Follow the Money: What I've Learned About Business Model Validation
Let me start with full transparency: I haven't built a successful business yet. I'm an entrepreneur still figuring it out, just like many of you reading this. But through launching products, talking with founders, and watching promising startups fail despite passionate users, I've learned something important.
We hear "build something people want" everywhere in startup communities, but it leaves out a crucial question: "Can this idea sustain itself financially?" The problem often isn't product-market fit, but business model-market mismatch.
This post shares my current thinking on balancing vision with financial reality as someone on the journey of building their first profitable business.
The Painful Pattern I Keep Seeing
After watching multiple ventures hit growth ceilings, I've noticed a pattern. Founders often postpone serious financial modeling until after building something users love. Many treat monetization as something to figure out once they've built a great product or secured funding.
This leads to painful realizations after months or years of work:
- Our target market isn't large enough to support our revenue goals
- Customer acquisition costs make our unit economics unsustainable
- The price point users will accept doesn't generate sufficient margins
- Growth requires resources we can't realistically access
Where I'm At Now
After being involved in several product launches in the past, my current thinking has evolved to this:
My current philosophy: Solve painful problems really well, but do not go too far without sanity-checking how much it costs to deliver your solution and whether enough people will pay enough for it.
This approach requires honesty in both directions:
- Being honest about whether your solution truly solves a painful problem worth paying for
- Being honest about whether your economics can work without requiring unrealistic growth, funding, or market dominance
It's not a silver bullet, but it has helped me make decisions I feel more confident about with where to invest my limited time and resources.
A Simple Framework I'm Using
Based on these realizations, I've adopted a practical approach that puts financial assessment early in the process. The intent is not to kill creativity, but to channel it toward sustainable directions:
- Identify a painful problem through customer discovery
- Test price sensitivity by asking what people would pay for a solution – their willingness to pay reveals problem urgency better than any survey
- Calculate your minimum viable audience: given your costs and price point, how many customers do you need to break even?
- Check market size reality: what percentage of your total addressable market needs to convert to reach your goals?
- Only then assess technical feasibility and development costs
This approach has killed many of my ideas early... like realizing a $10/mo tool would need 8,300 subscribers just to reach $1M ARR. But it has also helped me identify opportunities where modest pricing could unlock outsized impact through natural network effects or low marginal costs.
The Okane Reality Check Tool
To make this process more efficient, I built Okane which is a simple calculator that helps entrepreneurs and indie makers reality-check financial targets against market fundamentals. It answers a basic question: given your target revenue, what combination of price and customer volume do you need and is that realistic for your specific market?
Simple Math, Hard Truths
If you need $100K/year and price at $1, you need 100K customers. Can your market realistically provide that?
Common Mismatches
• B2C product requiring 20% market penetration
• B2B SaaS with unsustainable acquisition costs
• Indie game needing 100K sales in a genre that typically sells 10K copies
When Financial Modeling Goes Too Far
The danger comes when this pragmatism becomes paralyzing. I've likely killed too many ideas prematurely by being overly financially conservative. A pure numbers approach can miss important factors that transform the equation:
- Upsell paths that increase customer lifetime value over time
- Network effects that create increasing returns at scale
- Expansion opportunities once initial market is captured
The sweet spot emerges when financial modeling informs rather than dictates your strategy. It's finding the balance between these two extremes:
Blind Optimism
"If we build something amazing, the money will follow"
Paralysis by Analysis
"This doesn't immediately fit a profitable model, so it's not worth pursuing"
Neither blind pursuit of passion nor rigid financial modeling alone leads to sustainable businesses. The best path forward to me seems to be in the thoughtful integration of both.