(and vice-versa).
Paul Graham, in an interview on TechCrunch, tells founders to “focus on making something great, instead of worrying about how to make money”. This is the kind of statement that generates a fair deal of controversy because it goes against conventional wisdom. We should all know that the best business model is to charge your customers. Should you fail to focus on that, you are bound to repeat the errors of the great dot-com bubble. This is roughly the argument Russel Beattie makes when he proposes a simple test for a “real” business: “do they take my credit card?”.
Before I join ranks with Paul Graham’s supporters, I would like to make a semantic point. A business model is not a revenue model. A revenue model is a way to generate revenues, like charging your customers or advertising. A sound business model includes other important aspects, such as:
- identifying and reaching out to your market.
- creating value for your users.
- building and maintaining a competitive advantage.
- growing your user base.
- and so on…
The revenue model has little to do with the reasons why a business will eventually succeed or fail. It is just one piece of the puzzle. Once you have managed to put all the other pieces in place, this one will fit right in.
I’m Outside The “Frothy Bubble 2.0″…
Why do I love holiday weekends? Because the major media goes home and there is a ton of great blog posts out there based on people’s core thoughts everywhere I look (including my blog) instead of the major media discussion follow on. In fact, why…
[...] A Business Model Is Not A Revenue Model [...]
[...] What’s Wrong With the Seattle Startup Scene? Angel Group Invests in 35 Companies Founder’s Co-op Likes 2 and 3 Person Teams In Praise of Dual-Class Stock Structures for Public Companies Venture Hacks: Advice & Intros for Entrepreneurs Struggling to Monetize Web 2.0 A Business Model Is Not A Revenue Model 54 Ways You Can Help the Homeless What Is An Entrepreneur, Anyway? The Importance of Angels In Creating a Biotech Startup SNL: Don’t Buy Stuff You Can’t Afford How to Become a Venture Capitalist 20 Worst Venture Capital Investments of All Time [...]
[...] It’s important to mention that revenue models are not business models. Revenue models are ways to charge your customers and business models encompass several others factors such as: [...]
This is a great post, and I agree with everything but one sentence: “The revenue model has little to do with the reasons why a business will eventually succeed or fail.”
There are many examples where the revenue model determines success or failure: for example, many Web 1.0 companies had revenue models tied to banner ads, and when the price of banner ads collapsed after 2001, they died.
So a more accurate statement would be to say “The revenue model may have little to do with why a business eventually succeeds or fails.” If you want to make a stronger statement, you could say “rarely has anything to do”, although I think that claim is debatable.
I really liked this quote, “focus on making something great, instead of worrying about how to make money”. I think this statement is disregarded in today’s society. We should all hone into the real goals of a business. To focus on the needs and wants of customers rather than the initial goal of making money. Great post, it really points out the needed separation between a business model and a revenue model.