Tuesday, November 25, 2008

Business Models to Avoid

Having spent some time with Startup Gauntlet, Pitch Camp and Startup Riot, I've had the chance to see some really terrific business ideas. And some remarkably bad ones too.

When building a startup idea, it is critical to think through your business model. How do you trade your widget or service for cash? There are some good ones, and there are some bad ones.

Here are a few models to avoid:

Spaghetti: "We have five ways of making money." If one model is good, isn't five better? This is like a football team with three quarterbacks, they really have none. Don't throw spaghetti against the wall to see if one of them will stick. Pick the most compelling model and focus on that.

Field of Dreams: "If we build it, surely they will come." One of the worst things to ever happen to entrepreneurship was the horribly, horribly misleading quote - "If you build a better mousetrap, the world will beat a path to your door." Uh, no, they won't.

Boil the Ocean: It's good to think big, but don't think too big. You need to prove you can be successful with a few customers and then scale.

China: "If we can only get 1% of the Chinese market for our widget, we will be a billion dollar company." Sure you will. Where do I sign up? Pick a small market and a way to dominate it. If you can't find a way to do that, redefine your market. Whatever market you go after, you must be a leader.

Venn Diagram: "We will build A. People want to buy B. We think they might overlap." Maybe. Probably not.

Bill Clinton: The man from Hope. That's all I need to say about that.

Do you have any other favorites? Send them to me and I will add them to the list.

Coming soon to a blog near you - some really good business models.


Scott Burkett said...

Hey Paul - good post. I agree with all you've said, with one small caveat about "spaghetti".

I actually think it is better for a startup to have more than one way of making money. In fact, without that element in place, the deal's risk profile goes way up for me.

However, I will say that multiple revenue streams is different than multiple business models. Multiple models is terrible - but multiple sources of revenue within the same larger business model is good.


Paul Freet said...

Great point Scott. I don't have a problem with multiple revenue sources/models, but until you're up and running, this can be quite distracting - and debilitating with some entrepreneurs. Focus is everything when you're launching.

If I was talking to a potential investor, I would tell them the best model, and then mention we have others we can fall back and would be happy to discuss those in detail when the time is right.

Ichisan said...

Great check list.

I'll offer another for consideration: "We will grow big, get acquired, and then they will figure out how to monetize us."

The basic idea is this - "I don't know how to make money, but hopefully someone else will... and will be willing to pay too much for it."

Possible titles:
- The Sellout
- "non-business" business
- The Legend of the Corporate Giant
- The Internet Model