Angel Insights Blog
Thursday, October 16, 2014
Your Pitch is Just the Beginning: What’s in Your Revenue Model?
By: Elizabeth Usovicz, General Manager of Transaction Commons, as part of a series she writes for ACA aimed at entrepreneurs, “Your Pitch is Just the Beginning.”
At a conference I attended recently, a panel of pre-revenue company founders was asked, “What’s your revenue model?” The answers were honest, although not investment-ready:
“We’re really not focused on that now, because we’re just trying to generate a following.”
“I’ve talked to business owners, and if we can provide them with access to these customers, the business owners are willing to pay for the service.”
It takes discipline to research and develop a viable revenue model in the early stages of a business. Here’s an example of an entrepreneur who did.
Think Multiple Markets
John had a sales background in industrial product materials. His start-up developed a software platform that enabled product development professionals to access and contribute hard-to-source materials information, and allowed other industry professionals to access this information at critical stages in the product development process. John focused on the market he knew to develop the platform. He soon found that advisors and potential investors questioned the scalability and revenue potential of the platform.
John began considering other markets in which product materials information was critical, and crafted a market expansion strategy. He identified and estimated the market for 17 additional industries that could use his platform. He prioritized a short list of industries for expansion and talked to professionals in each industry. Then he considered the management team and resources he would need to scale his platform and implement the revenue model. His thinking and research on his revenue model paid off with an investment round.
After several years of effort and additional rounds of funding, John’s company successfully entered six additional markets before being acquired by a global, multi-industry leader in product development.
Not every start-up’s journey will follow this path, and not every product or platform is scalable across multiple, global industries. But companies that spend time thinking through a viable revenue model have an advantage over those that defer the process or limit their thinking.
In addition to multiple markets, here are three of many additional options to consider in researching and developing a revenue model:
Multiple Channels: Can you generate recurring revenue streams to retail consumers or small businesses, as well as larger corporate customer or partners?
Recurring Revenue vs Intermittent Revenue: Can your product or service accommodate an ongoing revenue stream, as well as larger, intermittent sources of revenue?
Revenue Sharing Collaborations: Are there industry players with an existing partner ecosystems through which your product or service provides added value?
“How do you make money?” is a deceptively simple question. Don’t be deceived – and don’t defer the answer.
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