When we think of business models… we often identify with the industry or niche it is in.
Like if someone runs a restaurant, he’s in the F&B industry.
Or if someone runs a tech startup, he’s in the Startup industry.
Or if someone is running a service-based business like an accounting firm or law firm, we often associate them with either the financial or legal industry.
In the first “Inner Sanctum” call Kenneth hosted, he shared a very interesting way to think about business models.
He differentiates them between Linear Businesses and Exponential Businesses.
I’m gonna share an excerpt of the notes I wrote for Kenneth.
BTW… Inner Sanctum is a private high-end Mastermind that Kenneth hosts where he brings together his 8-9 figure underground mentors who don’t usually do webinars or keynote sharing (because they don’t have to).
The members get direct access to network with some of the most innovative and unorthodox business minds you probably won’t find anywhere in the world.
In Linear Entrepreneurship, you are rewarded proportionally based on how much effort you put in.
Once you hit a certain point, the results become predictable.
Linear Businesses are highly vulnerable to the law of diminishing returns because they tend to be harder to scale.
We can see that after your business crosses a specific revenue point, it will start to plateau.
And it gets increasingly difficult to achieve growth.
If you do an F&B Business, a Consultancy/Service Business, or a Paid Traffic Business.
You put in X amount of effort, you’d usually get Y amount of results… and there’s usually a growth ceiling to that business model.
These business models are usually difficult to scale because the results are determined by the number of hours you put in.
The benefit of this business is that you can immediately get a fast ROI with it.
Exponential Business Models
Exponential Business Models on the contrary… taking off like a rocket ship after it catches fire.
They can achieve very high levels of growth rapidly (far higher than Linear Business Models) if executed properly.
The only catch is that Exponential Businesses are trickiest in the beginning because they usually don’t provide an immediate ROI in the short term.
A lot of the successful tech startups we see in the US are based on this model.
While both sides of the camp have highly successful models… Linear and Exponential Entrepreneurs THINK DIFFERENTLY:
Difference Between Linear vs Exponential Entrepreneurs:
Both entrepreneurs use the 5W and 1H Question Framework to start a business. However, here’s the difference…
Linear Entrepreneurs will first ask the “WHAT?” question:
“What business should I do?”
“Should I do a product or a service business?”
They’ll proceed to answer the question “HOW?”:
“How should I do it?”
“How should I deliver that particular product or service?” -> Here we’re going to the operations of the business.
Then they’ll start to answer “WHERE?”.
Where should they advertise or sell their product or service?
Next… they’ll start to ask the question “WHEN”:
“When the product is ready.”
“When I’m more available to deliver the service.”
“I’ll start the service in two weeks… and finish the service by the end of next month.”
Once they’re done with the time aspect… then they’ll start with “WHO”
“Who is my ideal target market?”
“Who can I outsource bits and pieces of the project to?”
“Who should I contact for product creation/development?
Then finally, they’d answer the final question: “WHY”
“Why am I in this business?”
“Or why should I be in this business?
And not doing something else?”
And truth be told… there’s nothing wrong with this way of asking questions.
Many entrepreneurs from different industries have used this linear method to grow from 6 figures to 7 figures… and this is a method that largely works.
Just that… there’s a much better methodology out there.
I call it the Exponential Entrepreneur Mental Model:
The Exponential Entrepreneur’s first question is to ask “WHEN”:
And this is because nailing the right timing is most important when it comes to creating a business. (Most mega-successful entrepreneurs have an impeccable sense of timing.)
Just look at Jeff Bezos, Elon Musk and Larry Page.
All of them leveraged the rising K-Shape trend of the DotCom Boom from 1995 to 2004 to create multi-billion dollar enterprises today.
While most of us are no Jeff Bezos or Elon Musk…
This doesn’t discount the fact that the internet has made more millionaires during its infancy than Real Estate, Insurance or Finance.
The same thing happened with Social Media…
We see influencers making multi-million dollar businesses from Youtube or Facebook.
These are not isolated examples.
If we look at this comparison from an investing perspective…
Linear business is like the cash cow type of investing where you’re eyeing predictable and regular dividends month after month.
They don’t provide huge upside.
On the other hand, there is the growth investing which you can look at to enjoy more gains.
Of course, it comes with more risk as well.
The thing is both Linear and Exponential models have their place.
One is not better than the other.
Kenneth’s 2 cents is to focus on Linear businesses first if you’re starting out.
If you don’t have a war chest of deployable cash, then creating a linear business is very much preferred because it gives you a predictable form of revenue in the short term.
But once you have the cash, you’re able to use it to grow your business or investments.
That’s when you should look at the Exponential Model.
What are your thoughts on this?
Which model do you prefer?
Lemme know if you like value bombs like these from Inner Sanctum and I’ll keep writing them for you.