Why the question comes up so early
Someone asks, “What’s your business model?” and your stomach drops.
You have an idea, maybe early users, but no clear answer for how money arrives.
Do you invent a revenue story on the spot, or admit you haven’t figured it out yet?
Both options can work.
The wrong move is faking certainty or mumbling through a list of possibilities.
This guide walks through when to state a business model plainly, when to say it’s unfigured, and how to make either answer sound credible.
Investors, partners, and sharp listeners ask about business model not because they expect a finished plan, but because the answer reveals how you think.
A business model is simply the explanation of who pays, for what, and why they keep paying.
You can describe one in a sentence even when the details are still unsettled.
Michael Seibel of Y Combinator puts startups in two categories in his pitch advice: those that know how they’ll make money, and those that haven’t figured it out yet.
He notes that companies in the second group usually end up monetizing through growth and advertising, or by copying the dominant model in their space.
A smaller subset proposes a genuinely new model that fits how the product changes the market, with freemium as a classic example How to Pitch Your Company.
That framing is useful because it removes the shame from the question.
“Haven’t figured it out yet” is a recognized category, not a confession of failure.
When to state your business model plainly
State a model when you can name it in one sentence and it matches what your product actually does.
If you charge subscriptions, say subscriptions.
If you take a transaction fee, say that.
If advertising is the obvious path for your category, say advertising.
Seibel’s hardest-learned lesson from running Justin.tv is exactly this.
He describes offering a “potpourri” of business models—virtual goods, product placement, chat ads, contests—because he was embarrassed to admit advertising was the real answer.
His advice: own the simple business model How to Pitch Your Company.