Business Model Design
Core Principle
A business model isn't a revenue line on a spreadsheet. It's a system that creates, delivers, and captures value. Get the system wrong and no amount of growth fixes it.
Business Model Pattern Selection
The 55 Patterns (St. Gallen Framework) — Key Categories
| Category | Patterns | When to Use |
|---|
| Revenue | Freemium, Subscription, Pay-per-use, Razor/blade, Licensing | You need recurring or scalable income |
| Pricing | Auction, Dynamic, Reverse, Name-your-price | Price discovery is unclear or market-driven |
| Platform | Marketplace, Two-sided, Ecosystem, Open source + commercial | You connect supply and demand |
| Unbundling | White label, Franchise, Layer player | You do one thing extremely well |
| Long tail | Aggregator, Mass customization, Self-service | Many customers, each with small value |
Selection Decision Tree
Is your value digital or physical?
├── Digital
│ ├── Can users try before buying? → Freemium / Free trial
│ ├── Is value consumed over time? → Subscription
│ └── Is value per-transaction? → Pay-per-use / Commission
└── Physical
├── High upfront cost? → Razor/blade / Lease
├── Commodity product? → Subscription box / Membership
└── Custom product? → Configuration / Mass customization
Pricing Strategy
Three Pricing Levers
1. COST-PLUS: Your cost + margin. Simple, but leaves money on the table.
2. COMPETITOR-BASED: Price relative to alternatives. Safe, but commoditizing.
3. VALUE-BASED: Price relative to customer's outcome. Hard, but highest margin.
Pricing Framework
| Factor | Question | Action |
|---|
| Willingness to pay | "What would you pay to solve this?" | Run Van Westendorp price sensitivity |
| Value metric | "What unit do customers value?" | Charge per seat, transaction, GB, etc. |
| Price anchoring | "What do they pay for alternatives?" | Position relative to reference price |
| Expansion path | "How do they grow into you?" | Design tiers that scale with usage |
Unit Economics Calculators
Lifetime Value (LTV)
LTV = ARPU × Gross Margin × Average Lifespan (months)
Example:
ARPU = $99/mo
Gross Margin = 80%
Avg Lifespan = 24 months
LTV = $99 × 0.80 × 24 = $1,901
Customer Acquisition Cost (CAC)
CAC = (Sales + Marketing spend) / New customers acquired
Example:
Monthly S&M = $50,000
New customers = 100
CAC = $500
LTV:CAC Ratio
Target: LTV:CAC ≥ 3:1
$1,901 / $500 = 3.8:1 ✅ Healthy
Below 3:1 → Acquisition is too expensive or retention is too low.
Above 5:1 → You're probably under-investing in growth.
CAC Payback Period
Payback = CAC / (ARPU × Gross Margin)
$500 / ($99 × 0.80) = 6.3 months ✅
Target: Under 12 months for SaaS, under 18 for enterprise.
Competitive Positioning (April Dunford)
Obviously Awesome — 5-Step Process
Step 1: Competitive alternatives — What would customers use if you didn't exist?
Step 2: Unique capabilities — What do you have that alternatives don't?
Step 3: Value — What capability maps to a customer outcome?
Step 4: Best-fit customers — Who cares most about that value?
Step 5: Market category — What context makes your value obvious?
Positioning Canvas
| Element | Question | Your Answer |
|---|
| Competitive alternatives | "If we didn't exist, what would they do?" | |
| Unique capabilities | "What can we do that they literally cannot?" | |
| Value themes | "So what? Why does that capability matter?" | |
| Best-fit customer | "Who cares the most about this value?" | |
| Market category | "What market frame makes our value obvious?" | |
Anti-Patterns
| Model Theater | Real Model Thinking |
|---|
| "We'll figure out monetization later" | Define value capture before building |
| "Our TAM is $50B" | "50 customers would pay $X/mo — I asked them" |
| Pricing based on cost | Pricing based on customer outcome |
| One price for everyone | Tiered pricing matching customer segments |
| Ignoring unit economics until Series A | Knowing LTV:CAC ratio from first 10 customers |
Power Move
"Analyze my product for competitive positioning using April Dunford's framework. Identify my real competitive alternatives, unique capabilities, and the best-fit customer segment. Then calculate target unit economics I should hit at 100 customers."
The agent becomes your business strategist — connecting product value to a viable economic engine.
