What is your business model? Many entrepreneurs struggle to present a compelling business model, and hence fail to get funding. Discover ways to make sure this does not happen to you.
that we want to cover next is the business model, and I can tell you this is probably the most important thing that you can do in company overview. It's actually one of the questions that you're going to get asked most frequently, so I want to make sure that you've really got this down, that you really have the script to say, this is my business model, this is exactly what I do, Now, let me translate that into something a little bit more real, which is, how are you going to charge for your products or services? Not, what are you going to charge? This is very important, we're not doing pricing strategy and pricing model. We're actually doing your business model, and it's just about the how. How are you going to charge for your product or service? So, let me give you some examples here of some different ways that businesses charge for their products of services. So, the first and most common one for a lot of service businesses is by time, by hour, by week, by month, or even by year. It could be by job, another service-oriented business model, or by project. It could be fixed-bid or it could be a variable price as well, where it has a fixed component and a variable component. It could be by service provided, what service you're providing. A landscaper comes and says, I'm going to landscape your yard, and I'm going to pay this amount. This is the service I'm providing. It could be by skill or by task provided. It could be a package deal or a bundle deal. Those are always really good because you don't necessarily get into the battle of dollars and cents, of hourly rates, and did I work this many hours or that many hours? You kind of want to stay away from that if you possibly can. Could be per visit. Every time I go in to the doctor's office, I pay $50 as part of my deductible. That's a per visit. It could be flat rate. It's just one rate no matter how long it takes, no matter what they're doing, flat rate. Another set of models could be by unit, by traffic, by usage. A lot of times, this is how software is actually charged for. By revenue generated, by user. It could be by company or by division, or it could be a perpetual license. What you're really trying to get at here is your unit of measure. That's the thing that we're trying to define. If you can define the unit of measure for which you charge from, you're going to be good to go. I want to take a look at some businesses and talk through the business models for each. You can start to understand a little bit more about them. Let's take the first one that everybody knows, is Netflix. Almost everybody has a subscription. They have over 120 million subscribers worldwide, which blows me away. Now, their business model is very simple. It's actually subscription-based. It's 9.99 a month or 10.99 a month. In different countries, it's actually different rates, but it's all using the same model. So, the price doesn't matter so much here, it's actually what their model is. Now, let me just draw a comparison. Back in the olden days when Netflix first started, they actually used to send out DVDs and their business model was actually very different. They used to charge by the number of DVDs in a month that you could rent. You could rent three DVDs a month, or I'm sorry, it actually was three DVDs at any one time. So, you could get three shipped to you and then you'd have to ship three back, and then you'd get three more, and that went on and on and on. Very different than their business model today, which is a subscription-based business all online. Pretty interesting. So, businesses can actually change their business model we'll go more to an hourly rate because it's not well-defined so we don't want to take the risk, and if it's very well-defined, we'll do a fixed bid because we're going to make more money. The customer loves fixed bids because they don't tend to have to nickel-and-dime over hours, and that's always a negative. So, those are a lot of different business models that you can start to understand how they apply to your business. So, I'd like you to apply some of these examples that I've used to your business. So, a couple of notes that I want to make sure that you understand about creating a business model. First thing is that, this is really important for investors, they need to understand the viability of the business, and this helps answer the question. How you're going to charge your customers starts to translate into, is this business viable? Does that model really make sense? Another thing I want you to keep in mind, this is a really good one, that you can use your business model to actually differentiate from your competitors. I love this one because be thinking about how they actually charge their customers, and I've done this a number of times in my business. I've all of a sudden taken the model and I changed it, and by changing it, all of a sudden it became more attractive to customers than my competitors and they bought, in part, because my product was superior and in part because I had a better business model as well. So, you can really see how important this can be to your customer. So, when you're coming up with your business model, be thinking about your customer. Be considering them in the process. How do they want to be charged? That is as much important as anything else in figuring this out. Not, how much do they want to be charged, how do they want to be charged? How do they want to pay? What do they think would be fair? I want to make sure you keep in mind that this is not your pricing model, so it's not about how much you're charging, it's about how you're charging, again. I just want you to keep that in mind 'cause this oftentimes gets confused. It doesn't mean that in your presentation to your investors you don't present the pricing that's associated with this, I oftentimes do, but keep in mind, that's not the point of it. It's about the model, not necessarily the pricing as well. And then, finally, this is very important, you have to know your business model in order to do your financials. This actually drives your entire revenue model, about how we're going to build your revenue. The first thing, we're going to go back and we're going to look at is what your business model. How do you charge your customers? On a per unit basis, per hourly basis? And we're going to do, all of our projections are actually going to be based on that. So, this is why defining this and getting this right is really important. Let's take a look at an example of how you would present this to an investor, and I popped up on the screen here just a normal slide that I've developed and I've used over time to articulate a business model. In this particular slide, it actually has a couple of different business models for different segments, and then I just list out what the model is, and then what the prices are underneath are what the general prices are underneath. You can present this in a number of different ways. I just wanted to give you an example to kind of take a look at how you would present it to an investor. And one final note, you can have multiple business models. It does make sense that you charged an individual, let's say you have both a consumer market and a corporate market, you can charge the individual or consumer market in one way using one business model, using one method, using one unit of measure, and you can charge your corporate customers in a completely different way. Maybe they're flat rate based on $20,000 a year, and individuals are paying $99 a month for a subscription business. Those all can coexist together because, really, those two models don't conflict with one another. You want to make sure your different business models, if you are using more than one model, they don't conflict. That's also another really important thing. So, that wraps up Business Model. Make sure that you have it down. Make sure that you can articulate it. Practice it in the mirror because you will be asked, as in, you want to be really, really good, really clear with whoever you're taking about. You don't want to hem and haw and wonder, then be thinking about it while you're presenting it. You want to just nail it.
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- What to include and what to leave out
- Representing the management team and staff
- Funding stage, business model, and current status
- Personal, team, and company history