Business has evolved a lot in the last few years. Finally all the technological improvements of the last decades are pushing towards a major change in the way business is done. The first changes came to change how we managed customer relationships and information and now go up to how we organize working teams throughout the world. This change has led to the rise of new business opportunities and to the reinvention of some old models. With this i refer to markets such as search and newspapers, search is a whole new market while newspapers is one that is faced with a huge change or die situation. 

All this changes bring up new business models that could be used to generate revenue. Google barely charges it’s users for a service (except for Apps) but earns lot’s of money with an indirect revenue model. The same thing happens with the introduction of Freemium and a few ones paying for a lot of people. This whole new models are shaping up the industry really fast, but I see lot’s of companies getting funding without a revenue or business model thought or in the making. Having fake or non existing business models and revenue models could be terrible for the industry as this could generate the next tech bubble. I really hope this doesn’t happen, but it’s really important that serious entrepreneurs focus on revenue either in the long term or in the mid term. I like to quote Gary Vaynerchuk when he says “Getting a crap load of users and then flipping it, is not a business model”.  And for sure it isn’t. A couple of companies without a business model may become successful on the long term, Twitter is one of them, but for sure not all the companies will be successful. What worries me is that lead by the hype that companies like Twitter are making more and more firms without a business model are getting funding which means a valuation based on non existent future revenues. 

The other main problem I see is that making money is planned to be something that has to happen in the long term future. So you first build a product, make it free for a long time and then wait to test if it will be good for the users to pay for it. This has a major flaw as a pricing mistake can kill a whole company a community has grown dependent of. It’s also important to test the revenue model early so changes can be made to the product and the pricing schemes. 

Entrepreneurs really need to start focusing on earning the money. This has to be done with a lot of care. Special care needs to be taken to not take focus away from the mission of the company (how will it change the world) and the overall strategy. One key point here is that the overall strategy of a business isn’t ready until there is a revenue model. The reason is simple, a revenue model will impact in product development, sales, engineering, accounting and even in if we will have a customer service central or just handle all through email. 

The problem with finding a revenue or business model for a new startup, specially if it’s a revolutionary idea, is that we don’t analyze the overall experience we’re trying to improve in order to find a point where we can make our product remarkable enough to charge for it somehow from the beginning. For example, a business may be built so that they have a revenue model of selling a pro account or a account for $49.99 a year. Let’s say this business is a shoppers discount app and that it will yield you discounted prices and a better shopping experience throughout the year. Now, if this is a new app not many people will actually buy it right? How about this for a revenue model. You sing up and put your credit card, if you buy through this app and get a considerable discount of over 2 dollars we will charge 50% of that discount to pay for your account, if you cover the 49.99 quota then the account is yours for the year and we won’t charge you anymore. This gives the user the trust that the app will work. 

The example of the last paragraph also tries to show that there’s a lack of creativity in the way we’re making money online. All the models we can think are either freemium, ad supported or the old pay to access. That’s why the newspapers are suffering to find a lucrative on-line alternative to the reduced off-line viewership.  

Revenue models need to be thought of and pursued form the beginning of the operations of the company, even if the revenue is planned to come in year 5. The idea is that we need to be aware of the disposition of our users to pay, on the perceived value our product may have, on the likeliness that an alternative will show up before we make a revenue and on the experience we would like to sell. My example also makes it clear that we need to offer the user a value higher than the price we’re charging in order to make it easy for them to decide to pay us. If we try to charge a lot of money, like Wolfram Alpha did with their iPhone app, users will probably reconsider buying from us and will start analyzing the value inside our product trying and more than likely convincing themselves our service, product or app isn’t worth it. Marketing teams focus a lot on Visitors, Unique users, Unique visitas, traffic, links, content produced and all that nonsense, but not on making the money. If you look at the most used Ps in Marketing:Price is always there. Also it will be a nice advice to tell you not to forget to read Michael Porter and Philip Kotler, they have pre internet advice that’s still very valuable. 

To avoid any kind of bubble in the technology industry or in any industry whatsoever we need to focus on earning the hard dollars. Making some cash a long the way. Making money though not the main purpose of a business is a goal that helps to make the business sustainable in time and helps to fulfill the main goal of the business in the long term. So if we want to get money from the market in order to make our mission possible let’s make sure that this valuation comes backed up on real dollars and not on air dollars. If a valuation of 1 billion dollars is given to a company with no revenue model then we are close to making a bubble if this spreads. Let’s always have in mind a revenue model, because revenue is blood to any business and without blood we can’t live. Every business model should include a revenue model, unless getting paid is not one of your goals.