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business model

Sustainable Business Models

2014-11-25 by Roberto Zoia Leave a Comment

In pasts months, a number of startups have closed1. These companies raised money, launched good products, gained attention from the press… and then closed. It’s not my intention to judge the decisions the founders of these startups made. Their closing is sad news. But… what happened? Even with the limited information available publicly, there are some lessons that can be learned by trying to understand the business models of some of them.

Know your operating costs

Knowing your contribution margin –the selling price minus the variable costs per unit– is important, because if your contribution margin is negative, then you are selling at a marginal loss. The more customers you get, the more money you loose.

Everpix was a great online photo archiving and organizing service. They had nailed a problem worth solving. They also had an excellent team. Everpix got very positive reviews, the service was really good. Their user base was growing.

These graphs were published in 2013:

Everpix closed doors on November 2013.

Using Everpix’s own data, which they made public2, Ivan Plenty offers an in-depth analysis of Everpix’s operating costs. After converting Everpix’s-provided operational to an accrual-based revenue3, he concludes that Everpix’s operating income is negative, even before amortizing fixed costs. Contrary to what the Everpix team thought4, their main problem was not growth5. They were selling a paid product at a marginal loss.

If you raise money, use it for assets that generate money

“Editorially was a collaborative writing and editing platform designed to support and encourage the writing process. It featured a plain-text editor, a document version system, notes and activity feeds, discussion threads, and more.”6

On February 12, 2014, Editorially announced it was closing its doors:

Editorially has failed to attract enough users to be sustainable, and we cannot honestly say we have reason to expect that to change.

That is, they had spent their initial funding and were not going for a second round of investment.

WHY NOT JUST CHARGE FOR USE?

We thought of that, and in fact, it was always our plan to do so. But Editorially is a sophisticated application that requires a team of engineers to maintain and develop. Even if all of our users paid up, it wouldn’t be enough.

It would be mean to say now that Editorially should have charged its users from the start or at least adopted the fremium model. (That is, have a free tier and one or more paid tiers with premium features.) They made a decision on raising a certain number of users before charging, and how they would reach break even, and it deserves respect.

But they spend their money developing a product that offered great value for their customers, but no revenue for the company. As a general principle, you should only raise money to get or build assets that generate money. You should never raise money to pay salaries, unless those salaries are directly generating money.

Build a simple financial model early on, to see the flaws in your business model. If your users are your customers, charge them for your service, or at least adopt a freemium model.

Offering a service for free can make sense

On July 13, 2012, after a post on the founder’s blog titled What Twitter could have been, App.net launched as a Twitter replacement. Meant to be sustainable from the start, it started as a paid-only service. Free accounts were added later, but they were invite-only and limited in functionality.

The first round of subscription renewals was due on April On May 6, 2014, App.net announced that because their current paid subscription base was not enough to pay their fixed costs, the service would continue to operate but without any salaried employee.

The Value Proposition of a social network like Twitter is deliverable only if they have a significant number of users. Because Twitter is extremely successful and free, there is very little incentive for users to migrate to a new network. You can’t start a Twitter clone today with just a small user-base and grow from there. You need to offer something different and valuable. (That’s what services like SnapChat and Secret are doing.) Also, super-fast user growth is needed, and charging for the service certainly hinders that.

Having Product/Market fit is not enough, you need a sustainable business model

A business model is a scalable, repeatable process that your organization follows to create value that someone else is willing to pay for. Having a Product/Market fit is an essential part of any business model, but it is not enough. As Seth Godin notes, the fact that you are going to work hard is irrelevant. The fact that you have risked everything is irrelevant. To be sustainable… you need a sustainable business model.


