Community Business Models
Community business models are unique and landing on one that works for you is more art than science.
I don’t like when people use the term “monetize” when referring to a community. It sounds like something you’re doing TO people without their consent, like we’re tricking people into paying us in a way that serves only our secret priorities.
Healthy community businesses have clear business models with aligned incentives for members. It's transparent how the business works and what they're paying for.
How to land on a business model both you and your members are comfortable with is more art than science. Each business model is unique and finding yours will require some reflecting and some experimenting.
I’ll offer a simple process here, some questions to reflect on and examples to help you develop an initial community business model that you can start testing with potential members.
Landing on the right one for you will require lots of trial and error. This is just a starting point.
What’s a business model?
A business model is a story.
This is my favorite definition from Joan Magretta. She explains it in this piece and offers some interesting evergreen examples.
I like defining it as a story for a couple of reasons. Stories continue to evolve and change, like your business model will and should. Also, the best stories have a unique point of view and don't try to hide it. Same with business models. The most successful businesses often started by embracing a unique approach or point of view from the start.
What’s your business model story?
Business Model thinking has evolved a lot in the last 10 or so years, especially for new businesses. Alex Osterwalder popularized the idea of breaking up a business model into different pieces through his Business Model Canvas. It’s meant to be a summary of how your company will function.
The canvas is a way to visually tell the story of your business and switch out the pieces as you learn.
Though I find all the pieces of the Business Model Canvas useful, I think the key parts can be simplified into a short statement... a little story!
This is an Mad Libs-style fill in the blank exercise to answer about the community business you’re building:
We help [members] do [problem you solve] by [your solution]. We’ll find most of our members [your main channel] and will make money by [your revenue].
Members Who will join your community?
Problem What pain is your member feeling that you want to address?
Solution Describe your proposed solution/community offer in a few words.
Channels How will your members find you?
Revenue How will you make money?
Examples of Mature Community Business Models
As inspiration, here are some examples from communities you might have heard of. These are all written by me based on what I know as an outsider about how these businesses work. The details could be off, but it should give you an idea of what mature community business models could look like.
SPI Pro We help business owners feel more confident by providing support, content and events via a Circle Community. We find most of our customers from our existing list and make money by charging members $49/month or $490/year.
Dreamers and Doers We help womxn entrepreneurs grow their business by providing visibility and networking via PR opportunities and a Facebook community. We find most of our customers via referrals from members and make money by charging $130/month for membership billed quarterly.
Ness Labs We help people interested in self-improvement find others to collaborate with by providing a platform to host events and connect via a Circle community. We find most of our customers from the Maker Mind newsletter list and make money by charging $9/month or $49/year for membership.
AltMBA We help managers and leaders learn leadership principles and put them in practice by providing a 4-week program that includes lessons, coaching and community via Slack. We find most of our customers through word of mouth and make money by charging $4,450 for the program.
Examples of Early Stage Business Models
You’ll notice the main channel for a few of these mature community business models is word of mouth or referrals. When you’re getting started this is not likely to work as your main channel. That’s one big difference you’ll have to contend with at the early stages.
Below are some examples of how some earlier stage communities are figuring this out. These are all businesses I've worked with but these again are written by me, not the founders of these communities.
Buckskin Revolution We help crafty outdoorsy people learn land-based skills by providing bi-annual online gatherings that include access to an online community. We’ll find most of our customers through YouTube and social media and make money by charging $285 for each 6-month gathering.
Petminded We help nerdy dog parents live better lives with their pets by providing regular events about Dog Science. We’ll find most of our customers through event partnerships with other brands and make money by charging for monthly membership and courses.
Health Healing Life's Relationship Circle We help women improve their relationships by providing workshops and group programs. We’ll find most of our customers from our free Facebook group and make money by selling a 3-month small group program for $1497. (And later, access to a video library, events and a membership for $147/quarter).
Pioneering Change We help local government managers in Pennsylvania learn from each other by hosting monthly round tables and events. We’ll find most of our customers through direct outreach and make money by charging for individual events. (And later access to an online membership community for $399 a year).
