Once you have a sense of who a company sells to, you then want to figure out what they sell and how they sell it (read: make money). As every company becomes a technology company, it’s enabling a lot of innovation on business models. When evaluating startups to work at, this is of particularly high importance because it is a key driver in how investors consider investing in the company.
First, let’s talk about what companies can sell. Here are some broad categories to consider:
- Product Companies sell a product or set of products and own the IP. The products can be physical or digital and require time and investment prior to being able to generate revenue. Examples of product companies would be Casper, Salesforce or Calm.
- Services Companies provide value by selling labor, expertise, and time. This can come in the form of time based (hourly, weekly, monthly, etc) or fixed fee based (project, sessions, etc) rate. They often require less investment and can start generating revenue right away. Examples of service companies would include Bell Curve, Charming Robot, or Smaal Studios.
- Productized Service Companies are a more recent trend where companies leverage technology to augment people with high levels of automation and computation. They tend to charge fees on a fixed basis or based on usage of their platform. Examples of productized service companies would include skipp.co, bench.co or mainstreet.com
- Marketplace Companies generate revenue by facilitating the exchange of product or services between buyers and sellers. They generate revenue by taking a piece of the financial exchange. They often require time and capital to get the platform off the group and build usage on both sides of the marketplace. Examples of marketplace companies include AirBnB (hosts and guests), Google (search users and advertisers) and eBay (buyers and sellers).
Next, let’s look at how they charge. These will often correlate with what they sell, but not always, so let’s map them out on their own.
- Fixed Price is when the customer pays a one time price for a good or service. Examples would be buying a Casper mattress or an iPhone. A recent trend is also buying lifetime access to a digital product like Calm.com
- Recurring Fee or Subscription has really become the preferred model for companies because of the ability to generate repeated and predictable revenue from a customer. They are very common in digital products (often called Software as a Service or SaaS) but also becoming very common with physical products. Examples of digital product subscriptions would include Calm.com, brighthire.AI or AirTable.com. Examples of physical product subscriptions would include dollarshaveclub.com, butcherbox.com or stitchfix.com
- Pay Per Use is when a company modulates their fees based on usage of their products. This could be considered a fixed price for a small unit, but it feels more accurate to make this a category on its own. Examples of this would be products like web hosting or cloud storage. Examples of pay per usage would be AWS.com, Dropbox.com or Facebook (they sell to advertisers and that’s why it’s free to users)
With these 2 dimensions you should be able to categorize companies with what they sell and how they sell it. If you can’t discern these 2 dimensions from a company's website, focus your line of questioning during the interview stages on this. As you consider a startup for the next stage of your career, you want to be able to form an opinion on their financial viability and if you believe in their business model.