In order to understand what makes startups work, it's important to take a step back and look at the big pieces.
So, What's A Startup?
A startup is a company that is searching for the Four Fits. If one of the fits is missing, it's still a startup.
A scaleup is a company that has found the Four Fits and is growing revenue at least 50% YoY.
Note that most new companies shouldn't be called startups. Every startup is a new company but not every new company is a startup. The business models of restaurants, hairdressing salons, or pillow factories are usually well-established. So, even if you create a new one, you're not searching for the Four Fits and you're not, therefore, a startup.
Differences Between B2B and B2C Startups
Aspect | B2B Subscription | B2C Subscription |
Churn Rate | Lower | Higher |
Average Revenue per Customer | Higher | Lower |
Net Dollar Retention | Present (Revenue growth) | Non-existent (Flat revenue) |
Payments | Optimized & Cost-effective | Less optimized & Costly* |
Customer Acquisition | Scalable, B2B-oriented | Harder, Limited options |
Network Effects | Can enhance retention | Vital for retention & growth |
* This applies especially when selling a mobile app as they take a percentage of revenue plus it’s not possible to optimize payment flows.
What Is Easy to Get Wrong?
Not Spinning Off New Products
When dealing with disruptive innovation (or new products), these products should be completely separated from the existing product line. It's why, for example, none of the banks have managed to create a Fintech or a neobank - their business models simply don't support it.
Not Expanding
For B2B startups it’s quite likely that they will either choose a multi-product strategy or introduce new plans (especially for enterprises).
The multi-product approach might work for B2C as well. But more likely you can just create a B2B product and use B2C as a growth channel. Ridesharing companies are a great example here - they both added new products (food delivery etc.) but also business offerings (Uber for Business, for example).
Models
- The Four Fits - useful for understanding how the target group, problem/solution, growth loops, and monetization fit together
- Flywheel - useful for prioritization after you understand the Four Fits, shows how the product improves and drives company growth
Why Not Use Business Model Canvas?
You do need to think about all those things listed in the Business Model Canvas. But as a model, it's too complex and the relationships between different puzzle pieces are unclear. So, personally, I am not using it cause it's hard to keep it in your mind.
Expanding Business Models
This expansion is sometimes also called the product-market fit expansion but in reality all the Four Fits get expanded, not just one.
There are three ways to expand:
- The same customer, new product
- New customer, the same product
- New customer, new product (diversification).
The last one is hardest to pull off as you don’t really have anything going for you - you will start from basically zero again.
Additional Reading
The Business Equation
In assessing the strategy that has allowed Benchmark to remain at the top of the of the venture capital industry for two decades, I laid out three core pillars that guide the way the firm operates. Founder-led Insight - Benchmark is allergic to trends, top-down thinking & thesis-driven process.
venturedesktop.substack.com
The Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business
The Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business [Christensen, Clayton M.] on Amazon.com. *FREE* shipping on qualifying offers. The Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business
www.amazon.com
Why Consumer Subscription Is So Hard, and What to Do About It
Consumer subscription businesses are deceptively hard. I list out the reasons as well as the best strategies to make the business model work for you.
caseyaccidental.com
