The 9 main business models that build billion-dollar companies are: SaaS, Transactional, Marketplaces, Hard-set, Usage-based, Enterprise, Advertising, E-commerce, and Bio.
SaaS (31%), Transactional (22%), and Marketplaces (14%) make up 67% of the YC top 100 companies, with Marketplaces and Transactional businesses creating the most value.
Key pricing insights: charge to learn customer value, price based on value not cost, most startups undercharge, pricing can increase over time, and keep pricing simple.
Meeting Notes:
Business Models of Billion Dollar Companies
There are 9 main business models that build billion-dollar companies:
1. Software as a Service (SaaS): Cloud-based subscription software where customers pay monthly or annually to access the software.
2. Transactional: Facilitate transactions and take a cut (often fintech companies).
3. Marketplaces: Two-sided marketplaces that facilitate transactions between buyers and sellers.
4. Hard-set: No details provided.
5. Usage-based: No details provided.
6. Enterprise: No details provided.
7. Advertising: Make money through advertisements.
8. E-commerce: No details provided.
9. Bio: No details provided.
A detailed guide covering metrics, examples, and key takeaways for each model will be provided.
Insights from the YC Top 100 Companies
SaaS (31%), transactional (22%), and marketplaces (14%) make up 67% of the YC top 100 companies.
Marketplaces create 30% of the value despite being only 14% of the list, as they tend to become dominant winners with strong network effects once they get huge.
Transactional businesses create 29% of the value despite being 22% of the list, as they are directly in the flow of funds making it easy to take a cut.
Examples: Stripe, Coinbase, Brex
SaaS businesses have consistent recurring revenue which allows predictability and compounding growth.
Very few advertising businesses (3%) become big winners unless they catch lightning in a bottle with organic virality to become a top hub/platform with network effects.
Examples: Reddit, Twitch
Key Takeaways:
No services, consulting, affiliate, hardware, or platform-dependent businesses in the top 100 due to issues like low margins, scaling challenges, and platform risks.
Recurring revenue with strong retention is consistently a winner if you keep delivering value.
Network effects, lock-in, technical innovation, higher margins, and organic virality can build strong defensible moats.
Pricing Insights from Top YC Companies
1. You should charge to learn who wants your product, how much they value it, and affordable customer acquisition channels.
Example: Stripe charged 5% per transaction (higher than 3% competitors) to test value.
2. Price based on value, not cost. Charge based on the perceived value to customers, not just your cost of delivery.
Get customers to articulate the value and problems you solve (make money, reduce costs, move faster, avoid risk).
Raise prices incrementally until you get pushback but customers still pay.
3. Most startups undercharge. Lower prices are not a sustainable advantage as larger competitors can underprice you.
Higher prices signal higher value and allow higher customer acquisition spend to outcompete others.
4. Pricing isn't permanent. You can increase over time as you build more value.
Exclude existing customers or give advance notice for increases.
Example: Netflix regularly increases prices on 221M subscribers.
5. Keep pricing simple and straightforward, avoid adding unnecessary friction.
Example of good, clear pricing: GitLab
Example Story: Segment started free, then $120/year. Raised to $15,000/year after an advisor recommended $120,000/year for their enterprise product. This allowed them to capture more value and get acquired for over $3 billion.