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How to Decide Which Business Model to Adopt

You have this idea you want to turn into a business. Or a problem you want to solve that is driving you insane and you can’t stop thinking about it. The idea in itself isn’t enough, execution is what really matters. You need a solid business model that will enable you to turn your idea into a profitable and sustainable business for your start up. How do you decide which business model makes the most sense for your business?

Many good ideas die early on because people are too focused on business planning and don’t get out and test the idea first with customers. Most successful businesses started with a small, simple step to test the idea, and then worked to define the right model for their business. Especially because most businesses have to pivot their strategy along the way. What is the right timing to think about the right business model for a new idea? When thinking about the business model for a new business, there’s common belief that people should think about the product, the target market, the competition, channels, revenue streams, cost basis. These are all obviously key components on deciding the business model but people spent too little time thinking in depth about the problem they are trying to solve and how the customer would really experience the product or service they are looking to build from beginning to end.

HOWtoLIVEit Founder & CEO Ana Kertesz is joined on this conversation by the incredible Zoe Barry. Zoe is a relentless serial entrepreneur who loves adventures and lives life with passion. Zoe started her career in Wall Street and after her family experienced firsthand the inefficiencies that plague specialty drug prescribing, Zoë became inspired to launch ZappRx in 2012. Since founding ZappRx, Zoë has raised over $42 million in funding from top venture capital firms. She sold ZappRx to Allscripts in June 2019 and set off to launch a new business, which she is currently working on. Zoë is passionate about helping founders launch startups. She is a mentor in residence at Techstars, a Boston based accelerator and she co-founded xxAngels in 2018, an angel group focused on being first money in for startups at formation stage primarily on women led startups. Zoë was awarded Inc. Magazine’s 30 Entrepreneurs Under 30 list in 2015, Boston Business Journal 40 under 40 in 2015 and Medtech Boston’s 40 under 40 Heath care Innovator in 2016.