  1. Some startups closing their doors are Everpix, Editorially, Springpad, Readmill, Bloom.fm… ↩
  2. Before closing, Everpix made their numbers public. ↩
  3. This means you can recognize revenue not when your customer pays but when you render the service or sell the product. For example, if a customer pre-pays for a yearly subscription of Everpix, you recognize as revenue only 1/12 of the amount each month (and not the complete amount the moment he pays). Otherwise, you’ll end ‘using up’ in advance the money you will need to pay in the following months for the user-generated expenses. ↩
  4. cfr High-Level Metrics: “At the time of its shudown announcement, the Everpix platform [was] generating subscription sales of $40,000/month during the last 3 months (i.e. enough money to cover variable costs, but not the fixed costs of the business). “ ↩
  5. cfr The Verge, Out of the picture: why the world’s best photo startup is going out of business, Lessons learned. ↩
  6. cfr. editorially.com. ↩

Filed Under: Uncategorized Tagged With: business model, entrepreneurship, social networks, startups

9 Frameworks To Add a Few Hundred Thousdand to Your Bottomline in 18 Months

2014-06-16 by Roberto Zoia Leave a Comment

Down-to-earth advice from Taylor Pearson about growing your business.

Filed Under: Uncategorized Tagged With: business model, growth, marketing, markets, product, strategy

A Focused Company

2013-08-23 by Roberto Zoia Leave a Comment

Asymco’s Horace Dediu, quoting Apple’s CEO Tim Cook from three years ago:

We can put all of our products on the table you’re sitting at. Those products together sell $40 billion per year. No other company can make that claim except perhaps an oil company.

Revenues quadrupled since to a total of $170 billion for the last four quarters. The table, however, has not gotten bigger.

Filed Under: Uncategorized Tagged With: apple, business model

Publishing tools for electronic magazines

2013-07-22 by Roberto Zoia Leave a Comment

Printed magazines like Harvard Business Review, Wired, The Economist, and others offer an electronic version of their publications, be it as an application for Apple’s Newsstand1 or through third-party providers like Zinio. But what do you do if you are a smaller size magazine that needs to have an electronic edition?

Lightweight magazine publishing

Marco Arment is the founder of Instapaper, a ‘read-it-later’ app that lets you save web articles for later consumption. He had the idea to convert the “hand-picked selection of the finest articles and essays saved with Instapaper” –which are published at The Feature— into an electronic magazine of some sort, and charge a monthly subscription fee. But he realized that he didn’t have the rights to the articles linked in The Feature. So, he decided instead to publish a magazine with good quality original content.

On October 11, 2012, Arment launched The Magazine, _a multi-author, truly modern digital magazine that can appeal to an audience bigger than a niche but smaller than the readership of The New York Times_2. Being Arment a developer, he wrote the app for The Magazine and the necessary publishing system himself.

Arment made clear from the beginning that if The Magazine didn’t reach break-even after the first month of launching, he would close the project. As Seth Godin explains, for this kind of initiative to succeed, you need to have built a tribe of followers. Arment has quite a tribe, be it from his blog, from Instapaper, or from his weekly podcast… The Magazine reached break-even a few hours after being launched.

The Magazine’s Business Model

For readers, The Magazine is an advertisement-free publication that for $1.99 a month offers five or six medium-length articles (1200-1500 word range) every two weeks, designed to appeal _curious people with a technical bent_3. The publication comes in a lightweight format, in an Newsstand app that makes reading really pleasant.

For authors, The Magazine pays a competitive flat rate for accepted work4. The Magazine’s contract with writers gives the publication non-exclusive rights forever, but after 60 days of publications authors are free to resell or republish their work, as many do on their personal blogs.

Part of The Magazine’s Value Proposition is to offer good quality content. Coherently, a few weeks after launching, Arment hired Glenn Fleishman5 as the publication’s editor.

The Magazine’s revenue stream comes from its monthly subscription fee. By choice, The Magazine sells no advertisements. Cost structure is mostly editors, freelance author fees, software development and hosting costs.

One of the Key Activities of any non-free publication, charging subscribers, is managed by Apple’s App Store.

A Key Asset of the publication is the The Magazine’s publishing system. Developed by Arment, it consists of a backend application that handles article creation and publishing, and an application for iPhone/iPad. It enables The Magazine to push each issue to its subscribers.

Having no printed counterpart, The Magazine doesn’t need to follow traditional publishing clycles of monthly or weekly publication6. The articles are mostly text, with photos or illustrations, always of good quality, used sparingly. This makes each issue really lightweight, and downloading them really fast7.

