Welcome to the 2021 Biomimicry Launchpad! Email us if you have any questions.

Week 7

Week 7 Content

Relevant revenue models for your biomimicry startups:

Things are beginning to come together! We have talked about testing assumptions, understanding your customers' job to be done, and about how you can provide value to meet that job. This week we are going to focus in on two very important things that are oftentimes not considered by first time entrepreneurs: understanding your market and revenue models. Just like you test assumptions about the problem you are addressing and the solution you are providing, you need to also test assumptions about the size of your market and how you make money!

To start, let's learn more about different revenue models. A revenue model is how you make money. There are many different ways to generate revenue (money coming into your startup) ranging from donations to selling your product. Watch this video to learn about the different types of revenue models, and think about where you see these revenue models in your day-to-day life. Most companies combine or have more than one revenue model!

Relevant revenue models for your biomimicry startups:

*Note that this is not a complete list - there are many other types of revenue models. We have found the models listed below to be most relevant for high-tech, product oriented startups.

Product Sales
- - You make and sell the product.
  - Example: Nucleário
Rental / Lease
- - You rent your product for someone else to use. There are a finite amount of products that you can rent, which makes you different than a Subscription Model.
  - Example: Rental cars (subscription example: Netflix)
  - Note: This is a key part of shifting to a circular economy!
License
- - Someone pays you to use or implement your intellectual property.
  - Examples: Agrospheres (licenses technology to ag companies); Disney (licenses Mickey Mouse to other companies to use)
Fee for Service
- - You earn money for the services that you complete.
  - Example: Watchtower Robotics (project based work)

Data Sales
- - You sell the data you collect from your solution.
  - Example: Agrosmart
Freemium
- - You give away your solution for free or at a low cost, and up-charge people later.
  - Example: Printers (low price) and printer ink (recurring, high price)
Donations
- - Individuals or groups give you money because they believe in your cause.
  - Example: Wikipedia
Grants
- - Foundations or government bodies give you money so that you can complete a certain deliverable.
  - Example: Biomimicry Institute

Think about how you may be able to test your assumptions about the revenue models. Is there a standard in the industry? Can you ask about how your customer last paid for a solution that solved their need?

As you continue to develop your startup, remember that your customer (person who pays for your product) may be different than your user (person who uses your product). Oftentimes these people talk to each other to make a final decision, but it is important that you focus on understanding both of these personas.

Customers and Users.mov

Biomimicry in Practice

When considering your market and revenue model, never lose sight of the ethos of biomimicry. Ask yourself "how compatible is my product and business with all surrounding living systems?" 2021 Ray of Hope Prize Finalist Biohm Ltd. embodies biomimicry's ethos in all aspects of their business. Their goal is to build a successful company that improves quality of life for their customers, their employees, and their communities, while creating high-performing and environmentally friendly construction materials that eliminate the concept of waste altogether.

Biohm's commitment to remain true to the ethos of biomimicry is integral to their entire business. Through their materials, production, and business model, they continually strive to demonstrate how business can equitably and ethically work in collaboration with the natural world, industry, academia, government, and communities.

Market size, and why it's important

In order to have a successful startup (or any organization for that matter) you will 1) need to be able to reach your customers; 2) have a large enough audience to make an impact, and 3) have enough opportunity to remain financially viable. I once was approached by a startup that wanted to make an app for aerospace engineering professors. The app would cost $0.99 on the app store, and would solve a real problem the professors were facing. They discovered that there may only be around 500 aerospace engineering professors in the world. That means they could only make a maximum of $495 on their app - that is not a sustainable business! They either would have to increase the cost of their app significantly, use a different revenue model (perhaps ads, subscription fee, or rely on donations), or focus on a different, larger customer segment.

This exercise is called identifying your Total Addressable Market (TAM), and it is important to identify a problem and solution that has a large enough TAM to create a new startup. The following math equation (it's easy, we promise!) is how you identify your TAM.

(number of customers) x (average revenue per customer) = TAM

For the example given above...

- 500 (# of customers) x $0.99 (average revenue / customer) = $495 (TAM)

Now, try to identify your TAM. Many of you have no idea how much you will sell your solution for - you may not even know what your final solution is! If this is the case, try to evaluate the TAM of a competitor that you have previously identified.

There are all kinds of opinions out there about the size of TAM you should look for, but ultimately it is up to you as an entrepreneur. If you have a small TAM, can you create a sustainable for-profit company? Or would you be better served as a non-profit that relies on grants and donations? With a very large TAM, you may find it difficult to enter into the market. How can you focus on a smaller subset of customers first, to help you get focused? There are no right or wrong answers here. The important thing is that you begin to think about your startup in terms of financial sustainability.

Reconnect

When was the last time you walked barefoot outdoors? Maybe you felt the coolness of grass in a field, or the springiness of a forest trail on the soles of your feet? Or beach sand between your toes? Has it ever occurred to you that modern humans are the only species of animal that has put a synthetic barrier between ourselves and the natural world? Recent research suggests that this separation may play a role in modern human health issues.

This week, consider trying the grounding exercise below, and then read this paper to learn about some of the connections between physical contact with the Earth and your health.

Find a place where you have access to some sort of natural ground cover, and can comfortably stand for a few minutes.
Remove your shoes and socks, and stand with your feet flat on the ground, about shoulder width apart.
Wiggle your toes and focus on feeling the texture of the ground on the soles of your feet.
If you're comfortable doing so, close your eyes and breathe deeply.
With each breath, focus on the sensation of your feet on the ground, and remember how connected you are to the Earth. Your health and the health of the planet are inextricably linked. You are part of nature.
Listen to the sounds around you, especially if you're able to be in a quieter natural setting. Are there birds? Can you hear the wind in the trees?
After a few minutes, open your eyes, put your shoes back on, and go back to "normal".

Bonus Content: TAM, SAM, SOM

Here is This article that does a great job explaining the concept of Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM). This can get fairly complicated, so read at your own pace. This article will teach you about terms that you will need to know later on in your startup journey and how to calculate your TAM, SAM, and SOM.

TAM Methodology Article

Assignments

Read the Week 7 content and complete the assignments before your 1-on-1 coaching call.
With your team, identify your potential revenue models. Remember that these are assumptions - how can you test these assumptions?!
Try to determine your Total Addressable Market (TAM). If you want to dig deeper, also try to determine your Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM). There is no right answer here - this exercise will help you understand how large of an opportunity you are dealing with. Make this a Google Doc in your Drive folder.
Talk to at least 5 customers. Try to discover what revenue models they prefer or have used in the past.

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