The art of thinking through your business model

Your business model- It ultimately creates some of the biggest questions that most entrepreneurs face as they start off down the journey of building something new.

What am I going to build?
Who is it going to serve?
How am I going to package it?

There are so many different routes you can go with this, but it helps to think through everything on the front end.

With Lead Cookie, I didn't think through my business model in detail up front, which is why I ended up building a business with a fatal flaw.

Over the past few months, I have been working on my newest business called Content Allies. In this article, I am going to share the different angles I used to think through the business model and what we landed on.

What do I want?

The first question you should ask yourself before diving into any details of the actual business is simply, "What do I want?"

At the end of the day, you are going to be pouring countless hours, days, and years of your life into this business. So you should probably enjoy it.

And you should probably think through what kind of life you actually want to have. Below is a list of questions that are useful to answer on the front end. (Shout out to my adviser, Alex McClafferty, who prompted me with many of these questions.)

  • Do you want to work from home?

  • Do you want a business that can run 100% without you?

  • Do you want to make a ton of money fast? Or are you comfortable building slowly for the long term?

  • Do you want to be working in your business as the leading expert? Or be a business owner that steps away?

  • Do you want to scale this to something massive? Or do you want to build a boutique company?

  • Could you see yourself going to industry conferences for this business? And would you enjoy that?

  • What does a perfect day look like for you once this business is up and running?

  • Assuming this business will be a success, why are you choosing this business model?

There are no right or wrong answers to any of these questions, but it helps to think through all of these on the front end.

I can't overemphasize the value of taking the time to do this. It's important to think about how YOU fit into the business and not just if the model works.

For example, for years I've had the idea of building a WP Curve-style support service for Salesforce users. It's a super simple model. It's so damn easy. My friend, Ian, started Hubsnacks as a WP Curve for Hubspot.

So I know this business could easily work... but the thought of running it makes me want to vomit- enterprise sales, dealing with large committees all of the time... my stomach churns as I think about actually running that type of business.

It's a great business model... just not for me.

It's not hard to pick a business model that will succeed. But it is hard to pick one that YOU will succeed at. If you hate what you do, you will eventually give up and just walk away.

So think through how you, the founder, will fit into the business model.

Will this be relevant in 10 years?

In today's fast-moving world of tech, this is a very interesting question. Look into the future and ask yourself if the model you are building today will still be relevant?

Once again, this was a weakness I made when designing the Lead Cookie business model. I built the entire business on a short-term marketing trend that will probably last a few years.

While Lead Cookie can evolve and we can adjust our tactics, it is going to heavily disrupt the business when Linkedin changes their platform at some point (which is inevitable). The business will survive, but it will take a short-term hit when this happens.

Yet I see so many people trying to launch businesses with a similar weakness. They build on a short-term marketing trend that just isn't going to last.

This is one of the core problems with productized marketing services.

Examples of short-term thinking
I almost made this mistake again with Content Allies. The first iteration of Content Allies that actually saw traction was an offering around Linkedin content.

While this was a great offer and people were interested, it was far too risky to build off of. Who knows what Linkedin will change in their content algorithm over the coming years.

Other examples of short-term thinking include all of the social media hacking services or any marketing "tactic" that is working today.

Even cold email is another great example. Look at what GDPR did to cold email in Europe. It's basically illegal now. That is a sign of what is to come in the rest of the world over the next 10 years and a sign to get out now before the disruption hits.

The new Content Allies model in 10 years:
For Content Allies, I landed on a very simple model.

We are a content marketing agency that supports expert consultants in turning their expertise into thought leadership content.

While we are an agency, we create a series of "products" that our customers sign up for and we treat each product like its own productized service. We avoid customizing and instead package our service lines for scale.

After a lot of back and forth, I chose this model because I know that content is only going to become more important. Content marketing has been around for years, it is a mature market, and all signals point to it growing more important over the coming 10 years.

If I chose "Linkedin content" as an individual tactic, that model would be weak.
But by focusing my offering around "content marketing" as a whole, it lets me be more agile and safe from disruption.

Sure, we can offer Linkedin content as an upsell to our clients. It may generate great short-term cash flow, but I am not going to bet the farm on a tactic that could be disrupted by others.

If I started this business 10 years ago, would I be happy with that decision today?

Recently, I have been reading "Principles," by Ray Dalio, and one of his decision-making frameworks has been massively impactful on me.

When Ray's firm was trying to make a decision on an investment, they would actually take their current decision and then run it through simulations of how their returns would be if they had made this decision at various points in the past.

While the past is not always a perfect predictor of the future, it was very helpful for them to have the data to make them think that wow, if we made this decision 10 years ago, we would be deep in the hole today.

While we don't have fancy computer systems to simulate what would happen with our small business decisions, you can take the mental framework and apply it.

Ask yourself, If I chose to start this business 10 years ago, would I be happy with that decision today?

