According to Lijit Search (lower left column), I have discussed "business model" 32 times on SF out of 449 total posts. My interest in business models comes in part from the original way I have of creating a business model. Based in part on some ideas from Sequoia Capital, I believe that a business model has three key parts:
- The revenue or growth driver (only five possibilities)
- The pricing model (fifteen choices)
- The sales and distribution strategy
In teaching and presenting my thinking on business models one of the challenges is finding ways to memorably illustrate each of the three required parts of the business model. This week has been very unusual in that I found two terrific examples.
The first example I got from Jeff Stamp, a friend and leading authority on entrepreneurship. Jeff's example makes clear how the pricing model can differentiate the business concept. Most people think of pricing as merely "sell the product for an immediate cash payment". Jeff's example is a great illustration of another alternative--interval pricing. Time shares are the classic example of interval pricing but what if we applied it to animal shelters--Jeff's idea. Many people visit animal shelters looking for a pet but for some reason never make a pet choice. Most animal shelters typically give up at that point, but what they should offer is for the person to pay for an animal's upkeep for just two weeks (so we do not have to put it to sleep in two days). Effectively, the customer pays for the dog just like a timeshare apartment in Hawaii. Who could turn down helping an animal for just two weeks.... and who says you cannot charge more than cost to support a few more dogs, cats or mountain lions.
The second great example comes from @johnfleming who re-tweeted a post from Chris Brogan. Chris talks about using Foursquare to re-direct a shipment by the U.S. Post Office (after they buy Foursquare). Chris has a great example of how to use distribution strategy to differentiate a business concept. Think of buying a product you need desperately on a business trip (a computer power cord) and having it shipped to your next hotel. If you then change your itinerary you would never get to the original hotel. If you logged in and told USPS to redirect the power cord to the new hotel using Foursquare you would have the power cord. The ability to online redirect a shipment easily is a market changing use of distribution strategy (and a terrific way for Foursquare to think about their business development strategy).
The greatest value in my way of thinking about business model is that it gives you a step by step way to think about the growth driver, the pricing model and the sales and distribution strategy of a new business concept. In other words, my approach does not let you assume and forces you to carefully think about the choices in each of the three parts of the model. Maybe you will come up with original ideas like Jeff and Chris.
My thinking on business model has evolved a lot since this first post in October 2007, but it still reflects the basic ideas which I have now developed into a book. If you would like to read a chapter from my book on business models, send me an email.