How to break business models down and analyze them

Previously, I wrote about business models based on the video produced by Andreesen Horowitz here. While that was a great way of thinking about typical types of business models but I recently found an even more structured way of looking at business models as opposed to a listicle. That’s from Croll & Yoskovitz’s lean Analytics book.

Shifting perspective on things help doesn’t it? Credit to this amazing illustrator: https://dribbble.com/merooseth

The book is a big proponent of the ability to simply describe businesses models. If you cannot describe it in a simple sentence then either it typically doesn’t work or you yourself don’t have clarity on this.

Croll & Yoskovitz analyzes business models by breaking the concept down into unchanging, constant components which are:

1. Acquisition Channel: How do prospects and customers find out about you and the product. (e.g. virality, paid, organic, word of mouth, social, PR, partners)
2. Selling Tactic: Incentives and promotions used to convert these prospects, customers (freemium, discounts, rebates, free storage, free trial, pay for privacy, bundling)
3. Revenue Model: How to extract money from the users/buyers/clients (Upfront payment, recurrent payment, metered payment, ads, donation, resale of user data)
4. Product type: What the company does in return for the money extracted. This can be both software/hardware or any bundling of things(Software, tools, hardware, platform, APIs, merchandising, user-generated content, marketplace, media/content, service)
5. Delivery Model: How the product gets to the customer? (Hosted Service, digital delivery, workflows, physical delivery)

Businesses across the world have different combinations of things in each component, thereby creating different types of business models. The way to describe a business model succinctly roughly follows this: (Take Youtube now for example. A bit complex as it has viewers, creators, ad-partners)

1. This business acquires viewers from word of mouth/virality/Brand/SEO and convert them through freemium, bundling with other Google services and makes money from viewers through subscription. It delivers values to viewers by enabling discovery of content through UGC platform.
2. This business acquires creators/potential creators through brand/SEO/existing viewer base and convert them through rev share and doesn’t make money from creators. It delivers value to them by giving them traffic, digital creator tool sets, and content hosting service.
3. The business acquires ad-partners through direct sales team/existing network and convert them through sales incentives and makes money from metered ad-deals. It delivers value to ad-partners by giving them impression, CTR and self-service reporting.

Youtube as a business model for each specific type of user/customers and ultimately made it work by tying it together across all. When Youtube started, the business model wasn’t complete. It evolved over the years into this behemouth. (Clocking in at 20 billion 2019, 13% of total Google Rev, 2 billion monthly active users).

From this, it is pretty clear that any business model can be quickly analyzed like this.