For Content Allies, I know that if I had started a content marketing agency 10 years ago, I would be ecstatic with the business I have today. I look at other content firms and what they have built and it checks the box on many of the elements of what I desire from a business.

Now in some cases, maybe the tech you are building around didn't exist 10 years ago, which then makes this question hard.

In that case, I would first recommend to look at the business model instead of the individual tech and ask this question.

And second, I would tell you to really ask yourself if it will be relevant in 10 more years if it wasn't relevant 10 years ago...

What are the external risks?

For the past two years, I have offered Pick-my-brain sessions where people can hire me to ask questions for 30-90 minutes.

Ironically, the biggest purchaser of these sessions have been other up and coming competitors to Lead Cookie. It's normally an early stage entrepreneur who has $5k-10k in MRR selling Linkedin lead generation services.

On every call, I have to hijack the call for 10 minutes to explain the fatal flaw in the business model they are pursuing.

And every single time, they are in denial.

Some of them have even read the article I wrote but they still don't believe me. They are caught up in making short-term cash tomorrow and fail to realize they are building a house on a shifting foundation today.

So in the early stages of your business, you need to really think through and ask yourself:

  • What are the external risks that I face?

  • Am I building around a platform? (Ex. Wordpress, Linkedin, Hubspot, etc.)

  • What risks are associated with building around a platform?

  • Are there risks of the market, technology, or industry changing in the coming years that could make our model irrelevant?

  • Will I face a churn problem with customers leaving after a short period of time?

This exercise is so freaking important. Really think through this on the front end.

In the early days of Lead Cookie, I did this exercise and wrote down this risk: Linkedin could change their platform and make us irrelevant.

Yet I pushed forward regardless... I ignored it and thought to myself, I will figure out a solution later on.

Guess what? If it's a problem in your business model today, it will still be a problem in your business model 2 years from now.

Risks in your business model are very real, and solutions won't just magically present themselves.

Go through the exercise of thinking through every weakness or problem in your business model. If you can address or come up with a solution, that is great. Maybe you can't solve it today, but with time and money, you could solve that over time.

But some risks are real... some risks are the reality. You have to decide if those are risks worth bearing.

A real-world business risk:
I had coffee with an entrepreneur the other day who was telling me an idea that he had. The concept was to build a software product that made the lives of Amazon sellers easier by streamlining the interface and uploading process of items.

The concept was solid, and it was a very serious pain point for many Amazon sellers... but the risk is massive.

I asked him, "What happens when Amazon changes their API? Or when Amazon rolls out their own version of this product to make this easier for sellers?"

His response was valid. "Well, my hopes are that I could build this fast and then sell it to Amazon instead of them building it themselves," he said.

His plan is decent here.
It's a real-world pain.
It's a real possibility that he could build something and sell it to Amazon and cash out big.

BUT the risk is very real.

There is no right or wrong answer whether or not if he should pursue this business. It all comes down to the question, "what does he want?"

If he wants to build fast and take a big gamble in hopes of a huge payout, then he should go for it.
But if he wants to build a sustainable long-term business that gives him freedom and flexibility in life, then this is not the path to go down.

Risks are real. Sometimes they are worth it, but it all comes down to what you want and how much risk you are willing to take.

Am I fixing a recurring need?

My adviser, Alex McClafferty, has a saying when evaluating new business concepts.:

"Ahhh. The ol' trying to fix a non-recurring problem with a recurring business model."

You see, so many entrepreneurs try to do this. In fact, I was recently talking to Damian Thompson, one of the Co-Founders of LeadFuze, and the advice he gave was gold.

"Early on at LeadFuze, we tried to change the way people bought leads. We tried to turn the lead purchasing process into a subscription service. But that's not what people wanted. They wanted to show up, buy a list of leads and leave.

When you try to think of everything from the angle of your product, you make bad decisions. You have to think from a sales mindset and have your product adapt to fit what your market wants."

I've seen countless people try to sell website designs as subscription services, instead of selling one-off project fees. To this day, I still have not seen anybody pull this off.

Another friend is building a database of influencers, yet he's trying to sell it as a subscription service instead of just selling the list.

This is a mistake made over and over again by early-stage entrepreneurs. They try to take their product and make it recurring...

But if your market is not used to buying it as a recurring subscription... then it is going to be quite hard to change that behavior.

Marketing "tactics" are not a recurring need:
This is one of the core problems with building a productized marketing service. People buy marketing services as experiments. They test out a channel, see if it works, and then move on.

And even if the channel works, they know it will saturate over time and they will switch their budget over to another marketing channel.

This was a huge problem we faced at Lead Cookie. We would produce great results for a client, but they would either saturate or switch their marketing budget to invest in something new.

We had nothing else to sell them so they moved on.

