Customer-Centric Business Model

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The most important thing we are going to do is give you a chance to figure out what your business model is. A lot of people arrive not even sure why they need one, and that is a really good question. Why do you need a business model? By the end of this you should be able to answer that for yourself.

So what is a business model? Here is the agenda. We are going to talk about a few key concepts. Number one: how do you focus on the absolute essence of what you do, which we call the CORE. Then how do you multiply that to market in a way that is very efficient, and how do you get leverage from it so that it ultimately becomes sustainable and you can operate your business for the long haul. And you will learn five initials, RSVPD. By the end of this you should be able to say to yourself, “If I have an RSVPD model, I am great.” How will you remember those initials? When was the last time you got an invitation to something and you did not RSVP? It is never a good thing to do, so you just remember it that way. You will figure out a great business model by RSVPing it.

Before we go further, write down one thing you think might be important about a business model. Just for yourself. We already asked the question, now commit to an answer.

For those who have been to Harvard Business School, you will have learned from Professor Tom Eisenmann and others about something called the diamond. It describes the business model in terms of a customer value proposition, a go-to-market model, a technology and operations model, and a cash flow formula. In iLab terms, we are going to make that super easy for everyone: number one, how you create value; number two, how you deliver it; number three, how you make money; and number four, how you do all of this sustainably. The MBA students should walk out going, “I know how to build a business model,” and everyone else should feel fully introduced to it and able to do the same.

This framework helps you create and deliver value to your customer, make money, and keep that sustainable. There are a lot of pieces, so I am really only going to cover three tonight. Creating and delivering will be the bulk of it. Making money we will give you the essence of but cover in more depth in a follow-up. Doing it sustainably we will talk about. All of these elements are covered in the Startup Secrets classes in more depth going forward, including a whole workshop on the customer value proposition, which is the most fundamental piece of a startup: if you are not solving a real, meaningful problem or addressing a great opportunity, there is no point doing anything else, because the number one reason startups fail is that they are not creating value for anybody who cares about it.

Here is the thing most people do not recognize when they think about business models: a business model can be at least as impactful, if not more impactful, than your technology or your marketplace. So think about how you can end up with such a disruptive business model that people say, “I need to work with her, because the way she is approaching this is such a breakthrough that even if the underlying service were not innovative, I would want to deal with her.” That is why business models are exciting: they give you that potential.

Startup Secret: your game, your rules. Imagine I gave you a completely new game. You all know Monopoly. What if I said Monopoly was about how much money you lose? You would say I am crazy, it is about how much money you win. That is the idea. We want to come up with a game nobody has ever played before, or where you have changed the rules, so now it is your game and your rules. Who has the best chance of winning? You do, if you write the game and the rules, especially if you change them in the middle (which is what my younger brother always used to do to me). That is what business is about too. People change the rules all the time, and sometimes the rules get changed on you, but that is not what you want. You want to create the game and cause an innovator’s dilemma if you can. The late Clayton Christensen’s great book is a wonderful way to get a handle on this, and this business model approach can be as disruptive as technology.

Before we get to frameworks, let us tease things apart with a quick group exercise. Pick one person in your group who is working on a business and quiz them, starting with these questions to get going:

• Is it a process or a product? If it is a process, for example to get people healthcare, then it is probably something you sell as a service.
• Is it software or is it a service? For a lot of you the honest answer is “better described as a service,” because that is not what the customer cares about buying.
• Is it content or is it data? Remember, Netflix did not say they were selling data, they were acquiring data, and they did it in the background. Someone in the room was literally “operating a marketplace for data,” so their product is data.
• How will you realize the value? Open source or proprietary, freemium or premium, subscription or license? We will come to that later, so just be thinking about it.

When groups ran this, everyone got going fast. One person, Nonga, was using generative AI to translate accounting tables into written form (memos and documents), replacing very boring work that a computer can now do. Software or data? The more you use it, the more the ML learns and the tone of the memos improves, so data. But is that the business model? A business model is not just your value prop. Someone rightly noted you also need an Excel table for how big the market is, how much people would pay, how many would pay, how often, but that is sizing your market (a go-to-market topic). The business-model question is how she makes money: sell to accounting firms, through that channel, charge per user, with a basic and enterprise tier. The secret of this class is that I do not really teach you anything. The people in the room are great peers who you can learn all of this from, so meeting each other and quizzing each other is one of the most important things you can get out of it.

Another founder, Zipporah, has coffee in a tea bag, sold via Whole Foods. The business model: buy coffee directly from farmers in Kenya, sell to coffee buyers directly, giving buyers traceability and farmers instant payment at higher prices, with benefits of local sourcing, higher quality, organic, and improving domestic coffee consumption in Kenya (where coffee is expensive). When someone pointed out the premium price, notice how the premium pricing immediately made people ask “so why?” Your business model somehow has to support that, which is exactly the kind of discussion you should have with each other.

One warning on focus. One founder in the energy and climate B2B space said the advice they had received was: if you have a genuinely new, disruptive technology, do not also disrupt the business model or the way you deliver it, because you already have too much disruption. Very well said. Not every one of these things is an answer. There is no single right answer. In certain circumstances you should not jump five steps at once, because you fall down the stairs. How you judge it comes down to what your product is, who is buying it, and how they will consume it best. Which is the whole point: remember, this session is the customer-centric business model. How do you find out whether you are disrupting too much at once? Ask your customer. Startup Secret: your most important guide to anything you do, whether it is your value prop, your business model, your distribution, or anything else, is your customer. Period, end of story. None of these frameworks are answers. They are just frameworks to help you get to the right questions.

So the business model is about how you create, deliver, and make money, and then do that sustainably. Let us get on with it.