Nine Business Models and the Metrics Investors Want

Ana Hariharan touch on various aspects of business strategy and decision-making. It starts by
discussing a future booking with a customer that has committed to working with you. However, since
the service delivery will only begin in two months, the revenue recognition is not immediate. Instead,
the booking serves as an internal measure to manage the business and allocate resources. The goal
of reaching $200K in revenue by the end of the year is mentioned, and there is a question of how to
achieve this goal. One option is to find another customer to increase revenue, while another is to
accelerate the launch of the service, allowing for earlier revenue recognition.

The paragraphs also discuss different business models, particularly in the context of a community
business. The recommendation for a community business is to track active users and their behaviors,
such as daily, weekly, and monthly activity levels. This data can provide insights into the health of the
business and help gauge product-market fit. Additionally, the importance of tracking burn (cash
expenditure) and gross margin (revenue minus direct costs) is emphasized. Monitoring burn ensures
that the company has enough cash to operate, while gross margin analysis helps determine if the
business is profitable on a per-transaction basis.

Regarding investor discussions, the paragraphs suggest focusing on two key factors: the unique
insights and expertise of the founder(s) and the potential for the business to become a significant
player in the market. These are often the primary aspects that investors look for when considering an
investment opportunity. It is advised not to overcomplicate the investor pitch with unnecessary
details but instead focus on these core elements.

In the case of a business model similar to Ancestry.com, where customers sign up for reports and
may return for additional purchases in the future, the question of revenue recognition arises. The
suggestion is to record revenue for the initial purchase, considering it as revenue for that specific
month. Subsequently, the behavior and retention rates of customers should be analyzed to
determine how often they return and make additional purchases. This analysis can help shape future
revenue recognition and business strategies.

The paragraphs also touch on go-to-market strategies for different types of businesses. For
enterprise-focused businesses, it is recommended to start with small teams or pilot projects rather
than immediately targeting large clients like Facebook. This approach allows for testing and refining
the service before scaling up to larger contracts. Additionally, the importance of monitoring
customer acquisition costs is emphasized. While early-stage businesses may benefit from organic
user acquisition, it is essential to measure the costs associated with acquiring new customers as the
business scales.

In summary, the paragraphs cover topics such as revenue recognition, business metrics, investor
discussions, customer acquisition costs, and go-to-market strategies. The focus is on managing the
business internally, setting goals, tracking key metrics, and making informed decisions to drive
growth and success.

Startup Pricing 101

1. Pricing Value: When setting prices, it's important to aim for a value proposition that is easily
understood and perceived as 10 times the price. This means that customers should recognize
the product's value as significantly higher than the amount they are paying. This approach
helps create a strong incentive for customers to make a purchase.
2. Gradual Price Increases: A strategy for optimizing prices involves gradually increasing them
over time. Start with a conservative 5% price increase and monitor customer response. If the
increase doesn't negatively impact sales or customer satisfaction, consider implementing
further incremental increases. The goal is to reach a point where you're losing about 20% of
customers due to the higher prices, indicating that you've found an optimal balance between
revenue generation and customer retention.
3. Understanding Variables: Pricing decisions should be based on a thorough understanding of
the variables that influence the pricing structure. This includes factors such as production
costs, competitor pricing, and the perceived value of your product in the eyes of your
customers. By comprehending these variables, you can make informed decisions about
pricing that align with your business goals.
4. Targeting Early Adopters: Early adopters are a crucial target market for startups and
innovative products. They are more willing to embrace new solutions and are motivated by
the benefits your product offers rather than the price. By focusing on early adopters, you can
drive initial adoption and gain valuable feedback and testimonials that can help attract more
mainstream customers.
5. Mature Customer Consideration: While it's important to target early adopters, it's also
crucial to understand that more mature customers may not be as ready to adopt your
product. It's essential not to take it personally or view it as a reflection of your product's
value. Instead, focus your efforts on the early adopters who are more likely to embrace your
innovation.
6. Price Optimization Techniques: Price optimization involves experimenting with different price
points and analyzing relevant metrics to identify the optimal pricing strategy. This includes
monitoring sales volume, conversion rates, and revenue generated at different price levels.
By conducting pricing experiments, you can gather data-driven insights to make informed
decisions about pricing.
7. Aligning Pricing and Acquisition Strategy: Your pricing strategy should align with your
customer acquisition strategy. If the cost of acquiring customers is too high compared to the
revenue generated, it may be necessary to adjust your pricing or reduce customer
acquisition costs. Striking the right balance between pricing and acquisition costs is crucial
for profitability and sustainable growth.
8. Pricing's Impact on Business Growth: Pricing decisions have a significant impact on business
growth and should be carefully considered. Finding the right balance between the value you
offer and the price you charge is essential for attracting customers, generating revenue, and
ensuring the long-term success of your business.