The most common categories for start-ups nowadays are new media, digital technology and the internet. The usual reason is that these categories provide exponential growth, attract a lot of venture capital and can be started with minimum resources. Many of the businesses in these categories take a long time sometimes, forever but are highly valued. Hence, you should decide and know what kind of business you are going to build or want to build valuation business or money business, or both.
Valuation business: A business, in which the amount of money made either as revenue or profits is of less importance than something else, like users or market share, can be called a valuation business. In a valuation business, the company works on a business model which falls in either of these categories:
- A business model which will not keep making money forever;
- A business model which is always going to make less money than the operational expenses and hence, will keep making losses.
With this kind of a business model, the company needs funds and investment to sustain operating losses and to keep building the product. Such business models run the risk of either making it big or becoming nothing. Since their financial surety and security is not sound, the funding for them comes from angel funding or venture funding. They are generally seen in the new media, internet, technology and mobile industries. These companies are built keeping in mind the possibility of acquisition by a larger company, sooner or later and are constantly seeking investment. They can be very experimental in nature.
Money business: This term applies to business in which the amount of money made, either as revenue or profits, is more important than anything else. The core product and its offering are important, but only as a means of making the desired amount of money. These business models are more conventional in nature and have a slower but more predictable growth path. The investments made here are from the profits that have been made in the business. It is possible to get funding from financial institutions in this case because the business is more predictable. These business models are a little less experimental in nature.
Both: A lot of companies funded by venture capital work on a business model in which it will take time to make revenue or profits because of the scale or the product development time. During this time period, the company is engaged acquiring users and market share. To be able to sustain losses, the company needs to raise investment. At the same time, these companies give equal weightage to users, market share and revenue profits.
It is important for you to know the answer to the above question because this would help decide many things for you in the future. Though many companies could be in the othcategory, it would be a bit tough to run a company like that. It would help if you decided and focused on one of the aspects and left the other as a second priority. Learn more about choosing and building a business at the University Canada West, one of the renowned universities in Canada, offering various business and management related programs.