Except for the embarrassing whirring of the one laptop in the room without a solid state drive, the room is completely quiet. The first slide pops up and a company logo is animated with light for a second, invoking a fish’s wet back glinting in the sun as it struggles against a line. The pitch is on.
“Picking a present for your girlfriend is hard, right?” the presenter begins. Two people in the room wince and exchange glances with the lone woman in the room. A few people nod in agreement.
“And you always wait until the last second, right?” he continues. “Well, worry no more. UGift.ly buys presents for you and brings them right to your door -- all through a simple smartphone app. You just connect your Facebook friends, tap a button and the perfect present will be delivered in a few hours.”
“But I don’t understand,” says an investor, who, in his irresponsible youth, was editor of the Harvard Crimson. “How do you make money?”
“Oh, simple .We’re like Uber for gift giving,” the presenter replies.
Related: 'We're the Uber of X!'
There's a collective sigh in the room and quite a few smiles. The next slide shows a cartoon lightbulb that's immediately understood. All is right in the world.
Everyone these days uses analogies to describe a business model. A stadium could be filled with the founders of startups who have used Uber to create a business analogy (Uber for pizza, Uber for flowers and Uber for dates). And this is for good reason: Invoking Uber calls to mind all that's beyond cool. Uber summons with a tap, a future that is convenient, polished and without pain. It’s no wonder that it’s now also a massive cliché among startups.
That doesn’t mean that invoking another company as a business model is wrong or trite. Picking the right analogy isn’t just for informing weary venture capitalists. Choosing the right analogy can inform an entrepreneur’s choices and decisions and opens up up new ideas.In a Harvard Business Review article "How Strategists Really Think: Tapping the Power of Analogy," authors Giovanni Gavetti and Jan W. Rivkin wrote that analogies are “imperfect but useful. The challenge is to get the most out of them.
The right analogy frees an entrepreneur from being trapped within his or her own industry for inspiration. Instead of sticking an analogy into a slide presentation and forgetting it, try bringing it deep inside the business strategy in these areas:
How does the model company make money? Look beyond its stated products to see how it earns money through partnerships and third-party integrations. The real revenue sources may be very different than the consumer-facing products.
2. Key metrics.
What key indicators does the model use to forecast and plan against? Uber might consider number of app downloads or drivers or the average cost of the ride. How do these translate to the new startup's market?
How does the model company market itself and generate search traffic? How does it engage its audience?
It’s easy to figure out a company’s content strategy because this is mostly public. Can this strategy be applied to the new startup being launched?
The business being followed as a model can give an idea about the most important hire to make when scaling up the startup effectively. Does that business rely on heavy customer support or lots of salespeople in the field? Use this example to hire proactively based on a similar pattern of operational growth.
The model company is likely years if not a decade ahead of the new startup. When did it take outside capital and how did it plan its rounds of investment? Was there an exit by the founders? Who is that company's potential buyers and who might be potential buyers of the new startup? The capitalization strategy may mirror that of the model company.
The analogy picked may dictate the future of the startup so pick carefully. But after finding that great model that resonates, be sure to make the most of it. Use the analogy to build a new business wisely and fulfill its ultimate purpose.