Welcome to another edition of the Product in Public newsletter.
Today is less about building products and more about building the business that delivers the products.
Also, sorry for two emails in two days. Apparently I had a lot I wanted to share with.
On top of everything I shared yesterday, I’ve been thinking a lot about business models.
Some of today’s sharing came on the back of listening to Andrew Wilkinson on Lenny’s Podcast. You can listen in here.
The rest comes straight from my brain, and when I say my brain I mean my brain…and Gemini.
Characteristics of the perfect business model
I am 100% an experimenter when it comes to business opportunities. Whether for myself or the companies I work with, I’m a big fan testing opportunities and quickly moving on if they don’t appear to scalable.
There is a danger of cutting and running too fast. Which I have to fight sometimes.
For example, because of the poor results from my first Facebook ad for SBA Loan Analyzer, there is the temptation to kill the product.
Why?
Because if the product isn’t scalable through paid ads it may not be viable. A 1% click-through-rate and a 0% conversion rate isn’t good enough.
There is an aspect of the “perfect” business model that I think I’ve been missing and it took the podcast episode to remind me.
Don’t play games you can’t win.
A lot of entrepreneurs start businesses in spaces they hear about and sound interesting. So, they end up in industry’s where they are playing against competitors they can’t beat, because those competitors are better equipped. When you are picking a business to start focus on one where you have an outsized advantage.
That should have the following characteristics:
- You know the business as good as anyone
- What is hard for others comes easy for you
- You are deeply interested in
Now, plenty of people will say not to pick an business based on a passion. I would say don’t pick it purely because of a passion. I love to play video games, but I wouldn’t want to create a business out of gaming. It’s my outlet away from business.
I’m going to add one more characteristic that is important to me.
Earlier I talked about the ability to scale. For any new business model to keep my attention it has to be able to generate at least $1M in revenue.
I don’t need another side hustle. I have had and have that dialed in.
So, we have some baseline characteristics of the perfect business model, above, now let’s add to those the characteristics of a model that has a strong chance of scaling to $500k-$1M.
Characteristics of a scalable business model
Keep in mind, I’m not looking for just any business model that can scale. I want one that can scale and isn’t just me creating another job for myself.
I think that looks like:
- High profit margins; low COGS
- So that I don’t end up creating a business that sucks me dry of energy and time, it would need to have high profit margin and low costs of good sold.
- Recurring revenue/Predictable income
- I don’t want to be on the hamster wheel of constantly drumming up revenue. So, it will need to be a model that generates predictable income, likely in the form of recurring revenue.
- Strong demand/Known demand
- It can’t be a business that is so niche that the TAM is too small to support a business.
- I also don’t want to be the one that has to create the market. I did that with GoGrabLunch and the educational costs were too big to overcome.
- Low overhead/Operational efficiency
- I don’t want a lot of recurring expenses.
- I want a model that operates smoothly.
There are a few models that I see being able to satisfy those requirements.
- SaaS
- Specialty consulting
- Real estate
Here’s the problem. There is only one of those three where I can meet my original characteristics. Especially, having an outsized advantage.
Can you guess what it is?
What’s your perfect business model?
I’d love to hear how you view this exercise for your own business.
Does it change how you look at what you are doing?
Shoot me an email and let me know.
Just hit reply and type away.
If you’ve found this information helpful, I hope you’ll do two things for me.
1) Subscribe to this newsletter. That way, new copies are delivered directly to your inbox.
2) Share this newsletter with one other person that you think might benefit from the information I share.