Startup Advice: Know Your Business Model And Be Able to Say It In 15 Seconds

So you have an idea for a new business, one with an online component, and you are looking to raise money.  Before any investor pulls out their checkbook they are going to ask you “what is your business model? ”  What they mean of course is ”How will you make money?” 

Unfortunately, what often happens next is the source of high comedy (or tragedy depending on your perspective).   The would-be entrepreneur launches into a long recitation complete with 5 year pro-forma forecasts and detailed sales plan.  The prospect nods their head appreciatively along the way, but in reality you lost them the moment you said “Glad you asked!” 

Here is a simple piece of advice:  Be able to express your business model in a way they can understand it in under 15 seconds.   And the best way to do that is to identify the business model type to which you are most closely aligned, as well as sharing an example company to reinforce the point.  In doing so you give the prospect a clear and immediate mental framework they can use to pin everything you say after that. 

To get a better idea of what I mean, here is a short list of business model types and example companies:

•          Subscription business model                     WSJ – Online Edition

•          Razor and blades business model             Gillette

•          Multi-level marketing business model      Amway

•          Network effects business model               Facebook

•          Cutting out the middleman model             Amazon

•          Bricks and clicks business model              Barnes & Noble

•          Loyalty business models                            Nordstrom

•          Servitization model                                     IT Services

•          Low-cost carrier business model               Southwest Airlines

•          Auction Model                                              eBay

So work this into the opening line of your business model elevator speech.   You will be glad you did.