Building a company to a sustainable level takes a detailed approach to the execution of the idea. Learn the difference between a business model, a business plan, and an exit strategy.
- Don't confuse a business model with a business plan. The term business plan is used for the overall business strategy and the manifestation of that business strategy and financials and so on and so forth. Business model is much more specific. Business model answers the critical question, how do you make money? How does your business make money? That is the business model, business plan is a whole lot of other things, it's a much bigger portfolio of things.
So as you know I constantly work with entrepreneurs and they're coming up with sometimes the most absurd pitches, sometimes most wonderful pitches, and everything in between. So one thing that comes up, pretty often actually, is somebody will come and say, oh, I have a brilliant idea and I want to do this, this, this, this, this, great. Alright, yeah, sounds like it makes sense. What is your business model? Well, my business model is to get acquired by Google, or LinkedIn, or Facebook.
A business model is not an exit strategy. When somebody acquires you, that's an exit strategy. That doesn't happen very often. If you actually analyze how many companies Google buys in a year, or Facebook buys in a year, and if you combine all the companies that buy something or the other in the course of a year, the number is not that many. So you're trying to play an incredibly low probability game of predicating your business premise on spending, you know, six months, nine months, 12 months, 18 months, 24 months on the assumption that you're not building a business, you're just kind of doing this that and other thing with the anticipation that somebody's gonna buy you out.
This is not very sound business strategy. So please don't do it. The better way to do it is figure out a business problem that you're solving that people are willing to pay for so that you have an ongoing revenue stream coming into the business, growing steadily and so forth so you become a sustainable company. You have revenues, you have customers, you have revenues, you have profits. Profitability is important, for survival profitability is incredibly important.
The only way you can circumvent profitability is with gobs of venture capital and that again is a very low probability game as I told you at the onset. Over 99 percent of the businesses who go out to seek financing actually get rejected. Which means that you're going to have to, most likely, the highest probability scenario for you as an entrepreneur is that you're gonna be building a business without venture capital or any kind of outside financing and at that point profitability is a requirement for your strategy.
Exit strategy is not. So you want to learn how to build a good, solid, sustainable business model. What is that? How do you come up with something like that? We go back to validation. We go back to understanding your customer's needs, your customer's pain points and how whatever that you bring to the market is solving those pain points.
And then the next level of validation is, are customers willing to pay for what you are offering? And then the question after that is how much are customers willing to pay for what you're offering and in what model, in what format? It could be a monthly subscription, it could be a, you know, lump sum fee, it could be, you know, an annual subscription, it could be, you know, a transactional charge. Whatever it is, there are all kinds of different pricing models that are available in the market that I could teach you about, but you have to zero in on a pricing model that is acceptable for the customer window that you are, the customer segment that you are going after and get a sense of how much are people willing to pay for it? What is the impact of the solution that you're bringing to the table in addressing the customer problem and those are the criterias of a good, sustainable business model.