Freebeginner 5 min read
Understanding Business Models
Before the numbers, understand how the company actually makes money.
Every great investment starts with one question: how does this business actually make money? Skip this and the numbers become meaningless.
Three things to map first
- 01Who pays, the customer, not the user
- 02What they pay for, the unit of value being sold
- 03How often, one-time, repeat, or recurring
Two business shapes
Transactional
- Revenue resets each year
- Heavy reliance on sales motion
- Customer relationship is shallow
Recurring / compounding
- Revenue stacks year over year
- Lower cost to retain than to acquire
- Customer relationship deepens
What makes a business durable
- Customers would notice if it disappeared tomorrow
- Pricing power exists, they can raise prices without losing demand
- The model scales without proportional cost increases
Key takeaways
- 01Understand who pays, for what, and how often, in that order.
- 02Recurring revenue compounds; transactional revenue resets.
- 03Durability comes from being missed, not just used.