by • December 5, 2011 • Business modelsComments (5)363

Self-referential business models (aka. channel I N C E P T I O N)

During a workshop the other day, we spent 10 minutes as a group coming up with a business model providing daycare for busy professional moms.

We decided that working moms have the biggest need for daycare, and that their bosses receive the most financial value out of having good daycare arrangements, since that means mom can get back to work sooner (slightly cynical, but we’ll go with it).

That means our customer is whichever company employs mom, and the primary user (and free recipient) of the experience are mom and the infant.

Regarding product, we decided the daycare is actually a big fun bus which picks the kids up, entertains, educates, and pampers them, and then returns then at end-of-day. The goal here was to minimize setup friction and allow the employer to offer this service today instead of after the next office refurbishment.

This feels good, but there’s one crucial missing ingredient: channel.

Reaching your customers

How does the Big Bad Boss hear about our service?

We can make a compelling pitch about increasing employee time, happiness, and sanity, but we still need to get our message in the door.

So we made mom the channel. She wants the benefit (free, easy, quality daycare) and will make the pitch for us


Not quite yet.

We’ve create a business which appears to make sense but which is guaranteed to fail.

Reaching everyone else

Mom will do an awesome job pitching to her boss. We can provide all sorts of educational literature to make it a no-brainer for him to say yes to.

But how do we reach mom?

Our business model has become self-referential — our customer channel depends on one of our other user groups which we haven’t yet figured out how to reach.

We have a channel for the bosses, but not for the moms.

The first suggestion on how to fix this problem is indicative of what a quagmire it really is:

Of course! Just have the delivery and childcare nurses tell them about it!

Perfect! Except, now we’re back to the same point. How will we reach the nurses? Via the doctors? And to reach them…?

Our business model has devolved into complete madness.

Simplify, stop being clever, and connect to an endpoint

Clever business models have lots of moving parts, and I don’t mean that in a good way.

First, you need to detect that you’re getting clever. Lots of needless humans scattered throughout your business model is a definite dead canary, but it’s not the only one.

Later stage businesses can have fancy models because they’ve cemented most of those moving components through a combination of critical mass, reputation, and momentum. For a startup, getting clever is like building your house on a foundation of ball-bearings and banana peels.

The doctors and nurses here are false salvations. They feel like a magic bullet because they would solve the problem if we happened to have them all on-board already. But we don’t yet have them, which means we have to acquire them, and you’ve just doubled the difficulty of your endeavour.

Cut out these false saviours and connect to an endpoint. An endpoint is where your business model is anchored to the real world.

Magazine ads are an endpoint. You know how they work, there’s nobody you need to hustle into letting you place an ad in a parenting magazine — you just give them money and a pdf. Search advertising is an endpoint. No investor ever said, “I love your business, but I’m really concerned that you won’t be able to find a search engine willing to let you advertise between its results.”

Direct sales is an endpoint. If the numbers add up and the value proposition is accurate and you understand your customers, then it works. If you’re going 3 layers deep into clever-channel inception, then chances are high that you’re deceiving yourself.

And not just that. You’re also making things needlessly difficult.

Startups are tough enough already.

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5 Responses to Self-referential business models (aka. channel I N C E P T I O N)

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