Curiously this question often evokes many different reactions and responses. I often find that depending upon who I’m speaking with, it inspires a discussion of channel partners, product roadmap, F1000 accounts, etc.
And ALL of this is important….but in my experience, I believe it clouds the importance of the question.
When someone asks about your business model, I think we should have a very clear answer – and in that answer must be details of:
1. How do you make money?
2. What form does it come in? Licensing in volume deals, per seat pricing, royalties, revenue-sharing, subscription, etc. – spell this out.
3. Show how it grows – that famous scalability question. This can be from new products, ancillary services, follow-on products and markets.
Business people, particularly investors, want to “do the math” between what you say is your addressable market and how you plan to go after capturing it. You should spell this out by doing the math yourself. Look at what you’re promising in the market sizing area of your business proposition and the path to revenue.
It’s a great sanity check on whether your business model has a backbone.
In my experience, this is an area of weakness for many early stage businesses – we are unrealistic in how we will capture the market or, alternatively, our chosen strategy to make money cannot produce the results in the window that the stakeholders are looking for.
So this week: Crack open an excel spreadsheet and take a hard look at your model. Challenge the assumptions and the timing.
Try to be crystal clear on the 3 questions above when you are describing your business model. Leave the other points about your channels etc. for another time.
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