Lean Analytics

Chapter 7. What Business Are You In?

How you get and make money drives what metrics you should care about. In the long term, the riskiest part of a business is often directly tied to how it makes money.

Many startups can build a product and solve technical issues, some can attract the right (and occasionally large) audiences, but few make money. Even giants like Twitter and Facebook have struggled with extracting money from their throngs of users.

There’s no more iconic symbol of a startup than the lemonade stand, and with good reason—it’s a simple, entrepreneurial, low-risk way to learn how businesses operate. And like a lemonade stand, while it might be reasonable and strategic to delay monetization—giving away lemonade for a while to build a clientele—you have to be planning your business model early on.

If we asked you to describe the business model of a lemonade stand, you’d probably say that it’s about selling lemonade for more than it costs to make it. Pressed for more detail, you might say that costs include:

• Variable costs of materials (lemons, sugar, cups, water)

• One-time costs of marketing (stand, signage, cooler, bribing a younger sibling to stand in the street)

• Hourly costs of staffing (which, let’s face it, are pretty negligible when you’re a kid)

You might also say that revenue is a function of the price you charge, and the number of cups sold.

Now let’s suppose that you’re asked to identify the risky parts of the business. They include the variability of citrus futures, ...