Ultimately, a start-up is still a business. It’s still a company, and it still has to make money. Even companies who double as mythical beasts with a single shiny horn are going to need to turn a profit sooner or later. A company that exists just to take investment and then use that investment to find more investment isn’t actually a tech start-up. It’s a pyramid scheme.
I can’t count the number of times I’ve had a conversation with start-up founders who have built an app or a website and grown their users, and are now “searching for a business model” — it’s an epidemic. And my reaction to that statement is always the same: finding a business model isn’t the problem. It’s not what they should be looking for.
This is because there are literally only two ways for your business to make money. Only two.
A. You can sell a product (hardware, software, white cotton T-shirts with Richard Nixon’s face on them)
B. You can sell a service (building hardware, writing software, designing white cotton T-shirts with Richard Nixon’s face on them)
Every tech company out there has a model that is based on those two streams, from Apple (products) to hybrid companies like Hubspot that combine consulting with high-end marketing software.
You can email me with examples of companies that sit outside of these options, but your examples will be wrong.
These are your options. No matter what your start-up is aiming to do, your business model is going to be either option A or option B. There’s no magical new way to make money that will shake up your entire industry.
Money has changed hands for just those two reasons ever since it was first created. The earliest currencies were exchanged for food, farming and f**cking, although knowing what humans are into, probably not in that order. It comes down to value — any and all value that can be found in commerce is found in goods or services.
Sure, this seems clear and obvious. But it’s easy to forget when you’re squarely focused on metrics around user growth and churn instead of revenue.
Now I’m not saying that revenue should be one of the first concerns of a start-up. Not at all. But what I am saying is there’s no point in building a company if you don’t have a pathway to making money. When you’re planning a start-up, you need to keep a clear focus on which of those revenue options you’re going to choose. Will it be option A? Or option B?
If you just grow users and don’t worry about how you’ll make money, you don’t have a business. You have a cool hobby.