Business Models for Online Entrepreneurs
When you are considering the possibility of turning your hobby, interest, or skill into a business opportunity there is no pre-prescribed way to start monetizing. Many soon to be entrepreneurs may find themselves overwhelmed with the possibility of identifying an actual business model so they start off with whatever their most comfortable default position may be, writing a blog or posting videos on youtube, hoping that their audience will become clear over time and kicking the can on a product (and to be clear, a blog or youtube channel may very well be the right product for you, but not because it’s your default position). Many others will go the opposite route, rush to create and sell a product without understanding an audience, then find themselves wondering where the customers are.
The truth is, the first step to monetizing a business is understanding the space where the audience you wish to serve and the value you want to serve them overlap. This is what we call a product-market fit and it’s an incredibly difficult balance to strike. We can take steps to test and refine our Concept into a business Opportunity but when we get to launching and scaling that opportunity we are still constantly tweaking, testing, and validating that opportunity.
Pre-requisite to product-market fit
Before we can find that product market fit, we need to first understand the business models that serve as delivery mechanisms for taking a particular value to a particular audience. Every industry, audience, region, culture, age… will have a different preference for how they meet their needs with the value delivered by a particular market. As a self-funded entrepreneur you should not make the mistake of thinking you can be the one that changes them, but by being able to identify business models, you can then research those audiences and competitors in your potential markets and understand them, not just as meeting a need, but as being part of a bigger picture for how a particular audience engages with a particular need. This will put you well on your way to identifying product-market fit.
One other wrinkle to consider
The other reason we need to understand the business models best suited to deliver our value to our audience, is because some models in some markets are simply never going to be profitable. When launching an online distribution business it’s important to remember that while this opens up a much bigger audience, it also opens up a much broader list of competitive forces you need to navigate. There are some audience needs being met by too many competitors, pushing prices down ad revenue models in broader value categories have come under pressure (Recode, ‘Youtube creators have complained about declining ad revenue’) and marketplaces have been overtaken by discounted regional sellers (Forbes, ‘How Amazon’s wooing of Chinese Sellers is Killing Small American Businesses’). While intimidating at first blush, these changes are not all bad, but they require understanding of evolving business models and understanding not just how, but IF there is an identifiable business model in a market that can help you monetize your business concept. For example, many media companies finding pressure from lowered ad revenue have either found higher CPM (cost per thousand view) products such as podcasts, or adopted to upsell either digital products, higher end subscriptions for premium content, or continued ways to monetize their community.
Common business models and how to identify them
The above is a list of common (but not exhaustive) online distribution business models often adopted by self-funded entrepreneurs. Businesses within each model can look entirely different from one another but when you look behind the curtain, they tend to have a similar marketing funnel, revenue model, and cost structure with others in their group.
We will dive more deeply into some of those qualities in an upcoming post, but at a minimum, when you are first looking to launch your business, being able to identify how your audience consumes your value is a giant leap toward matching your product strategy with the audience demands as well as assessing your own ability to monetize in a particular market given your resource constraints. We first make the distinction between Moment and Perpetual models which is where all entrepreneurs should start, because with a plethora of revenue opportunities, the biggest difference in operational structure, allocation of efforts and expenses, and product design lie in this fork.
This distinction asks the core question, how are your audiences needs resolved?
If they are finite: “I need a birthday present for a friend” or “I need to learn how to code” then they are moment models for which a high premium might be paid for an effective product.
If they are ongoing: “I need help staying in shape” or “I need to develop a number of skills to progress my career” then they are perpetual models for which a large number of users might be monetized over time through community engagement.
We see this distinction lead throughout the business model even in areas such as sales channels. If you are solving a finite need, your focus in on product and product margin and finding a new customer for every sale is expensive thus the largest 3rd party solutions tend to be marketplaces (etsy). If you are solving a perpetual need, your focus turns to owning the customer for as long as possible, and your 3rd party solutions tend to be administrative plugins that give you control over your community (shopify).
However your audience tends to consume the value you offer, pay attention, because it is a long and expensive road to product:market fit without first understanding that distinction.
For a deeper dive into product market fit, check out our course Concept to Opportunity.