Reason Street CEO Jen van der Meer on why iteration is the key to a great business model

Jen van der Meer’s early days assessing dot-com era startups on Wall Street was invaluable in bringing her to her current role as Founder and CEO of Reason Street, a consultancy that helps organizations design and develop as-a-service business models.

We spoke with Jen about the tools, math and methodologies used to evaluate and evolve startups today… and how Netscape singlehandedly broke the old school business model. Join us July 9 at Startupfest for her session in the Founding workshop on How to Find your Business Model.

Q: Can you tell me a little about the practice of business modeling? What is it?

JV: Business modelling is the mental model you use to think about your business and the way your employees and customers think about your business.

Business model is a noun, but it’s also a verb. And the verb part of it in the startup world is one of the biggest reasons why startups fail. They focus on building the product and not the business model. One of the biggest tasks of a founder is not just creating value but figuring out how to create value, capture value and share value.

Q: Why is business modeling important right now?

JV: In the current moment — and it’s really indicated by the recent IPOs — we have companies that are really good at growing fast and quickly creating love and customer delight, but they are not retaining enough profits to keep them going.

Q: How is the practice of business modelling different from simply building a business model?

JV: Business modelling is a verb. It doesn’t just happen once. You don’t just get a business model and stop working on it. It’s really a long-run effort to find your first business model, and then iterate to your second one and the third one. The strongest companies today, for example, Amazon, have up to 45 different ways that they make money with business models within their larger model.

Q: What does your bird’s-eye view of how companies model themselves allow you to see in today’s economy?

JV: A lot of the things we complain about in tech as it’s gotten big and powerful are business model issues. The complaints, for example, about Facebook and Google, are very often complaints about the core underlying logic of an advertising model.

It’s the very choice of business model that sets the decision criteria around which so many product and service decisions are made. If we’re going to ask: “how do we fix this?” very often the potential solution is to encourage these companies to expand and strengthen beyond their first business model.

When I look at Facebook and Google, I actually see pretty fragile business models. They’re so overly dependent on advertising — it’s 99 percent of their revenue — that they’re going to have a hard time making any of the shifts they’re talking about until they learn how to do this work of building a business model.

In Facebook’s case, they’ve split the company in half: one side is the product, the other side is the business — advertising. My biggest recommendation is for the product, tech and development side of the house to get business modelling skills because that’s where you orchestrate changes to the model.

And Google is not quite as split in half. They were so successful just building wonderful things for people to use and letting prosperity happen later that they still use that methodology as they experiment into new fields, and it’s not serving them as well.

Q: How has business modelling changed alongside the evolution of digital technologies?

JV: It used to be heavily financial and analytical and built entirely within Excel using math. The company that really changed all of that — it was 20-something years ago — was Netscape.

I was an analyst then on Wall Street. I had the job of writing a report about what this company was going to do when it went public and I remember it was unlike anything I’d ever seen. It didn’t have much equipment. It had five revenue streams (most companies had one when they went public) and we couldn’t predict any one of them very well. It became the first company where the story of its potential was more valuable to investors than the actual logic in the Excel sheet.

Q: What are you working on right now that you’re really excited about?

JV: I’m working on ways for startups, founders and accelerator managers to see how different investors value companies with different methodologies. It’s a very visual tool. At one glance, you get the gist of what it means to do a very income-based evaluation, a very qualitative angel investor quick decision evaluation, or a more complicated software as a service evaluation.

You quickly get a sense that there are multiple ways of evaluating a company. It helps you understand why someone is telling you to go in one direction, and why the next investor you meet tells you to go in the opposite direction. It very much comes from their perspective of how they value your activity.

Evaluation is very much a narrative, a storytelling game. In the end, when a transaction happens, it usually goes through some kind of mathematical formula. I’ve been collecting thousands of those formulas. The math, the narrative, the numbers of a story — just being able to show all of that in visuals is what’s driving me right now.

You can see Jen van der Meer speaking at Startupfest this summer, July 9–12, 2019. Learn more here.