Do you know your product's value?

Hey?friend?— it's JDM.

I apologize for my recent absence from your inbox. I’ve been on a content creation blitz and I admit that I failed to balance it all.

But I’m back with a weekly tip on launching products sooner and scaling them faster.

Today’s newsletter takes about 6 minutes to read.

It starts with a question.

Do you know your product’s value?

I’ve listened to more than a thousand startup pitches, and I’ve noticed that the vast majority of business model slides are messy and unclear.

Similarly, one of the most common questions I’m asked when coaching founders on their pitch is how to clearly articulate the business model on one single slide.

In a way, it makes sense: business models can be hard to simplify. But I’ve discovered it’s a a symptom of a more pernicious problem:

You don't know how valuable your product is.

I'm not saying you don’t know THAT it's valuable. I’m sure you do.

But do you know WHAT the value is? Specifically? Can you quantify it?

AirBnb’s first pitch deck is always circling around the internet as a good example. Their business model slide said “we take 10% commission on each transaction”. There’s nothing clearer than that!

But the slide was more impressive in how it translated that into revenue. The slide had three large numbers (with smaller, supporting points):

• 10.6m trips (share of market)
• $20 average fee ($70/night @ three nights)
• $200m in revenue (2008 ? 2011)

Boom! Everything you need to know is there, and it’s easily digestible.

It was possible because AirBnb knew exactly what value they created, and therefore how best to capture value in return.

If you lack this kind of clarity, it might be because you don't know what value you create.

Because the market never told you.

If you're having trouble articulating your business model with that level of clarity, I'm willing to bet that you don't know the customer as well as you think you do.

Here’s why:

The right business model — whether it’s subscription, razors and blades, the ultimate luxury, etc — is a function of two things:

• Company profitability (this is the obvious one)
• Customer wants, needs, fears, and pain (the less obvious one)

The punchline: no one signs up for a subscription razor if they don't need to shave regularly.

Similarly, pricing isn't just a question of?what?pain they experience. It's also a measure of?how acutely?they experience that pain. Severe pain, dire needs, terrible fears, and strong desires all mean higher prices.

You need to answer two questions:

• Can you identify where you can deliver the most value? This signals?how?to charge.
• Can you quantify your customers' feelings? This signals?what?to charge.

Want the perfect business model for your startup?

Align?how?you charge money and?what?you charge directly to the kind and severity of pain the customer experiences.

If you can’t answer these questions, too much is unknown.

This leads to a business model that's vague or convoluted.

I often hear founders justify this by saying, "my business model is just hard to explain".

But it's not.

If it's difficult to create a clear business model slide, you're probably jumping ahead.

Wait... I'm shredding business models now?

You may have seen around that I’ve leaned into the title “the shredder of business models”.

It started at a networking event where friends were casually telling startup founders why they should talk to me about their business. They were pointing at my penchant for probing questions, and the appellation tickled me.

So, I’ve decided to run with it for a while.

In fact, I’ve designed an entire workshop around it:?Your business model is garbage (but we’re going to fix that). It’s for startup founders at any stage prior to product-market fit — from solo founders with just an idea, all the way to a team with revenue looking to scale.

You’ll walk away with a stronger business model, some tools you can use to think more strategically about your business and its place in the market, and an hypothesis of how to win.

It’s sponsored by InnoGrove, the City of Elk Grove, and SMUD — and free of charge to you.

So join me!

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See you next week!

jdm