Startups: Revenue Generating Products
As a startup founder, I find myself constantly on the search for things that are incredibly abstract.
Most recently, this has manifested understanding the process of building a revenue generating product.
Let’s dive in and break down what that means.
Concept 0: A Revenue Generating Product
The essence of this concept seems to be revenue generation. Let’s dive deeper.
Concept 1: Revenue Generation
Alright, we seem to be at another abstract concept — let’s see if we can break this down by defining it. Revenue generation is the process of having customers pay for the value that you’ve created for them.
Concept 2: Value Creation for Customers
At the core of this, there seems to be a relationship between customer and value. To go even further, the customer seems to be the validator for what value is. There’s also a component of creation — the value needs to be created. To put it simple: a revenue generating product creates value.
Concept 3: Value
What the heck is value?
Intuitively, the concept of money and it being a measure of value comes to mind. To make things easy, we can think of value as the abstract thing measured by money.
Abstracting a level out — creating value for customers seems to be positively correlated with money for customers. In other words, customers will see value created when money is made or saved.
Reduction: A product that makes or saves money for a customer is a revenue generating product.
We’ve now deduced that a product that makes or saves money generates revenue, but how generalizable is the opposite? Is it fair to assume that all products that create value make or save (MOS) their customers money?
Intuitively, the generalization resonates, but let’s stress it.
Test Cases:
Uber: True (riders save, drivers make) ✅
Facebook: True (advertisers make) ✅
iPhone: True-ish (1 step removed, but still a pathway to making money & saving money) ✅
Seeing the examples above, it seems fair to inductively generalize this.
Generalization: A revenue generating product is a product that makes or saves money for a customer.
Considering that a revenue generating product MOSes a customer money, the first step in building a revenue generating product is defining a customer and finding areas where MOS value can be added. In the world of startups, this step seems to map most cleanly to the concept of Need Finding.
New Curiosities
The generalization around a revenue generating product peaks my curiosity around the dynamics of selling. How correlated is the difficulty of selling a product with the difficulty of proving the make or save (MOS)? I’d wager thats it’s harder to sell a billboard ad vs Facebook Ad because it’s more difficult to convey the MOS.
An adjacent concept that peaks my curiosity is the pricing of art. Although not explicitly a product, I’m curious whether the dynamics that take place during an auction are similarly based upon MOS or whether there are other aspects of the concept that I have yet to grok. Tangentially, what about commodities like Arm & Hammer’s detergent or Gillette’s razor blades? Considering that these products are sold for more than their generic counterparts, is the marketing adding MOS value?
