Following from my recent post on what we look for in a founder, here’s a quick insight in to what we look for in a business model.
We look for business models that can make money the day they’re launched, as sales performance is the ultimate test of a successful startup. We shy away from models which require immense scale to be profitable so we are looking for healthy Gross Profit margins to work with. It doesn’t matter if the business model is subscription based, freemium, marketplace or direct sales as long as it can be demonstrated to generate cash quickly.
We like businesses which have clearly defined “three customers”, with emphasis on customer 1 and 2. This is a business which has a clearly defined (and therefore approachable) target customer (1), a business model which can scale through joint ventures with scale customers (2) and a business which has exit opportunities through strategic customers (3).
Ultimately however, we want to ensure that as a founder and CEO you understand the market you are building a business in. In this way your “secret sauce” isn’t a piece of technology you’ve developed but rather it’s a unique perspective on an industry, it’s needs and importantly your ability to exploit relationships and connections.