Business Model

Business Model Design

Guide founders from business model selection through pricing, unit economics, and competitive positioning to investor-ready articulation.

Workflow

1. Diagnose Current State

Ask: "Where are you in business model development?"

2. Select Business Model Type

Match founder's product to the right model archetype. See references/business-model-patterns.md for the complete pattern library.

Core Model Types (YC Framework):

Selection Questions:

1. Who pays? (End user, business, advertiser, both sides?)
2. How often do they pay? (One-time, recurring, per-use?)
3. What's the natural buying pattern? (Impulse, considered, enterprise?)
4. Where's the value? (Product, platform, network?)

3. Design Pricing Strategy

Three foundational approaches — choose based on market position:

See references/pricing-frameworks.md for detailed implementation.

Pricing Model Selection (for SaaS/subscription):

Value Metric Selection (HOPE Framework): Find the metric that best captures value delivery:

• High value connection — Does it correlate to customer outcomes?
• Obvious to customer — Is it familiar and predictable?
• Predictable — Can customers forecast their usage?
• Easy to implement — Can you actually measure and bill it?

Common value metrics: seats, contacts, API calls, records, storage, revenue processed, messages sent.

Pricing Sanity Checks:

• Does price reflect value delivered?
• Can customers predict their bill?
• Is there a natural expansion path?
• Does pricing align with how customers budget?

4. Unit Economics Analysis

The health check for any business model. See references/unit-economics.md for formulas and benchmarks.

Core Metrics:

Diagnostic Questions:

1. What does it cost to acquire a customer? (CAC)
2. How much will that customer pay over their lifetime? (LTV)
3. How long until you recoup acquisition cost? (Payback)
4. Are you making money on each transaction? (Gross Margin)

Red Flags:

• LTV:CAC < 1:1 — Unsustainable, losing money on every customer
• LTV:CAC 1:1 to 2:1 — Dangerous, need optimization
• CAC Payback > 18 months — Cash flow risk, slow growth
• Gross Margin < 50% — Not a software business, harder to scale

By Business Model Type:

5. Competitive Positioning

How to stand out in a crowded market. See references/positioning-frameworks.md for detailed frameworks.

April Dunford's Positioning Flow:

Competitive Alternatives → Unique Capabilities → Value → Target Customer → Market Category

Step-by-step:

1. List Competitive Alternatives

   • What would customers do if you didn't exist?
   • Include: direct competitors, indirect solutions, doing nothing, manual processes

2. Identify Unique Capabilities

   • What do you have that alternatives don't?
   • Features, technology, service, price, experience

3. Map to Value

   • So what? What does each capability enable?
   • Connect features → benefits → outcomes

4. Define Best-Fit Customers

   • Who cares most about your unique value?
   • What characteristics make someone care?

5. Choose Market Category

   • What context makes your value obvious?
   • Options: existing category, subcategory, new category

Positioning Statement Template:

For [target customer] who [need/job], [product] is a [category] that [key benefit]. Unlike [competitors], we [key differentiator].

Porter's Strategic Options:

• Cost Leadership — Win on price (lowest cost structure)
• Differentiation — Win on value (unique capabilities worth premium)
• Focus — Win in a niche (cost or differentiation, narrow market)

Positioning Strategies:

6. Create Deliverables

Output 1: Business Model One-Pager

## [Company Name] Business Model

**Model Type:** [SaaS/Marketplace/etc.]

**Value Proposition:** 
[One sentence: For whom, what problem, unique solution]

**Customer Segments:**
- Primary: [Description, size, characteristics]
- Secondary: [If applicable]

**Revenue Model:**
- Type: [Subscription/Usage/Transaction/etc.]
- Pricing: [Structure and price points]
- Value metric: [What you charge for]

**Key Metrics:**
| Metric | Current | Target |
|--------|---------|--------|
| MRR/ARR | $ | $ |
| Customers | # | # |
| LTV | $ | $ |
| CAC | $ | $ |
| LTV:CAC | X:1 | X:1 |

**Unit Economics:**
- Gross Margin: X%
- CAC Payback: X months
- Expansion potential: [How customers grow with you]

**Go-to-Market:**
- Primary channel: [How you acquire]
- Sales motion: [Self-serve/Sales-assisted/Enterprise]

Output 2: Pricing Recommendation

Document should include:

• Recommended pricing model with rationale
• Specific price points with justification
• Tier structure (if applicable)
• Comparison to alternatives
• Expected conversion/upgrade rates

Output 3: Unit Economics Spreadsheet

Create spreadsheet with:

• CAC calculation (itemized S&M spend)
• LTV calculation (ARPU, churn, margin)
• LTV:CAC ratio
• CAC payback period
• Sensitivity analysis (what if churn changes?)
• 12-month projection

See references/unit-economics.md for template structure.

Output 4: Positioning Statement

Format:

For [target customer with specific characteristics] who [struggle with specific problem], [Product Name] is a [market category] that [delivers specific benefit/outcome]. Unlike [primary alternative], our product [key differentiator that matters to target customer].

Plus supporting elements:

• Competitive alternatives map
• Unique capabilities list
• Value proof points
• Best-fit customer profile

Reference Files

• references/business-model-patterns.md — 55+ business model patterns with examples
• references/pricing-frameworks.md — Value-based, competitive, and hybrid pricing in detail
• references/unit-economics.md — LTV, CAC, formulas, benchmarks, and spreadsheet template
• references/positioning-frameworks.md — April Dunford method, Porter's strategies, positioning templates

Adapted from Linas Beliūnas's The One-Person Unicorn founder skill set.