Last week at our 2.0 HowTo Conference, panelists shared their experience in designing the right business models for success.
By Vanessa Mason (Contributing Writer, Women 2.0)
Having an idea is the first step to becoming an entrepreneur. Developing the right business model comes next. The process of identifying a business model can be confusing and frustrating. The second panel of the conference, How to Create Value with the Right Business Model featured a range of startups and founders all with marketplace businesses with different approaches.
- Alison Johnston Rue, CEO of InstaEDU, a marketplace for online tutoring acquired by Chegg in June 2014
- Rebecca Rosenfelt, product manager for growth at AirBnB
- Laura Behrens Wu, founder of Shippo, a marketplace for e-commerce shipping
- Lynn Perkins, CEO of Urbansitter, a marketplace for babysitters.
Check out tips below for how to design a successful business model.
How to Acquire Early Customers
Perkins advises startups to seek advocates through LinkedIn and other associations where target customer gather to find early users. Once a startup earns the first customers, Wu believes that startups should do everything possible to make them happy and learn as much possible about how to deliver value. For businesses that function as marketplaces, securing the best quality supply is a key advantage. Rue recruited tutors from top tier universities with previous tutoring experiences when building InstaEDU. Rosenfelt touted AirBnB’s heavy design focus as a key strategy for securing quality product in the form of good hosts.
How to Learn from Your Users
Rue started her tech company after seeing that students using her in-home tutoring business needed flexible, convenient access to her services. She experimented with pay-by-the-minute and subscription pricing before deciding on subscriptions after seeing more engagement from students and a higher conversion rate. At AirBnb, Rosenfelt and her team consider the hosts to be key business partners since they provide the product and work to balance the needs of the guests and hosts with transparent pricing. Perkins looked for sources of friction in busy parents’ lives to understand how to build her business model based on subscriptions. At Shippo, Wu can maximize profit margins as the number of customers and available discounts over time due to network effects.
How to Manage Costs
Understanding the costs of running a business is always difficult because of the lack of historical data. Rosenfelt encouraged entrepreneurs to talk to other companies to better understand benchmarks and to better test assumptions. When starting out, entrepreneurs should assume real costs will be at least double the estimates according to Perkins. At Urbansitter, she and her team examine data weekly to control costs across the business. Wu’s cost focuses on eliminating friction and speeding customer acquisition to manage future costs. Although managing costs is essential, Rue told entrepreneurs not to take the initial business model too seriously because it will be laughable in retrospect. Over time, she struck a balance between optimizing the majority of costs while leaving a small sum of money set aside for experimentation.
How to Deliver Meaningful Intangibles
Not every piece of a business model that delivers value can be quantified. These meaningful intangibles can mean the difference between an adequate business and a transformative game-changer. Wu prides herself on Shippo’s outstanding customer service as a way of adding value when the product isn’t yet at the quality level she would like to see. Rosenfelt sets out to create magic for her customers so they fall in love with the product and act as evangelists. Rue’s seamless online payment experience took the awkwardness out of the money exchange between customers and tutors. Perkins’ local events modeled on Yelp’s community model help raise brand awareness and foster connection among babysitters.
More From These Speakers
- Creating a Business Model: Not As Scary As You’re Making It Out to Be
- Meet The Speaker: Alison Johnston Rue
- Get to Know Biz Model Panelist Rebecca Rosenfelt, Product Manager, Airbnb Growth Team
How did you develop the right business model for your company?
*Photo by Elvina Beck.