Business Model Mystery

It is hard to believe that most startups lack a business model, or a way to clearly generate revenue from their product or service. After all, the premise of starting a company is to make money. Isn’t it? In speaking with many entrepreneurs, it apparently isn’t. There are a lots of weird, long-shot concepts out there. Before they even consider how hard it might be to get consumers to pay for what they are selling, they have already sold the business in their minds. So, accepting venture capital seems like a safe bet. This way of thinking is wrong on so many levels.

Some of the biggest myths encountered include:

• Popularity will make you rich
• Advertising will pay the bills
• Venture capital is free money
• Someone will want to buy my company
• Advertising will create customers
• We’ll figure out how to make money later

Most of these myths exist because a small percentage of all businesses that start become extremely successful using one or all of these myths. I believe that most entrepreneurs seek to create something to be meaningful, popular, or cool, rather than just generating revenue. Otherwise, we would all start businesses that had far less marketability, with larger profit margins. Maybe the product is something they invented, a place where their friends can work, or just a nice way to stroke their own egos. Regardless of their intentions, business it is not.

Just because people are working doesn’t mean you’re in business. Just because you sold some stock doesn’t make you successful. Just because you have 50,000 Twitter followers doesn’t make you a millionaire.

What is important to remember is that you need to create a real business, based on accurate numbers, that is built for longevity and can grow into more diverse markets. Even if you sell the company in a few years, it should be built to last. It should be a sound business model that can grow, make money, and outlive your expectations. Most of the ideas I hear thrown around are either outlandish or just plain silly. Some work and some don’t, but the ones that get bought by larger companies usually just disappear. I have seen it, I have lived it.

So how do you start a company that has a business model and an idea with enough longevity to last? Let’s start by examining companies that have not only defined the way we communicate, but have been around long enough and maintain no foreseeable end in sight. I will use some of my favorites to cultivate my points; those of the “100% Genuine Incorporated” companies, such as Apple, Starbucks, Google, FedEx, and In-in-Out.

So let’s look at a few of these brands, find some similar characteristics, and possibly demystify the far-fetched business models that defined an industry:

• Genuine care about customer service
• Understand their business
• Clearly communicate what they are selling
• Marketing that stands out
• Customers sell for them
• Unbelievably passionate
• Focus on quality
• Solve a simple problem
• Create new language (Animal-style, Venti, or iEverything)
• Customers willing to pay a little more

Interesting. Whenever I think about the products and services I hold most dear, these are some of the points I conjure up as virtues they all seem to have. Is it such a mystery as to why any of these companies continue to be more and more successful, year after year? Certainly they have their ups and downs, but overall they continue to prosper, even when their business models seem outlandish at best. They make you care about something and provide meaning where there typically isn’t any. Is it possible that your model can be as far fetched as expensive custom-made coffee drinks, or high-end computers for consumers? As long as you are able to clearly communicate your product is for sale, and if you are willing to try it, we promise it will be one of the best experiences you’ve ever had. Maybe, just maybe, you’ll have a shot at longevity.

So what is the trick here? I think it is safe to say that companies that care about what they do, and also focus on customer service, leverage their fanatics to do their selling for them. These companies solve simple problems, cost a little more, and don’t hide the fact they are selling a product or service. They are honest about who they are, and what they do. They don’t get bought out; they buy others. When you buy from them it is most often direct, without any additional margin or complication. They like it that way.

The take away is this — don’t start a company unless you plan to fill a real need that exists, and make sure you clearly communicate how you make money to the customer. In fact, the customer should support your getting paid for the service you provide. “Willing to pay for it” is such a meaningful concept that it supersedes many of the other reasons people start companies; like being popular or cool. Your business needs to be based on facts, not the myths of selling it off or advertising that pays your bills. Finally, by incorporating some of the virtues like quality, advocacy, and passion, you may create something of great value and longevity. It’s hard to do this in the real world, and even more difficult to do completely online. Consider these things the next time you start a new venture.

This work is licensed through Creative Commons.

Posted on Dec 26, 2008 by Kevin Milden

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