Today, I had the chance to attend Startup 2012, a not-to-miss event led by Business Insider which took place in New York City at the New World Stages.
At the session titled “What’s More Important: Users or Money?,” Leah Busque, founder and chief product officer at TaskRabbit, Philip James, founder and president of Lot18, Dana Reichman, co-founder and COO of Lifebooker, and Michael Walrath, chairman of Moat as well as chairman of Yext all participated in an enlightening discussion about why it is important to always worry about your business model.
First out of the gate, Busque discussed the company she founded TaskRabbit, an online marketplace designed from the ground up to outsource small jobs and simple tasks including grocery shopping. From day one of opening, the business model brought in revenue as it closely analyzed each city the service could become available in, in order to drive quality of experience and deliver a consistent amazing user experience. In the early days of the company’s beginnings, Busque revealed that there was a pretty involved vetting process that took place which involved a detailed background check of each individual involved in providing these services, which was expensive to put people through and the unit economies didn’t work at first for profitability. Instead of worrying about this in the beginning, however, Busque focused on improving the overall user experience and speaking with customers to see what could be done to raise their level of satisfaction.
She said, “Always be sure to think about if you can pursue something better. I think that if you are seeing signs of something not working, you need to be willing to take a step back. For us what helped a lot is staying connected with customers and focusing in on them because they are of the highest value. If you are not aligning with what you are delivering, it doesn’t matter what your financials are.”
Next, James spoke about his company Lot18, a private firm that sells wine in addition to other products. Launching back in November of 2010, the company initially started off without a revenue model and with scale found ad support and its revenue model. From the get-go, the company was designed to connect small family owned wineries with consumers, as it can be extremely hard to find real quality wine. James revealed that he saw firsthand two sorts of costs which included general overhead encompassing rent and other elements and marketing the service in order to get and retain customers.
When trying to optimize the business, he advised that it is important to understand unit cost and what a person looks like over a lifespan because you want people who will come back regularly and stick around. But, it isn’t cheap to acquire these customers and Lot18 pays upwards of $100 to get one great customer as opposed to getting five that are worthless even though you can more quantity. “Be sure to look at your organization closely segmented by channel, by cohort, and by market,” he said.
Lifebooker’s Co-Founder and COO Reichman spoke about her company, a website that books beauty appointments online, offers daily deals in fitness, beauty, and lifestyle and yields management to fill up excess appointments and gain lead generation. Launching with a revenue model firmly in place, the firm charges businesses a commission for every appointment it books. She commented that it is extremely important to “figure out your revenue model.” In her case, beauty services are repetitive—such as haircuts which are monthly—so she started to try and extract as much revenue per consumer as possible without having millions of users.
Walreath, chairman of both Moat and Yext, a SaaS (News - Alert) company, added that you have to be free and put off revenue to build traction and understand consumer need. “It is vital to know when to change and when to pivot and you have to go after revenue to get the experience to find out where the product is messed up,” Walreath stated.
In response to that Reichman responded, “Doing the same thing over and over and expecting different results is crazy. Albert Einstein once said, ‘If you try something, change it if it is not working and then when find something that is working don’t change it.’”
Edited by Carrie Schmelkin