3 Business Models

Business Model #1:  Enterprise
This is when your product costs over 100k.  Maybe even in the millions.  The sales cycle is pretty long.  It requires lots of documents to make the sale and build the product.  RFI, RFP, MRD, PRD, Roadmap, the list goes on and on.  This is a tough business to be in.  If you are good at it, then you could get very big like Seibel or Oracle or any other big expensive product suppliers.  If you are a startup, you have to get VERY lucky.  Remend tried this and was not lucky.  They got caught in the classic enterprise mistake.  One customer (the first customer), since they are paying so much, can bully you around to customize the product.  You end up making a custom thing that no one else can use.

Personally, I don’t like this model.  It’s not my style.  You have to slow down releases to a crawl.   You have to cater to single customers.   In general, it’s hard to be creative with this model.

Business Model #2:  Per Seat Subscription
Salesforce is the best example of success with this model.  Your product costs about $20-$50 per seat and you sell hundreds of thousands of seats.  Usually these are SAaS models, where the product is on a website.  It is incredibly hard to sustain this model because competitors come up all the time and ruduce the margins.

This model is tough because you have to scale to many users quickly.  This means you need to make the product simpler.  This isn’t always B2B.  Often this is a B2C play because there are no many more customers in that space.  Personally, I like the B2B space most.  Helping solve business problems is the most rewarding for me.

Business Model #3:  Flat monthly Subscription
This was the Hotkoko model, as well as the Marketo model.  A few thousand a month doesn’t require a RFI or RFP.  A medium level executive can make this decision.  It’s not so much money that it needs huge oversight, but it’s enough to make the customer feel committed and pressured to use the darn thing.

I love this model most.  You can build a pretty substantial product with alot of features. In fact, for this amount of money, the customer expects cool things to be rolled out pretty frequently.  These sort of products often live in a perpetual state of beta.  The key is to keep working on scalability and quality so you don’t paint yourself into a corner.

There are other models out there, but these ones were high on my mind.  Do you know which business model you prefer?

Leave a Reply