Successful companies are built on recurring revenue, high retention, defensible moats, software scalability, and familiar business models, and pricing should be based on customer value and adjusted incrementally.

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  00:00

  67% of the top 100 YC companies are SAS, transactional, and marketplace businesses, making marketplaces the most likely to build winner-take-all companies.

  • Nearly all billion dollar companies use one of nine business models, so rather than reinventing the wheel, it's best to copy one of these.
  • This video provides an overview of different business models and a business model guide to cover the metrics that matter most for each.
  • This video focuses on key takeaways from the top 100 YC companies to gain insights into different business models.
  • 67% of the top 100 YC companies are SAS, transactional, and marketplace businesses.
  • Marketplaces are most likely to build winner-take-all companies, as evidenced by the top 10 YC companies by value, which include Airbnb, Stripe, Instacart, Coinbase, Doordash, Reddit, OpenC, and Fair.
  • Marketplaces are tough to get off the ground but once they hit the inflection point, they get massive network effects, making them dominant winners.
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  06:12

  29% of YC Top 100 companies are transactional, 31% are SAS, 3% are advertising, and the rest have various risks and low margins.

  • Transactional businesses are 22 of the top 100 YC companies, creating 29 of the overall value, due to their proximity to the transaction.
  • 31 of the YC Top 100 companies are SAS businesses, which have consistent, recurring revenue and the benefits of predictable revenue.
  • Advertising businesses need organic virality to win, and only 3% of the top 100 YC companies use an advertising business model as their primary way to make money.
  • Consulting and affiliate businesses have non-recurring Revenue and low margins, making them unsuitable for Venture scale.
  • Hardware businesses require lots of capital and have low margins, while businesses built on other platforms have platform risk and can be shut down at any moment.
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  11:25

  Recurring revenue, high retention, defensible moats, software scalability, and familiar business models are key to building successful companies.

  • Recurring Revenue creates winners due to its predictability, higher customer lifetime values, and lower customer acquisition costs, but only works with strong retention.
  • A five percent difference in monthly retention can be the difference between success and failure for a startup.
  • Marketplaces can benefit from network effects, lock-in, high switching costs, recurring revenue, and customer data.
  • Recurring revenue, high retention, defensible moats, software scalability, and familiar business models are key to building successful companies.
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  16:00

  Charging a higher price than competitors can help you understand the value of your product.

  • Charging for your product is one of the most effective ways to learn about your business and understand if users are willing to pay for it.
  • Stripe is a great example of using higher prices to figure out how much value customers see in your product.
  • Stripe tested the value of their product by setting their price at nearly double their competitors, rather than trying to undercut them, to prove they had built enough value.
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  19:00

  Price based on customer value, not cost, and adjust incrementally until customers still pay but complain.

  • Price based on customer value, not cost, and don't worry if you're off by a few dollars as pricing is not permanent.
  • To make a profit, your price must be higher than your cost to serve the customer and lower than the perceived value of the product.
  • Talk to your users to understand the value you provide.
  • Customers may want to make more money, reduce costs, move faster, or avoid risk with your product.
  • Incrementally raising prices until customers complain but still pay is the ideal scenario to find the ideal price.
  • Raising prices is the easiest way to grow revenue, but if users won't pay more it usually means your product doesn't support the higher value.
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  25:16

  Increase prices for new customers and build in enough value to cover the increase, like Netflix has done.

  • Offering a lower price in exchange for feedback, a recognizable logo, customer data, or a renewal can help build value for your product.
  • It's not necessary to nail pricing the first time, as it is relatively painless to increase prices on customers over time.
  • Raise prices for new customers and build in enough value to cover the increase, like Netflix has done with 221 million paid subscribers.
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  28:24

  After nervously asking free customers to pay $10/month, the company increased their price 150 times to $18,000/year and were surprised when they responded positively.

  • When creating pricing, it is important to make it clear and simple to avoid friction that prevents customers from signing up.
  • They nervously asked their free customers to pay $10/month, but were surprised when they responded positively.
  • The company increased their price 150 times from $120/year to $18,000/year by asking for a higher price.
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  31:39

  Segment started by giving away their product for free, then sold to Enterprises and built a business worth over three billion dollars, so the key pricing insights are to charge, price on value, don't undercharge, pricing isn't permanent, and keep it simple.