Notes from watching Ycom’s talk on business models
(Video – https://www.youtube.com/watch?v=oWZbWzAyHAE)
The best businesses…
- Generate recurring revenue
- Have high retention
- Build defensible moats
- Are close to the transaction
- Scale with software, not people
- Are proven, and familiar to customers
Biggest winners are built with moats
- Network effects
- Lock-in/high switching costs
- Technical innovation
- Higher margins/better unit economics
- Organic distribution
Key metrics by Business model –
SaaS – Cloud-based subscription software
- Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR)
- Growth Rate: Measured weekly or monthly
- Net Revenue Retention: % of recurring revenue retained from a prior period
- CAC: Costs to acquire a new customer
Transactional – Facilitate transactions and take a cut
- Gross Transaction Value (GTV): Total payment volume transacted
- Net Revenue: Fees charged for transactions (often a %)
- User Retention: % of month 1 customers that make a purchase in month 2, etc
- CAC
Marketplace – Facilitate transactions between buyers and sellers
- Gross Merchandise Value (GMV): Total sales volume transacted
- Net Revenue: Fees charged for transactions (often a % take rate)
- Growth Rate
- User Retention: % of month 1 customers that make a purchase in month 2, etc
Subscription – Product or service sold on a recurring basis, usually to consumers
- Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR)
- Growth Rate: Measured weekly or monthly
- User Retention: % of month 1 customers that make a purchase in month 2, etc
- CAC
Enterprise – Sell large fixed-term contracts to big companies (5k+ employees)
- Bookings: Total signed contract value (recurring + non-recurring)
- Revenue: Recognized when delivering on the contract
- Annual Contract Value (ACV): Total contract value / # of years
- Pipeline: Top of funnel → Demo → Close
Usage based – Pay-as-you-go based on consumption in a given period
- Monthly Revenue (not recurring!)
- Growth Rate
- Revenue Retention: % of revenue from last month’s customers in this month
- Gross Margin: Revenue – Cost of Goods Sold (COGS)
Ecommerce – Sell products online
- Monthly Revenue: Total sales
- Growth Rate: Measured weekly or monthly
- Gross Margin/Unit Economics: Revenue – Cost of Goods Sold (COGS)
- CAC
Advertising – Sell ads to monetize free users
- Daily Active Users (DAU): Unique users active in a 24 hour period
- Monthly Active Users (MAU): Unique users active in a 28 day period
- User Retention: % of active users on D1/7/30/etc
- CPM (Cost Per Thousand) or CPC (Cost Per Click)
Hardtech/bio/moonshots – Hard businesses with lots of technical risk and long time horizons
- Milestones: Progress towards the long-term vision
- Signed contracts
- Letters of Intent (LOIs): Non-binding contracts indicating interest to purchase