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Business model vs revenue model

Let’s clear the air on this topic shall we?

A business model is HOW you deliver value in market

A revenue model is how you GET paid

Here is why we make this mistake over and over.  A business model is broadly defined and often miss-understood to be the answer for all functions:

“including purpose, target customers, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies”

That is just too broad for startups  and first time entrepreneurs to be successful.  So let me break this down for my students, clients, and friends,  I can answer these questions more concisely if you tell me exactly what MODEL you are using to express your business and don’t lump it all into “Business”.

  • Value creation model
  • Revenue model
  • Service model
  • Technology model

Once you answer those questions well, then you can tell me what your strategies are:

  • MVP and roadmap(s)
  • Billing, capture, returns.  Onetime or reoccurring income.  How you will move no-charge customers to revenue customers etc…
  • Customer satisfaction measurements, planned response methods and timeframes
  • Clear structured choices of your front and backend technology choices and the rational.  Not just for launch, but a roadmap of your anticipated needs.  Quickbooks and open source to start, Oracle and IBM to finish?  What is your MVP technology map today and what will it morph into over time.  Not the details, the high level block diagram aligned to your customer MVP.

Lastly, give me your true “MBO” set.  Management by objectives.  Do not try to boil the ocean, just a tea cup.

  1. We shall interview 100 “customers” in 90 days
  2. We shall test the MVP with 3 critical value points
  3. We shall retest the pivot with same 100 customers in 180 days
  4. We shall complete and or revise our models representing our business concept at start, 90, and 180 days.
  5. We shall define and redefine our product marketing and technology roadmap as a strategic priority in alignment to 90 and 180 days.

Be realistic and don’t simply answer questions investors toss out at you.  Such as, “what is your business model”  Push back!  Make it known you understand the complexity of a true business model and you would like to address the key segments as listed above.  A business model can be expressed in a sentence or two, if you have completed the detail work above.  e.g.

My business model is delivering (this MVP) to the end customer (name a potential buyer explicitly), where they will purchase my offering (online, channel, distribution, direct sales).  Our revenue will be captured (on transaction, through billing, via subscription etc…) and our fulfillment will be completed by (download, shipping, third party).  We have aligned our technology to support this business in three logical areas.  Customer facing technology, back office technology, and our roadmap to extend both of those through our X growth phase.

If you can create this concise and clear explanation of your model; I think the world will be a better place for investors and entrepreneurs.  Slide decks would be far more concise and the repeated deep dive Q&A trying to get at these bullet points will be reduced or eliminated.  If nothing else, when someone asks for your business model next time.  Take a deep breath and ask them calmly.  Which part would you like to know about?

**Revised**

I found this blog post and wanted to include it for your review.

Business Model Archetypes

It’s critical to get this right when building your business and the 7 models laid out here are clear and well done.  Take a read!

 

 

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