A recurring business should fix a recurring problem:
WP Curve provided Wordpress support. People constantly had problems with their website and needed support. The problem was recurring, and so the model could be.

Design Pickle provides graphic design. Marketers constantly need design tasks done. The problem is recurring, and so their model can be.

Hubsnacks provides Hubspot support. A company who invests into Hubspot drops a lot of money and so they need a partner who can support them to get the most out of the platform. This is an ongoing pain.

If you want to have a recurring business model, then you need to have a recurring problem to fix. Don't force it. It has to be real.

Agency or Product

Another distinction to consider when choosing your model is if you want to build an agency or a product.

The lines between these two can get rather fuzzy, but here is how I like to think of the difference.

An agency is selling a higher value custom service offering that is going to require deep customization and expertise for each individual customer. You need highly skilled people in the business doing the work, and you will probably feel a significant pain if any of your people leave because their expertise is ultimately what you are selling.

A product, on the other hand, operates on a process. You are able to train an unskilled worker, with the right attitude, to quickly take on the role and own it. If one of these team members leaves, they are easily replaceable. Your business is the output that you are selling and not the expertise of the individual team members.

Many businesses, especially productized services, sit somewhere in the middle of these two models. That's not a bad thing but it's worth noting where you are going to sit on this spectrum.

The good thing about an agency is that it tends to be easier to get profitable because you are ultimately selling your expertise. It's not hard to land a few great clients because you can customize your offering to fit the individual needs of each customer. While you may be profitable, you are ultimately tied to the business and it is far harder to remove yourself.

A product, on the other hand, may struggle with profitability in the early days. You need to reinvest profits back into team members or systems to get the business ramping up. You will also struggle more with "product-market fit" since you are not able to customize your product to every customer who walks in the door. This makes a "product' a bit harder of a business to get off the ground.

A common approach for many agencies is to simply start as an agency, and then spin off with "Product lines" that are based around the core strengths of the business. This is a safe middle ground to walk.

For Content Allies, we are walking the middle road. We are choosing to build an agency that has several core offers. We are ultimately offering a decently wide array of services, but we treat each service line like its own product.

My reasoning for this all comes back to the problem with productized marketing services. I know that if I only offered one content service for Content Allies, then we would have a high level of churn as people would leave us to go purchase a different content service.

Instead, we are choosing to offer a wide array of content services such as writing, podcasting, social content, and email newsletters. It's a lot, but with all of those service lines, we can transition our clients from one service line to the other instead of churning them off and sending them elsewhere to get those fulfilled.

Do the finances make sense?

Finally, it comes down to asking yourself if the finances make sense. For most entrepreneurs, I don't even recommend diving too much into the finances until you have really thought through everything else.

Financial projects can be a black hole, and if your core assumptions are wrong, then it is all a work of fiction anyway.

For example, my financial projects for Lead Cookie were WAYYYY off. I didn't anticipate the level of churn we would have as a productized service built on a marketing tactic.

Since I didn't factor churn in, I failed to realize how hard growth would get at a certain point as our churn paced alongside our new sales.

So don't dive too much into financials until you have really thought through all of the risk factors.

But once you have landed on a model that passes all of your other tests, then you need to run the numbers.

  • Does this make financial sense?

  • Can you visualize making realistic margins with this?

  • What will this organization look like at $20k per month, $50k per month, $100k, $250k, etc.

  • Will this get me to my personal financial targets?

When putting out your financial projects, be conservative. Assume that you will have more costs than you actually do. If you can make the financial model work- even with conservative numbers- then you can probably make it work in actual reality.

But if the numbers just don't add up... then you really need to question the model.

For example, one of the first iterations I had of Content Allies was a "VAs for Content Marketers" service. We were basically going to staff VAs and upcharge their hourly rate. This was a super hard model where we were trying to sell a $5 per hour VA for $10-15 per hour.

As soon as there were quality issues, a U.S. based person would have to jump in to fix things. And if they spent even one hour on the work, it ate up 4-5 hours worth of margin.

The numbers on this model just didn't add up. What the market was willing to pay did not line up with a financial model that got me excited.

So I shut it down and opted for a model that was easier and better to run.

Sure, the VA service could have worked. But just because something could work doesn't mean it's the right or easiest path to go down.

Choose a business that serves you so you don't end up serving your business.

Think before you act

This whole article is put in place to force you to think before you act.

For years, I jumped into a business model after business model. And they all failed until Lead Cookie came around.

I would come up with an idea and jump straight into action. But the problem was I didn't think through why I was building what I was building before I started.

Instead of flailing around from idea to idea, take some time to step back and think through your model.

Do this over a matter of weeks, not days. But don't take months or you are just procrastinating.

Give yourself time to think through the model, and then take action.

Because it's only that once your idea is in the market that you will receive feedback.

Think before you act.
But once you have thought it through... act.
Don't sit on it. Just take action.

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