What You Sell, and Why It Repeats

The first layer of the floor is the business model, and I want to strip the phrase of everything that makes it sound like a textbook. A business model is one page that answers five questions in plain words. What do you sell? Who buys it? What do they pay? What does it cost you to deliver? And why do they come back, or if they do not, how do you find the next one?

Most owners can answer the first question and the third. They know what they sell and they know the price, because they have said both a thousand times. The second question gets a vaguer answer, usually a description of a type of person rather than a list of the people who actually paid. The fourth question, what it costs to deliver, produces a guess, and the guess almost never includes the owner's own time. The fifth question, why it repeats, is the one that produces silence, because most businesses have never separated the customers who came back from the ones who did not and asked what the difference was.

Why does this matter? Because a business where the answers to those five questions are known behaves differently from one where they are felt. If you know what it costs to deliver, you know the lowest price you can accept and still be running a business rather than a charity. If you know who actually buys, you stop spending on reaching people who look right and never pay. If you know why they come back, you can do more of it on purpose rather than hoping. The business model is not a document for anyone else. It is the owner writing down, once, what the business is, so that every later decision can be checked against it.

I have read hundreds of these in my career, written by companies far larger than the ones I work with now, and the good ones were always short. A business that can describe itself on one page is a business its owner understands. A business that needs forty pages is usually hiding something, often from itself.

The response is to write the page. Not to think about it, not to discuss it, but to sit down and write five answers, with numbers wherever a number is possible.

What you sell. List it. Every product, every service, every tier. If the list is long, that is already a finding, because most owner-led businesses make most of their money from two or three things and spend most of their time on the rest. Who buys it. Not a description, a list. Take the last twelve months of invoices and write down the names, or the types if there are too many to name, and what each paid. What they pay. The actual price, after discounts, not the one on the website. What it costs to deliver. Materials, contractors, software, and your time at a rate you would have to pay someone else to do it. Why it repeats. Look at the customers who bought twice and ask what they had in common.

When the page is written, read it as a stranger would and ask one question: would this business make money if the owner were paid properly and worked normal hours? If the answer is yes, you have a business model and the next layer, the financial model, will show you how much. If the answer is no, you have found the most important thing you will learn this year, and you have found it on paper rather than in a bank statement eighteen months from now.

One more thing about the page. Keep it. Date it, put it somewhere you will see it, and read it again in six months. The business model is not fixed, and the version you write this week will be wrong in places by spring. That is the point. A model you can see being wrong is one you can correct, and a business whose owner corrects her model twice a year is a long way ahead of one whose owner has never written it down.

Tomorrow I want to spend the whole essay on the fourth question, because the margin on a single sale is the number that most owners have never worked out, and it decides everything above it.

Continue reading: The Margin You Never Worked Out →

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