Slide 6: Business Model
Recall, the business model is a depiction of how the various pieces of your business come together to bring about the exchange of value between your business and the customer. For more information, refer back to the Business Model chapter for information on the purpose and use of the business model.
Why Investors Care
The business model is important to investors because they want to know how you are going to make money. That is, exactly how the exchange of value with customers takes place. For example, you may sell your product wholesale to customers, through a chain of retail outlets, or through your website. All of these are different business models. Say you run a content-based website. You may charge for the content through a subscription fee. In the alternative, you may give away the content for free and sell premium services to free users of your information. A third model would be to give away content for free, but sell ad space to advertisers on your website. In this last scenario you know have 2 customer segments. The users of your information and the purchasers of ad space.
Include the Most Important Business Model Information
The above examples help to demonstrate the variety of business models that exist. Each model has a different manner of collecting revenue and exchanging value with customers. There are various other portions applicable to the business model, such as: Key Partners, Value Proposition, etc. All of these pieces of the business model are relevant, but the most important thing to investors at this point is how you are going to make money. Also, early in your business, you may not have developed aspects of a typical business model, such as key partnerships. To reduce the information down to the most important aspects, think about your business and ask yourself the following questions:
- How do you make money?
- Who pays and how?
- What is the price?
- How did you determine it?
- What are the costs?
- How will I deliver the value to customers?
At a bare minimum, you will want to explain all of these questions when presenting your business model.
Why Will This Business Model Work
You will also want to mention your reasoning or justification for choosing this model. Explain why this model is superior to other potential models. Compare the business model to models used by competitors and explain how similar business models have been successful in this and other industries. As we discussed in the Business Team section, you want to associate your business (and business model) with prior success.
Keep it Simple (Use a Chart)
Now, you have to arrange information on the slide to provide information to investors without overwhelming them with information. In this situation I recommend using a flow-chart or graphic representation. The flow chart can demonstrate the operational phases and costs of each phase as a percentage of the product. It can branch out do the different customer segments and show the applicable price. Here is an example of such a flow chart. If you feel comfortable doing so, you may incorporate portions of the business model canvas discussed in the Business Model chapter. Be careful simply plugging the business model canvas into a slide. This can have the effect of overloading the investor with information. Instead, choose a simple tool that can encapsulate all of the necessary information within a concise framework. Remember, the slide does not have tell all of the applicable information, it simply has to provide the greater framework and cue your verbal explanation of the matter.
Here is a simple example of how you demonstrate your business model to the investor.
The above graphic uses simple drawings to show how all of the important pieces of the business come together to provide value to the customer. With this graphic you can easily walk the investor through your model. I do recommend placing specifics wherever possible in the model. For example, in the revenue flows, provide a % or total dollar value.