Build Now, Monetize Later – Time Startups Talk about Revenue Model?

And Money Will Follow…

There is a thought among entrepreneurs from internet world that one needs to first focus on building a sizable user-base for their product; and think of its monetization later. While this certainly helps entrepreneur in creating a very innovative product, he often ends up missing out on devising a sustainable revenue model.

As the seed investment in the startup nears exhaustion, entrepreneur scrambles for devising a revenue model around the existing product/service. At this stage, he often finds himself constrained by the pressure of sustaining the business he has gotten into, and ends up force-fitting a model which has worked for someone else in the similar segment (often the top player). However in process, he risks impacting the very offering of the service/product, and this at times might even prove fatal for the startup.

Selling the audience generated to marketers

For a business to be successful and sustainable, somebody has to pay for the value added by the business, and pay in amount sufficient to maintain sustainability. There is an increasing trend on web of letting the end-customer use the service/product for free and charge the commercial institutions (read marketers) who are interested in promoting their stuff to these end-customers.

Revenue/Business model for startups
Revenue/Business model for startups

While this makes perfect business sense, it is important that this commercial association with marketers has been thought out clearly and perfectly blended with the core activity and proposition of the business. Else it can result into dilution of the very proposition for these end-customers come to the service/product.
User experience on a website certainly worsens if website starts showing more and more ads (and irritates the user to no end if it’s an expanding flash ad which inadvertently gets clicked by mistake). Say tomorrow, if Twitter goes overboard on the social media marketing spree and promotes more commercial content on its network from marketers, or Orkut starts showing more ads (which are not at all relevant to the content or intent of the website), they are bound to lose users. While these biggies would manage this because of their sheer momentum and stickiness they now have around their user-base, if it hasn’t been thought of properly earlier, a smaller player will find it very difficult to strike a balance between the commercial content and actual offering.

Making the service (or part of it) paid

In a bid to generate more revenues, one may stop offering the service/product for free, and ask the end-customer to pay a nominal fee to use it. For example, if tomorrow Facebook (or part of it) becomes a paid service, how many of us are going to pay for it? Something like LinkedIn – which offers basic service for free, and advanced features (which are an integral part of the core offering) for a charge – might work, but then this needs to be thought about at the beginning itself, so that customers expectations are set properly.

Acquisition

Entrepreneur by definition is an optimistic person, and acquisition will always remain a very attractive exit option. While every entrepreneur always starts with a confidence of building the Google-killer and hopes of getting acquired, having a sound revenue model is of utmost importance to make that happen. An acquisition just for the audience/traffic built will be possible only if the startup is among the top players in the segment. For others, having an operationally profitable revenue model becomes absolutely necessary.

Extending innovation to revenue model

Entrepreneurship (even social entrepreneurship) is not philanthropy; instead it should be financially fulfilling for the entrepreneur, only then he will be able to continue. And for that to happen, devising a viable and sustainable (and also flexible) revenue model at the outset should be integral to the idea of entrepreneurship. This model might undergo changes as the business evolves, but it should always be of prime consideration for the entrepreneur. Postponing revenue-model for a later stage and then trying to force-fit one can be a very dangerous choice to make. Entrepreneur should not limit his innovation to the service/product alone, but should extend it to revenue model also, and have a rewarding entrepreneurial experience.

What are your views about innovation around revenue model from Indian startups?

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