No, Really. How Is Your Startup Going To Make Money?
I swear. It’s the most important question I ask — the most often — which returns the least specific answer.
How is your thing going to make money?
I mean, it’s not like I ask the question and get blank stares back. In fact, it’s the opposite. I usually get a wry smile and a rehearsed explanation about product-market fit, TAM, and disruption models. But that’s not what I mean. Here’s what I mean.
- A thing has a price, but that’s just a suggestion of what the people who sell the thing think other people should pay for it.
- A product does a thing, but that thing almost never justifies the price on its own.
- A market has money, but how money will be made from that market is almost always glossed over by the people selling the thing.
I know. Those are a lot of words that seem random.
But somewhere within that word salad, money has to be created. Yeah. Out of thin air. This is what separates products that make money from really cool products that fail.
Just so you don’t think I’m making this up, here are some simple examples of how money gets created out of thin air:
- The thing replaces one or more necessary things at a fraction of the cost, creating new money that can be used to buy the thing,
- The thing saves time, and people who value their time more than the cost of the thing will use that time to create new money.
- The thing produces a benefit, and when that benefit can be quantified, it can be haggled into new money.
- And, usually in a B2B sense, the thing generates revenue, and the margin on that revenue is new money.
Just because you can envision your business selling a customer a product, that doesn’t mean they’ll create new money with it. At all. And if they can’t, they’ll never buy it. At least not the price you’re charging them.
Even when you’re lucky enough to get a product into a customer’s hands, if they can’t generate new money with it, you’ll be creating an army of unhappy…