4 Ways To Make Money
Every business wants to make money. That includes start-ups as well as big corporations. However, in recent times, there have been a number of start-ups propping up where extremely smart people are building cool products, without an eye on the monetization potential. The main idea is to build something cool and focus on user acquisition. Then, the next goal is monetization.
While this is a perfectly valid way of aiming to build a company, there are other ways of going about it too. This post explores 4 such ways, arranged in decreasing order of difficulty in monetization. For illustration purposes, I have used an example of a village where villagers don’t have a source of water inside their homes. The example is for illustration purposes only and there is no intention to disparage someone’s start-up idea ☺.
This is the hardest way to make money. The common pattern is : You build something cool. People like it. Hoards of people use it. Someone buys your company for those users.
This approach can have a lot of potential upside, but building something cool which others will like requires a lot of time, effort and (I will take the liberty of saying this) luck. You could be building something to solve a problem you have or a problem which you see around you. But the essential condition is that no one is paying for your service. You are banking on getting popular and getting acquired/making ad revenue. An illustration :
Consider a village where the villagers fetch water from a well. The area around the well gets slippery so some people fall around the well. Now consider a start-up which makes pavement around one portion of the well — for free. The idea is that lots of people will be using this pavement because it is a nice-have and then someone will acquire this start-up for getting access to all these villagers coming through this pavement. Or, they will show some ads around the pavement and get money from advertisers.
The problem with this approach is that the only way for this start-up to make money is by hoping that enough people will be using it that ad revenue makes sense; or, that other companies will be interested in acquiring those users which they could not have otherwise reached.
Solve A Latent Need
This approach requires a lesser luck-factor but requires a good salesman. The idea is that you are making it easier for someone to complete a task and are asking for payment in return. An illustration :
Consider the same village as above. Villagers use buckets to fetch water from the well. They have to make two trips to the well every day to meet their daily requirements. Now consider a start-up which comes up with a bucket with twice the capacity of a normal bucket. The cost of this bucket is $10.
If the start-up hires a good salesman (or saleswoman), this might fly. The essential point to note here is that the villagers were spending more time and energy on getting the necessary water supplies but not money. It was free earlier and now it is paid. There will be some effort required for the first few sales but after that, things can sail smoothly.
Save Or Make Money For Customers
Probably the easiest sales pitch is in the case when a service is saving money for someone or making more money for someone. The upside is very clear. Unless there are other considerations (e.g. some security issues), the sales are usually very smooth.
However, there are a few catches. Identification of the problem and possible solution might require a lot of domain knowledge. Also, the upside should be big enough for the customer to consider the switch. The customer might have to make some adjustments on his/her side to incorporate your solution. There is one final caveat — since you already found a way of making money, competition will crop up. So you have to think of protecting your company☺.
Consider the same village as above. However, this time, the villagers pay $10 per day to get water from the well. Now, consider a service which gives water at $5 per day but only if the villagers are present for collection at 10 AM or 5 PM.
The villagers have to adjust their schedule but the upside is big enough that they will be willing to switch. Hence, a smooth sale. Also, the start-up may possibly convert a majority of the villagers to paying customers! Note that this might not fly if the service is priced at, say, $9 per day. Compared to the $10 that the villagers were paying earlier, the $9 a day price might not present a big enough upside for the villagers to adjust their schedule.
If a service falls in this category, it does not need salespeople! If a customer has already identified a problem and is actively looking for a solution, a service which solves his problem is sure to land a sale.
Consider the same village as above. Now if there is a drought and money is tight, people will be looking to save money in all possible ways. A service which delivers water even at $9 per day will be a welcome change — changes in schedule become less important.
However, for you to land such a sale, you need to be at the right place at the right time. This might seem similar to the first case in terms of probability — and maybe it is. However, the skills required for this are completely different. While being lucky would require a keen sense of observation and an innovative mind, being god-send would require contacts with the right people. Also, this can be a B2B business while the first case will mostly be a B2C business. So the sales cycle can be longer.
These are the four ways I have identified of making money. I am looking at cases 3 and 4 for my startup www.coachpal.me. If you have some other classifications or some other thoughts, I would love to hear them ☺
If you are also interested in being god-send, then I am starting a meetup : http://www.meetup.com/South-Bay-Enterprise-Solutions-Meetup/