Startups usually run with a deficiency during the design and construction of the product. But businesses are designed to make money, and over time, as unit economics and customer acquisition costs improve, you’re likely to run into trouble. Maybe. Hopefully.
At least that’s what your investors are betting on. So that means your business model slide should paint a picture that shows where you are now and how the business can grow over time.
Infographic created by Donnelley Financial Solutions, an SEC reporting software company
In theory, your “business model” could encompass every aspect of the business; the Business Model Canvas is one way to explore that, and you could easily spend an hour talking about the whole end-to-end business model. For a financing pitch, you probably only need a few crucial elements:
- COGS, or cost of goods sold, is the incremental cost for each unit you supply. For software, this is usually rounded to zero, but for hardware products or more service-oriented businesses, the cost per unit can be significant.
- CC, or customer acquisition costs, is the cost of sales and marketing divided by the number of customers you have signed up.
- LTV, or Lifetime Value: How much is each customer worth on average once you sign them up?
- R&D costs is what it costs to develop the product. This is usually not included in the business model, but if the cost of R&D is astronomical and the cost-profit line never crosses, you could have a problem worth investigating.
- The pricing model usually isn’t part of the business model itself (it falls under LTV), but if you’re doing something unusual or creative with your pricing, it’s worth including that here or on your go-to-market slide.
Breaking down those numbers and presenting them appropriately can greatly benefit the way you tell your startup’s story to investors.
