Startups usually have a deficit when it comes to designing and building a product.
But companies are designed to make money, and over time, as unit economics and customer acquisition costs improve, you’re likely to break even. Maybe. Hopefully.
At least that’s what your investors will bet on.
Business Model
This means that your business model snapshot needs to paint a picture that shows where you are now and how the business can grow over time.
In theory, your “business model” could encompass every aspect of the business.
The Business Model Canvas is one way to explore this, and you can easily spend an hour talking about the entire end-to-end business model.
However, you will probably only need a few key elements for the purposes of a funding offer:
COGS, or cost of goods sold, is the incremental cost for each unit you ship.
For software, this usually rounds to zero, but for hardware products or more service-oriented businesses, the unit cost can be significant.
CAC, or customer acquisition cost, is the cost of sales and marketing divided by the number of customers you sign up.
LTV or Lifetime Value: What is the average value of each customer once you sign up?
Research and development costs are the costs of product development.
This is usually not included in the business model, but if R&D costs are astronomical and the cost-profit line never intersects, you may have a problem worth investigating.
The pricing model is usually not part of the business model itself (it falls under LTV).
If you’re doing something unusual or creative with your pricing, it’s worth including, either here or in the go-to-market slide. .
Breaking down these numbers and presenting them in the right way can be a huge asset in how you tell your startup’s story to investors.
Startups usually have a deficit in designing and building a product.
But businesses are designed to make money, and over time as your cost per unit and customer acquisition improves, you’ll likely find yourself making mistakes. Maybe. Hopefully.
At least that’s what your investors will bet on.
This means that your business model snapshot needs to paint a picture of where you are right now and how the business can grow over time.
Sources: Techcrunch | ustoday