Describing a startup’s business model answers the question of how a startup makes money. Bill Aulet says “you do not have a business until you have someone actually paying money for your product.”
I recommend founders do the following when describing their business models:
- Stick to well-known terms and use simple language
- Don’t be afraid to use examples of similar businesses
- Use diagrams (see example below)
Here are some common terms used to describe business models:
- B2C (Business-to-Consumer) These are models that sell directly to people, who are also the end user. These models often spend money on digital marketing in order to attract and retain customers. Startups in Peru that primarily use this model include MiMediaManzana, Crehana, Freshmart, ArtesanoArt and KaraokeSmart. There are a growing breed of direct-to-consumer models within this category in Latin America, including Ben & Frank.
- B2B (Business-to-Business) These are business in which the clients are other businesses. This is often true of software products and a startup usually needs to build a sales team to land clients over a period of time. Startups in Peru with this model include Restaurant.pe, Culqi and FitCo. SimCase, led by Renzo Weber, is a startup that sells active learning software to universities. It primarily uses the B2B model, but also has other ways to generate (see a slide from the SimCase deck below).
- B2B2C (Business-to-Business-to-Consumer) These are businesses in which the end user is a person, but the startup is generating revenue from a another business. Startups in Peru with this model include Turismoi, Juntoz, Solven, Joinnus and SeguroSimple.
- B2G (Business-To-Government) This model describes startups that sell services to the government. AmigoCloud, led by Ragi Burhum uses this model to sell collaborative mapping platform to local and state governments. Startups with B2G models are often considered GovTech.
Here is an example of a business model slide from a real pitch deck:
Investor pitch decks often include slides with a description of the business model and diagrams and arrows that show the flow of the product going one way and money going the other. I love these. Sticking to commonly used terms and using diagrams to explain a business models are great practices for founders when raising money.