.A. Times has a story on entrepreneurs who used transitional business models to reach their ultimate goals. Here are a few snippets from the article.
Food trucks as a vehicle to sit-down restaurant success
Owners of the rolling eateries who went on to open restaurants say they never could have gotten a foot in the bricks-and-mortar door without their more modest start.
The food truck revolution is moving indoors.
The owners of some of the most successful trucks are using the knowledge, fame and bankability gained from operating their mobile eateries to start sit-down restaurants.
The cost of a used truck can be as little as about $20,000, but opening a small restaurant can easily cost $400,000, while larger eateries can run into the millions, said Tom Miner, a principal with research firm Technomic Inc.
Operating a truck is also relatively cheap. The owner couldn’t fit many workers into the vehicle even if he or she wanted to. Advertising, in the form of social media and word of mouth, is often free. And even without a wait staff, a truck can serve a steady stream of customers who seemingly don’t mind long waits in line if the truck is popular. (source)
The above lessons apply to practically everyone. Please read the full article.
So what is your version of the food truck?
6 Responses to Startup Capital: The Transitional Business Model
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This will no doubt upset a few companies who have been begging for parts needed for their own products, but why supply your competition and give up the edge?
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