Business Model

Does it matter at that stage?

It does indeed. In fact, you won't have a chance to onboard supply partners, pilot customers, or investors if you don't have a basic idea of how you plan to generate revenue. Even some of your early employees will want to know this before committing to work for you. At a minimum, you should know who will contribute to your revenue: supply partners, users, bookers, advertisers, or a combination of these. While you likely can't precisely define fee levels yet, early discussions with your target revenue contributors will give you a clearer picture of what's achievable and when.

In a business-to-business context, establishing business model elements is crucial for onboarding supply partners and customers. Even when they're convinced of your product or solution's value, they'll need clarity on costs to secure the investment in their next budget cycle. That's why you should ensure your business model and pricing are easily understandable and aligns with your overall marketing proposition. Avoid the trap that many larger organizations fall into—pricing models with too many variables and fee levels. As always, do your homework and research the models that have succeeded and failed in your market.

A clear business model doesn't necessarily mean you can apply it from day one. You'll likely need to compromise, offering your product at a discount—or even for free—initially. Your pilot customers and partners will expect this concession. It allows them to validate their expectations of the product and support before committing to a longer collaboration with your venture.

When I first envisioned flyiin as a consumer-facing Air Travel Marketplace, I was confident that partner airlines would pay to participate. Our plan was to eliminate key players from the value chain, saving airlines significant distribution costs. We aimed to merchandise their products in a way that would reinforce, not commoditize them, while giving airlines ownership of travelers purchasing flights through our marketplace.

In reality, convincing airlines to accept our proposed model proved challenging (that’s an understatement). Many categorized us as just another online travel agency—albeit a refreshing and more innovative one—and consequently wanted to impose the same conditions: no commissions. Nevertheless, I proceeded because we needed these supply partnerships to bring our marketplace product to life. I remained confident that once operational, they would recognize the value of our sales channel and accept new terms beyond the pilot phase (that’s the eternal optimist in me).

The position of our partner airlines remained unchanged when we pivoted to a pure tech vendor role in 2019. In all honesty, I didn't reopen discussions with them and simply leveraged the previously signed pilot agreements. However, I managed to implement the demand side of our business model with customers who would use our Airline DirectConnect Platform to power their own flight products. While our fees were low compared to our competition (here is another understatement), the intent was to secure a foothold in our target market and generate live transactions through our platform. Unfortunately, we didn't fully achieve this goal. One of our pilot customers went out of business less than six months after signing the agreement—just our luck—and the other joined during the COVID-19 pandemic, resulting in zero transactions.

Key Takeaway #29

A clear business model is crucial even in early stages, as it's essential for onboarding partners, customers, and investors. Develop a clear, understandable business model that aligns with your marketing proposition, but be prepared to offer initial discounts or free trials.