Hi, this is Ana Kertesz and this is HOWto.LIVEit. So, you have this idea you want to turn into a business, or this problem you want to solve that is driving you insane. Just having the idea is not enough. You need a solid business model to build a sustainable business. So how do you decide which business model makes the most sense for your business? I’m here today with the incredible Zoe Barry. She is my friend, a relentless entrepreneur and someone who loves adventures. Hi, Zoe. Hello, hello, so grateful to be on and thank you so much for having me. And I really appreciate it. Thank you for being here with HOWto.LIVEit. So Zoe started her career on Wall Street, and then her family experienced the inefficiencies of specialty drug prescribing so she became inspired to launch ZappRx in 2012. Since founding ZappRx, she has raised over 42 million dollars in funding from top VC firms, and then Allscripts acquired ZappRx in 2019 and she set off to launch her new business, which she is currently working on. I have to say she loves adventures. She is a racecar driver, which is amazing and an athlete, and she’s also a mentoring in residence at TechStars, which is a Boston based accelerator, and she co-founded XX angels in 2018, an angel group focused on raising first money for startups, especially women-led startups. So Zoe is a very experienced serial entrepreneur and I asked her to have this conversation with her so we can talk more about how to decide which business model to adopt for your startup. So Zoe, I see a lot of entrepreneurs who have a great idea or a good problem they want to solve and they get stuck in the granularity of coming up with a business plan or with all the questions they have to start a business, and they sometimes end up giving up on their idea. And what do you think is the right timing to think about the right business model when someone is contemplating starting a business? Sure., so thank you so much, great question and you know the couple companies that I have founded I had an inkling for what the business model was going to be, and there’s you know a couple decisions that you can make early on, they can help you really test which model makes the most sense. So in an overarching world, there’s essentially three core types of business models. There’s a data play, where a product is free, and the company is collecting data and is going to package and sell that data in some capacity so that would be very similar to Facebook, for example. There’s a transaction based business model, which is more like Uber, where every time you use the product or the service you pay a small fee for the convenience of using that product or that service. And then there’s a subscription model, where you may sign up and that’s closer to even more people are more familiar with their gym or some of the food boxes or you know, some of the delivery services and you sign up and you’re going to pay a fee every single month to have some some experience. And so really very early early formation stage. You don’t want to get too caught up in this, you just want to have an inkling for which business model am I going to fall under? And a good way to test that really simply without getting caught up like crazy expensive consulting fees, and making it more complex and frustrating is to just ask the customer. And the important thing to do is to ask open-ended questions. So would you pay for this? Is a good question, because it’s yes or no. And if they say no, then you know immediately that you’re not going to be in the subscription or the transaction model that you’ll probably be in a data play. And if they say yes, then you might still have a data play. There might be data that you can collect that’s interesting. But then you want to tease out that willingness to pay and you would ask them if they want to pay on a per experience or on a monthly subscription. And that’s where you can basically use data in a very light and easy way. I’m doing surveys having customer conversations to tease out what business model makes sense, and then you should stop. And you should hit pause because you don’t want to complicate things by doing a ton of research because you should get the product in consumers or sorry the product on the customers hands, because as they use it, they’re thinking on how they’d pay for it may change, so you don’t want to waste a lot of time focusing on business. Listen, I think that point you just said is one of the most important points in entrepreneurship that very often people just don’t pay attention to it, which is the sooner you show your product to your customers, you can really test out their willingness to pay and what they’re going to you know, really at the end of the day consume, and whatever it is that you thought was a good idea may change because you know, the feedback may not be what you expected. We always think that our good ideas are amazing. But once you show it to someone else that’s when you are really able to test it, right? I think about my first company and I knew I was going after a big enough market, but I didn’t know which model was going to make sense. So my first company dealt with specialty drugs so medications that cost upwards of $100,000 a year, typically for very complicated, rare diseases that are progressive and terminal, but not terminal immediately, terminal over the course of 20 years. And so you want a patient on that therapy because the cost of them living is going to be so much more expensive than the cost of the drug. The drug is actually a discount to their hospital costs and their health care costs overall, which is sometimes a hard thing for people to fathom because they think who deserves a hundred thousand dollar medication, that’s outrageous. I’m but I knew the market was big enough. I just didn’t know which model is going to be. Was it going to be more like insurance, which is subscription annual renewal? Was it going to be more like pharmacy, transaction? Or was it going to be more data around prescribing trends and what drug works and what drug doesn’t work and what are patients, you know, ability to get on a therapy and mitigate the progression of the disease? I didn’t know the answer to that, but I knew what was really, really important was that I needed to get the product in people’s hands and patients needed to stop waiting two months to get access to a drug. That was the most important thing. So if I could reduce the time to fill and my dream, my vision, was Amazon one-click for $400,000 medications, then it was a big enough problem in a big enough market that the business model would emerge. And as it turned out, the data play was what made the most sense, because we were able to highlight the difference in getting a patient on therapy in three days versus two months and the benefit to that patient. And the overall reduction in the cost of care for that patient, and that data ended up being valuable for biopharma companies, for hedge funds, for insurance companies. It turns out many, many people wanted to buy that data and that was where the value is being created, and we gave it for free to doctors and to pharmacies. So that leads me to my next question, which is I think one of the sort of misinterpreted aspects of starting a business is that people spend a lot of time thinking about the idea, and the potential market, and the competition, and which customers they want to target and some people still do focus groups and, you know, market research and they end up not thinking about the problem they’re trying to solve, right? And once you really go through what’s the journey of someone who’s facing that problem now? How can you know whatever product or service you’re building solve that problem? That’s where I think you really see the light on, you know, what are the steps you need to take to solve the problem? Right? But what do you think about that? I think it’s very important. So when I work with entrepreneurs as an angel investor, and I tell them to build a pitch deck. And a pitch deck is important because it basically shows what’s missing in your business plan, right? There’s basically a very specific formula, problem, solution, total addressable market, go to market, and there’s a psychology behind each of those slides. So the problem slide should be framed in terms of revenue lost. It should not be framed in terms of, you know, altruistic or pulling on your heartstrings or changing the world. And I think that exercise right there, which is one of the first slides you have to tackle. It starts to show you how money is being left on the table and where the opportunity is and that can often guide you to okay, if I move away from I’m going to change the world, and I’m going to solve this problem and there’s money being left on the table, I’m going to help put money back on the table then that often moves you into where your business model is, and it helps you then understand. What’s the first thing that you need to do? What’s the first product feature that you need to build? And it’s a very simple exercise without getting into what sounds initially like a very business school orientation around how to build a startup, and it just really makes it very simple and digestible. It’s something you can do on a whiteboard and you can pull in a few advisors and you can talk to some customers and get a sense for where are the in efficiencies and how can I tackle these inefficiencies? Nice, okay. Thank you, Zoe. This was really great. I was here with Zoe Barry. She’s a serial entrepreneur and we were talking about how to decide which business model to use for your startup, if you’re thinking of starting a business, and you have this idea and this problem you want to solve This was great, thank you! Thank you!