Business models and the flow of money

Overview

Maya, the fictional laundry-service founder from Lesson 001, has found households interested in getting their weekends back. She now faces another decision: should she charge for each pickup or offer a monthly plan?

That choice affects more than the price. It changes what she promises, how much work customers can request, when money arrives, and how she pays the laundry and drivers.

Recall: Why is “people like my idea” weaker evidence than knowing their current alternative and why they would switch? Take a minute to answer. We will return to it in the debrief.

The business model

A business model explains how a company serves customers and earns money from doing so. “We sell subscriptions” describes its charging method, but leaves much of the business unexplained.

The Business Model Canvas, developed by Alexander Osterwalder and colleagues, connects customers and their value proposition with delivery, resources, partners, revenue, and costs. Today we will use a smaller set of questions to make those connections concrete. A value proposition is the benefit the company offers a particular customer. Source: Strategyzer.

• Who uses the offer, chooses it, and pays? These may be different people.
• What exactly does the payment buy? Specify the product, access, service, or result, including limits.
• How much, how often, and when? Separate the price from the billing frequency and payment deadline.
• How does the customer find and receive it? Name the sales and delivery routes.
• What work and resources make it possible? Identify who does the work and what they need.
• Where does the money go? Identify the main recipients and when they must be paid.

For an office coffee service, employees drink the coffee, an office manager may choose the supplier, and the employer pays. An employee’s enthusiasm helps, but the employer must see a reason to spend its budget.

Be equally precise about the offer. “Coffee for offices” leaves open whether the customer buys a machine, rents it, pays per cup, or buys a maintained supply service. Those arrangements require different equipment, staffing, and funding.

Pricing and delivery

A revenue stream is a source of sales income. Common charging methods include a payment per purchase, a recurring subscription for continued access or service, a usage charge, or a commission for arranging a transaction. A business can combine them.

Choose a method that fits what customers value and what the business must provide. A subscription can make payments more regular, but it also creates a continuing obligation. If customers pay a fixed amount and request much more work than expected, delivery costs can rise without a matching increase in payments.

Activities are things people do: sell, schedule, wash, inspect, deliver, or resolve complaints. Resources are what enables that work: staff time, equipment, vehicles, systems, knowledge, and money. A partner supplies something the business relies on but does not provide itself.

Outsourcing laundry avoids buying washing machines, but Maya still needs to select a dependable laundry, coordinate handoffs, and handle customer problems. Moving work to a partner changes her responsibilities; it does not eliminate them.

A business model is a working explanation, not proof of demand or profitability. Keep facts separate from assumptions and connect each payment to a specific customer and offer. Source: Strategyzer’s guidance on clear business models.

Worked example

Fictional example. Every figure below is an assumption. Maya offers a defined monthly plan: four standard-size laundry bags, with pickup, washing, folding, and return. Customers pay $100 at the start of the month. Extra bags are outside this example.

Assume 40 households subscribe for the entire month, all pay, and all use four bags. A laundry partner charges $15 per bag, paid weekly. Drivers receive $600 in total for the month, also paid weekly.

The $1,000 is not established profit. We have not included marketing, insurance, payment processing, bags, administration, or Maya’s work. We have traced two important uses of the customer’s money.

Customers pay before most delivery payments occur. This helps Maya fund the work, but she still owes the promised service after collecting payment.

Her essential resources include a reliable laundry partner, driver capacity, bags, customer records, and scheduling tools. Her activities include acquiring customers, assigning routes, tracking bags, checking quality, and resolving missing-item complaints. The app alone cannot perform the service.

If Maya offers unlimited bags, customers still pay $100 while her workload can rise. She needs to account for the extra cost and delivery work.