Your first offer
For a new community, building out a business model focused on membership becomes a chicken and egg problem. People want to join communities where they’ll be connected to groups of people but in the beginning you don’t yet have lots of people.
One way to solve this is to sell something besides an online community that leads naturally to an online community. This is often a course or events targeted to your members. You'll notice this is what the examples above have done. It’s a way to put less pressure on the experience of community upfront, while still providing clear value.
Because online community rituals and culture take time to build out, this gives you some breathing room. Even if the group you start with is small, it gives you the chance to really figure out their problems and work on your community business model alongside them, all while planting your seeds for a larger membership community.
If you’re having this chicken and egg problem, consider first selling something more concrete to smaller groups of people who can be your first members.
A stronger business model story
Whether you've already launched or are just getting started, if something is not working as you'd like, it's very likely to be something related to the 5 questions within the business model story above.
Below are some questions to think through once you have an initial draft of your business model story.
The goal is to get to a statement you're confident in first, and then immediately start testing it with your members.
1. Does your story make sense in the short term?
You should have a clear idea about how you’d execute on your business model. It shouldn’t be just an aspiration.
A common issue I see with early stage community business models is that they rely on having too many people in the community too early. If the problem you’re solving can only be solved once you have 10,000 people in your community, and you currently have 40 people on your mailing list, your business model doesn’t pass this test. It doesn’t mean it won’t eventually work, but you need a story that will work in the short term until you get there.
It’s okay to get smaller. Your business model will develop as you grow. The story has to make sense for where you are now.
2. Is your story written like a marketing message?
When you read your business model story does it sound a little like someone else wrote it? Are you emphasizing what you think others would be impressed by? This sentence is not an elevator pitch and it’s not for other people. It’s just for you. It doesn’t have to sound like something that will change the world, it should sound like something you can execute.
Describe each element in the simplest language you can think of and don’t worry about making it sound cool or enticing to other people.
3. Are the incentives aligned?
Having a business model that doesn’t make sense is often a result of incentives being misaligned. An example of this would be if you were starting a community for job switchers and your main channel and revenue counted on employers to refer and pay for the membership for their employees. Why would employers pay to lose people to other companies? The incentives are off.
Is there a way for you to change your business model slightly to account for any misalignments? For example, in the job switcher example, can you make the community a service companies offer people as part of severance packages after layoffs?
Put yourself in the shoes of your members, is this a thing they’d be excited to do and/or pay for? Is there anything that might conflict with them joining?
4. Which part of the story did you have trouble filling in?
There might be a part of your business model that you haven’t fully worked out yet. That’s okay and normal! But you should be aware of this. That’s the riskiest part and it’s what you should focus on first.
Other parts will change as you work on it too, but you want to address the trickiest pieces first. If you have no idea how people will find you for example, your main channel is an important place to start.
Find information that can clarify the pieces you’re not yet sure about. That can come in the form of online research, reading, but ideally it comes from talking to your people!
5. Does it make money?
Is your community business model set up to make more money than it costs to run?
When you’re first writing out potential business models, this is the part when you do some math. Try to answer these numbers questions with the information you have so far. Again, the point is to land on a story that you can immediately test with real potential community members.
How much are similar communities charging? What’s my target price?
How much will this business cost me to run including my salary?
What is the minimum number of members I need at that target price to break even?
Does that number sound doable?
Next steps
After researching and brainstorming, your business model story should feel real and doable to you. It doesn’t mean it’s right. It’s probably not right! The benefit of doing this exercise early on is to figure out what you think now, so that you can track what you’re learning as you start to test the different pieces.
Here’s what to try now:
Write out a business model story for your ideal community business 1-2 years from now. Use the mature business model examples as inspiration.
Write out a business model story you can execute with your current resources in the next 1-2 months. Use the early stage business model examples for inspiration.
Work on a first offer you can sell to your first 5-10 community members.
Start finding people to talk to who are potential members so that you can test all of the above.
In this weekly newsletter, I write about the process of validating community businesses through my own journey of launching a course and community for community business leaders. If more of this content is of interest to you, I hope you'll subscribe below. 💌