As a startup founder, it's natural to focus on the innovative aspects of your idea when envisioning success. Innovation is important specifically for solving problems and addressing pain points.
In our work with underrepresented founders with Wild Accelerator and through the Journey to Investment Ready workshops, we work with startups on to help them ensure their product or service innovation offers, as the industry says, “medicine, not vitamins,” as a barometer for how big the pain point and the proposed solution are. The bigger, the better for gaining growth and traction in a crowded marketplace.
However, we also work with them to recognize that true success in startup growth hinges not only on innovation but also on selecting the right revenue model(s) to help them break free from limited thinking and envision substantial growth.
Why Revenue Models Are Important
There are many advantages to choosing the right, scalable revenue model for your business:
A well-chosen revenue model ensures that your business effectively addresses a problem and alleviates a pain point. By aligning your model with a market need, you can provide a compelling solution that customers are willing to pay for.
The right revenue model allows your startup to quickly gain traction in the market and scale up efficiently. By offering a product or service that people are ready to invest in, you can attract a large customer base and draw the attention of potential investors.
When you’ve chosen a scalable revenue model, you can use a well-known, successful company following that model as a way to help people relate to your plan. Remember ten years ago when so many businesses were “the Uber of _____” to easily describe not only the features but the business model, and wishful thinking about the growth trajectory of their idea.
With that well-known company example, you can also study and learn all the ways they make money, which often times involves more than one scalable model, and mimic those strategies.
Breaking free from limited thinking is one of the most important part of the process of choosing the right revenue model. Often referred to as "thinking like an island," the tendency to think small or locally can hinder a startup's growth potential. To overcome this limitation, founders need to familiarize themselves with scalable revenue models employed by successful startups.
Scalable Revenue Models
Exploring and adapting scalable revenue models provides valuable insights into the growth potential of at least three categories of scalable revenue models:
Recurring revenue models such as B2C subscriptions, SaaS, licensing, and pay-per-user sales offer opportunities for steady income.
Wholesale/retail sales models like markup, commission-based systems, and web/direct-to-consumer approaches provide flexibility and scalability in reaching consumers around the world; and
Community-oriented revenue models such as advertising, affiliate marketing, shared economy, marketplaces, and data sales leverage user interactions to drive revenue growth.
Consider the "Markup model" adopted by Amazon, where they sell other people's products and earn a commission. This approach allows them to scale their business without the burden of inventory management, propelling them to become a global e-commerce giant. After establishing the D2C mark-up model, Amazon used its back-office web services infrastructure to offer a B2B SaaS model, Amazon Web Services.
Another example is Duolingo, which utilizes a "B2C - Subscription model." By offering a freemium language learning platform and reserving advanced features for paying subscribers, Duolingo has not only generated revenue but also fostered a loyal customer base and paved the way for future growth.
As a startup founder, it's essential to embrace the significance of selecting the right revenue model to unlock your business's full potential.
By understanding how scalable revenue models have propelled successful startups, you can break free from limited thinking and envision substantial growth. Whether it's through recurring revenue, wholesale/retail approaches, or community-oriented models, your revenue model serves as a roadmap to guide your journey toward financial success and expansion.
So think big, explore new revenue opportunities, and propel your startup to new heights.
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