What the *bleep* is a “business model”?

Now that the new year of 2016 has begun, let’s get right down to business. Today, business is about “business model.”

Maybe you know what I mean, or maybe you’re not quite sure. Or maybe you’ve never heard of it before. Simply said, a business model is how your business takes money in.

That’s the simplest explanation, but the reason it’s a big deal and worth paying attention to is that without understanding your business model you may be hitting limits in income that can’t be overcome without changing the model.

Let me give you an example or two.

Let’s say you self-publish a learning product you’ve created. There’s audio, there’s some video, there’s a PDF. Looking around you, you see some big names selling similar products for around US$29, so that’s what you decide to charge.

Unbeknownst to you, you’ve taken on their business model, which is based on their ability to gain mass distribution and reach hundreds of thousands of people.

Meanwhile you sell 3 of them, and can’t even pay groceries.

Or, closer to home, you see us offering our Heart of Money class at pay what you want (what we call “Pay From the Heart” pricing). You think its a great idea, and start to offer your individual sessions at similar pricing.

But, because you don’t have the marketing in place, the audience to reach, or the ability to make it clear what the value is, there are very few people and those pay you very little, and you don’t make a living at it.

You learn later, perhaps in our Learning Community or in a blog we publish ;), that the Heart of Money is conceived as a gift to the community at large, and a way to support getting the word out, and wasn’t primarily considered as an income generator for us (although it has done that).

Other errors people make are trying to sell individual sessions at prices that don’t take into account what limits happen when their schedule is full, or the real limits of what “full” is.

To help address this struggle so many have, I want to explain a little bit about two dominant paradigms of business model, and why you should pick one over the other. Then I want to give you some questions to ask yourself.

The Two Dominant Business Model Paradigms

One is “mass market.” Also sometimes called, “scale.” The idea behind this model is that you sell a lot at a lower price, making your profit on volume.

The other is “boutique.” The boutique model is based on personal care and attention, where you charge more premium pricing, and the profit is made off of a relatively small number of sales, because each sale carries significant profit. “Significant” doesn’t have to mean “a killing.” Just that a single sale is significant to you financially.

There are lots more business models than this, and many of them are nuances or related to these two big categories.

If you’re reading this, I’m going to bet that you should automatically be thinking “boutique” and yet might not be. The challenges in accepting this for yourself are two-fold.

The first challenge is the examples: chances are you’re surrounded by mass market models. Amazon, chain stores, franchises—everywhere in this modern dysfunctional economy of ours we see examples of businesses attempting to make it work on scale.

The second challenge is your own heart. You may not be used to accepting a “significant” profit on each sale, just getting by. Maybe self-esteem issues are in the way. Maybe you’ve just not thought it through yet.

Maybe you have misunderstood the scale model and mistakenly think you can do it that way.

I made the same mistake

I thought Heart of Business could start to use a “scale” model when we reached about 10,000 readers. I thought we could make money based on volume.

The problem is that 10,000 people is not scale. The numbers just don’t work out. We’re still in “boutique” territory.

Now, it’s true that we’re trying to operate in a middle ground, where our Foundations1 program, for instance, can be profitable at a relatively low price assuming it enrolls at certain numbers. But we’re still not talking about enrolling thousands of people, or treating the program like an off-the-shelf plastic thing manufactured in a sweat shop (ugh!). We’re still treating the program, and the participants, with care and attention.

The care and attention is a hallmark of the boutique model. If that characterizes how you want to be in your business, then you must embrace the boutique model to really make it.

Above all, have some compassion on yourself as you work with your business model. Market wisdom has shown that most successful businesses have had to tinker with, and sometimes completely change, their business model until they hit the most effective and inspiring combination of elements.

So let’s take a look at two questions you can ask yourself in starting to work with your own, boutique, business model.

2 questions to ask yourself

1. How much money do you need/want to bring in?

This can be easy to answer, at a purely numbers perspective based on your hard costs, and hard to answer, when thinking about “ideal life” notions of simple living, and retirement calculations. Regardless, do the work you need to come up with a number that doesn’t represent the “scrape-by” number, but something that allows you to really thrive.

2. How much time/space do you really have?

A massage therapist can look at a 40 hour week and see 32 one hour client slots with 15 minute transitions between each. But, is that realistic?

How much time do you need to run your business? To catch your breath? To eat lunch? To truly transition between clients? To care for your body so you don’t get hurt?

Each business will have its equivalent concerns about what’s realistic. Given all of those questions, you may find that you realistically have 15-18 client slots, not 32. And that hugely impacts your business model.

Add to this that you will probably want 2-3 weeks off a year, plus sick time, further impacts your annual income.

Also, assume you won’t always be 100% full. If you can assume a 75% full schedule, once your business has more consistency to it, then you build in even more safety.

So, how do the numbers come out? 18 client slots x 48 weeks/year = 864 sessions. 75% of that is about 650 sessions.

To make $50,000/year gross means each of those 650 sessions costs US$76.92. If you have $12,000/year in business costs (office rental, plus other costs), means that each session needs to cost $95.38 for you to bring home $50,000. I didn’t include taxes.

This is a really simple version of thinking through a business model. You can bring a lot more sophistication to it, thinking about who your clients are and how they best work and what kind of income they have available. You can also add in a variety of different offers, including group offers, or product offers, that can help make these numbers happen. You can bring in a very thoughtful combination of offers, some of which are free or low-cost, some of which are profitable because they are leveraged, some of which are profitable because they are very premium.

All of this together can come together into a business model that really works.

So… where’s the heart?

The heart is in looking at the numbers and walking it through with clarity, so that you truly *know* your business. It comes from understanding what your business needs and what it can afford, so if you ever offer discounts or deals to people, you know what it’s costing you and what the impact is, so you can make those offers consciously.

People misunderstand the heart, thinking it’s all about impulse decisions based on some emotional feeling in the moment.

In truth, the physical heart is a workhorse, pumping huge quantities of blood through your body, beating beating beating, carrying very precise amounts of oxygenated blood to the various organs, and carrying the deoxygenated blood out again.

Put some time and energy into your business model. In the beginning of your business review it every six months. Once you settle in, review it annually and tweak it as necessary.

Now let’s have fun this year, serving your clients, being profitable and making some big changes out there in this pained world of outs.

With big appreciation,

Mark Silver, M. Div.
Heart of Business, Inc.
Every act of business can be an act of love.