If you have more than one business model, you have no business model

by Ana Lopez

To be successful, a company must have a plan for short-term revenue and long-term profitability. Early stage founders may be tempted to come up with half a dozen ways the company can make money. Don’t be tempted: five unproven solutions are not yet a real solution.

That said, there can sometimes be different business models that can lead to profitability. The Business Model Canvas approach, summarizing every aspect of the business on one slide, provides a holistic view of every aspect of your business. However, for a pitch deck, I think it’s worth narrowing it down to two things: customer acquisition and lifetime value.

In acquisition, focus on where you find your customers, whether those acquisition channels are scalable, and what it costs to acquire a new customer, commonly referred to as customer acquisition cost or CAC.

In terms of lifetime value, research how much each customer is worth from the moment they appear in your product until they stop using your product. Every dollar they spend along the way is the lifetime value of an individual customer. From there, you can split your customers into different segments: a customer category can be people who come to your platform and immediately leave; another category may be customers who stay for weeks, months or years.

For simplicity’s sake, it’s usually enough to take the total money from customers and divide that by the number of customers you have – that’s the average value of those customers to date. The challenge is to model how long they will last. By definition, you only know that of a customer WHERE lifetime value after they leave; so here you need to build a model and make some assumptions about how much time your customers will spend with you and how much money they will spend along the way.

A startup’s only mission is to find a repeatable business model

I quite agree with Steve Blank’s definition of a startup: “A startup is a temporary organization used to search for a repeatable and scalable business model.” Or, put another way, your business is meant to become a machine that can turn the $100 you put into the top into $150 falling out the bottom. Take the $150, throw it back into the top of the machine, and you’ve got a fast-growing, viable, repeatable business model.

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