Business model fit
A framework for understanding how to match your business model to your product
TL;DR
Your product has a risk profile that creates a barrier between prospect and happy, growing customer. Your business model’s job is to reduce these risks through trust building. But reducing the risks at all costs isn’t good enough, you need to find the right balance of reducing risks at velocity.
Business model fit
I like to organize a SaaS business into three key areas: market, product, and business model.
Market is the universe of people who have a problem, or a job to be done
Product is a solution to the problem that you build with technology
Business model is the engine that connects the product to the market
Without a product, you don’t have a business. And without a business model, you can’t grow.
The order here matters
Market <- Product <- Business model
The product solves the market’s problem. The business model pushes that product into the market.
So then the key to building an effective business model is to look at your product. Specifically… you need to assess how risky your product is.
Product risk profile
Your product has a risk profile, made up of:
Product-market-fit (PMF)
Time to value
Initial commitment requirement
Business interruption risk
And these risks create a barrier between prospect and happy, growing customer. Aside from PMF, what do these risks have in common? They describe costs.
As a prospective customer, I need to consider how much it will cost before I get to the promised value on your product. These costs are more than just money. They include things like time, capability (will I even be successful?), change management, etc.
Your business model’s job is to reduce these risks such that the prospect can get to “Yes”
Your business model reduces these risks by addressing the costs through a process of trust building. The prospect needs to feel confident that they understand the costs and that they’re acceptable in exchange for the value your product provides.
Balancing risk reduction
But you can’t just address the costs, you need to address the costs in a way that doesn’t slow you down or cost you too much.
You need to find balance. Just the right amount of hand holding to overcome the risk profile in a way that keeps your business moving quickly and profitably.
All things equal you want a low touch, high velocity business model. It’s both faster and cheaper - for you and for your customer. This is why product led growth is winning.
But some products have such high risk profiles that they need high touch, low velocity cycles. Think replacing a general ledger, or a payroll system.
Business model design
So what can you do?
Map out your product’s risk profile
Stack rank your biggest velocity inhibitors
And figure out how to reduce the risks, one by one. Either in the product or in your business model
Like PMF, business-model-fit is not one and done. Your business model lives and breathes. And you need to be constantly innovating to fit an evolving market.
Of course, none of this matters if you don’t have product-market-fit. So focus there first.