Content is King, but some tools are indispensable

The Magazine has attracted attention from people who think there is an unsatisfied need in electronic magazine publishing tools. For example, Daniel Genser and Jamie Smyth recently launched TypeEngine, a publishing platform that _helps writers and publishers create Newsstand magazine apps that are designed from the ground up for Apple’s iPhone, iPad and iPod touch. Publishers own their apps, release magazines under their own name, and get subscription fees paid directly to them from Apple._8

TypeEngine’s pricing model is attractive: There is no sign-up fee. When you are ready to launch your publication as an app for Apple’s Newsstand, TypeEngine charges you a $99 one time fee, and a recurring monthly fee of $25. TypeEngine charges 15 cents for each issue your subscribers download9.

Some people asked Arment if he would license The Magazine’s publishing system so they could use it for their own publications. He has explained why he won’t do that10, and what he thinks of TypeEngine. His point is that he set out to make a publication, not a publishing platform. Those who think that having the right publishing tool will make them succeed as publishers are doomed to fail.

Publishing platforms will soon make it easier to get into Newsstand. But making magazine-quality content on a regular schedule, getting enough subscribers to pay when there’s tons of great online content for free, and keeping the subscribers interested after they’ve paid — those are hard, they’ll always be hard, and a lot of people are underestimating those challenges and thinking the biggest barrier is an app.11

I agree that the availability of e-magazines publishing tools doesn’t guarantee great content or success, just as publishing an ebook for Amazon’s Kindle or Apple iBook Store doesn’t guarantee sales. Even having great content doesn’t guarantee sales. But if you want to publish an electronic magazine, you need a publishing platform like TypeEngine. The availability of this tools certainly lowers the barriers to new entrants to the magazine’s publishing market.


  1. Newsstand is a built-in application on the iPad, iPhone and iPod touch, dedicated to downloading and displaying digital versions of newspapers and magazines. (cfr Wikipedia.) ↩
  2. cfr this post announcing The Magazine on Arment’s blog. ↩
  3. cfr About The Magazine. ↩
  4. Most features we publish will be at least 1500 words long; many articles hover in the 1500–2000-word range. We pay a flat rate for accepted work, paid within 30 days of publication. The rate is $500 for essays and $800 for reported work. For reported pieces, we pay additionally for photos, audio, and video, to be negotiated as part of the assignment. We can pay some modest expenses for reporting as well. (cfr The Magazine, Pitches.) ↩
  5. Among other things, Fleishman writes twice weekly at the Economist’s Babbage blog. ↩
  6. A consequence of coming from the printed world is that the electronic version of paper-printed magazines is in many cases an almost exact replica of the printed version, advertisements included. This means that each issue weights several hundred Megabytes, occupies lots of space on your iPhone or iPad, and takes a long time to download. And worse, they are not always pleasant to read, because the layout that makes sense in the printed world it is not always the best format for reading on a tablet or smartphone. ↩
  7. When I say ‘fast’ I am speaking of download speeds over 3G here in Perú, which is definitely not the fastest connection in the world. ↩
  8. Another similar innitiative is The Periodical, which is in beta at the time of this writing. ↩
  9. Follow-up: The Loop and the TypeEngine model. ↩
  10. For example, “Did we just rip off Marco Arment and The Magazine?”, “Calm down, Marco: micropublishing is about more than just The Magazine” in answer to this article on PandoDaily, or My master plan for revolutionizing the future of publishing and saving tablet-native journalism. ↩
  11. “Calm down, Marco: micropublishing is about more than just The Magazine”. ↩

Filed Under: Uncategorized Tagged With: business model, digital content, e-zines, electronic magazines, magazine publishing, subcompact publishing, value proposition

Charge for the service

2013-07-03 by Roberto Zoia Leave a Comment

Just finished re-reading this article by Jason Fried of 37signals.com, which included this 30 min. talk by David Heinemeier Hansson (cofounder of 37signals and creator of Rails) at Startup School 2008. Great common sense advice about starting a business.

Despite the popularity of the freemium model among internet startups (grow a user base fast, charge nothing, get VC funding, think about monetizing later, better if we get bought for a huge sum of money on the way), David argues that one of the most basic way to have your company turn a profit is charging upfront for the service your company provides. Target 200.000 paying customers instead of 1 million free subscribers. Focus on giving an excellent service to those customers.

Filed Under: Uncategorized Tagged With: business model, entrepreneurship, freemium

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