I listen to start up pitches as an investor, a mentor, an advisor or a judge several times a week. Whenever there is an audience of two or more people, at least one person will struggle to understand how the business presented will make money. The answers are not usually clear in the business plan. Naturally the next step is to ask the entrepreneur. The explanations rarely satisfy the audience.

The mobile and digital world does not have the basic concepts and tools to describe a successful business. 

Remember this is typically an audience of smart, experienced business people. Most founders are passionate, articulate and talented. This is not a problem of quality, preparation or process. There is a real gap in communication.

Pitches are all about communication. Founders create excitement by offering innovation and catch the attention of investors by showing growth. But entrepreneurs struggle to paint a picture of how their start up business will work.

Obviously this is a problem for investors who are trying to assess the potential of a new business idea. It is also a problem for start up founders and entrepreneurs. Without a clear model for how your business works, how will you make the best strategy and management decisions? Analysts find it even tougher. There is no common set of metrics to evaluate and compare businesses in the digital world.

The business model is the solution to these problems. A business model is simply a set of activities and interactions which define how the engine of a business is constructed (statics) and how it drives performance (dynamics).

Business models emerge from the practices and structures which work commercially. Successful and lasting models provide commercial opportunities all along the value chain including clear wins for customers. Good business models also work well within society to deliver wider benefits.

Mobile and digital technologies have led to an explosion of innovation in software.  We have now reached the stage of maturity where 6 clear business models have become established. Some are well tried in technology (licences, eCommerce) others are borrowed from very different environments (SaaS, usage, advertising) or rooted in in our oldest commercial traditions (marketplaces).

We have enough knowledge to describe how these 6 models operate. With a little effort we can measure the activity of each model and show how that activity links to financial performance. This gives you a toolkit to assess the organisation, management, control and prospects of your business using one of these models.

It is then only a short step to paint a clear picture for an investor. The picture will help investors and analysts arrive at a structured evaluation of your business and provide a basis for comparison with your peers. 

Arsham Memarzadeh of @OpenView Partners published a blog post on 13 November "Why Enterprise Mobility Calls For New Metrics and How You Can Help Fill The Void." He is identifying with a common problem. Many investors and advisors struggle to understand how tech start ups make money. Founders explanations are often unclear and business plans rarely include a simple description of the business model. Mobile start ups are even more poorly understood.

How can you select measures which help achieve these objectives? Tomasz Tunguz (@tomtunguz) has attempted to fill part of this gap with his regular analysis of public filings by SaaS companies. This is useful but limited by regulatory requirements. To fully answer the question think about these dimensions.

• Tech is not a type of business. Make sure you understand your core business model and tie your chosen metrics to that model. Look at my post on the 6 business models for the mobile age for an example of different business models.
• Be clear about link between operations and revenue. The connection may be indirect but it needs to be clear and traceable. It must to be a link not a correlation. Too often business measures symptoms not root causes of performance or behaviour.
• Think about Audiences - investors, public listing, the crowd, advisors, management, commentators - and how they will react. You need each audience to do the right thing not just report the right result.
• Make sure all your metrics are based on consistent, reliable sets of data. Don't have one dataset for investors and a different one for your internal management. Vary the detail of measures not the basis of calculation.
• Only use consistent, reliable data. If no data is available or data is not quantifiable then don't measure. I have seen some bizarre business decisions taken from "trends" that are based on thin air rather than real data.
• Test and refine your metrics just like everything else. You can't be sure about the impact of different measures on your business any more than you can figure out which advertising copy will work. Your start up needs to learn the right metrics. Remember look at the impact behaviour and culture when evaluating metrics not just hard results.

It will take some time to find common metrics which work for each business model and give investors and analysts an accepted basis for comparing companies. Until then the best approach is to try get a clear, easily explained picture of your business. I have to admire the openness of Buffer (@buffer) who have shared their investor term sheet, entire performance dashboard and even the salary levels of everyone in the management team. The dashboard is produced by another start up that believes in full transparency, @baremetrics.

How can we find measures that are clearly linked to business outcomes, communicate the right messages and will be understood by non finance people? What metrics do you use to drive success for your start up?

Let me just go back one step. Free trials have become established as one of the standard options for a SaaS business model. In consumer software there is a mix between freemium models in which you can use the basic service for free forever but have to pay for advanced features and free trials. In enterprise SaaS virtually everyone offers a free trial typically 7, 14 or 30 days. You try the product for a period then have to decide whether to keep it and become a paying customer.

Free trials have proved a great device for filling the sales funnel. There are now a number of channels where it is cheap and easy for a start up to sign up customers for a free trial. Advertising on social media or through search engines has tremendous reach and typically you can find sign ups for two to five dollars. Specialist app stores run by big enterprise vendors like Salesforce and Xero are also a low cost and effective route. Integration with these products is a strong feature for many companies.

But there is a big challenge. Conversion. How do you persuade those users who sign up to become paying customers? A variety of industry sources suggest 3-5% conversion for B2B SaaS is a good solid performance and can lead to profitable operations. 8% is best in class. These numbers suggest conversion is a tough job even for the most successful companies. Why?

There are lots of reasons and I would encourage you to focus on real and very closely understood specifics. There is no substitute for detail in addressing this issue. Many individual issues will relate back to to one very well established business challenge. Change is hard. No matter what the technology or the market dynamics, change always depends on behaviour. Changing behaviour is both difficult and slow. Tomasz Tunguz of Redpoint Ventures (@ttunguz) wrote a great post in March Why Great SaaS Companies Focus on Behaviour Change which captures the essence. Whatever your B2B SaaS proposition, you are asking your customer to make a change to their business and resistance will be tough to overcome.

What can you do? Absolute first step is to talk the right language so you recognise the challenge. When someone signs up for a free trial they become a lead NOT a customer. Think in terms of lead generation and conversion and the sales process becomes much clearer. Beyond these here are my top 9 suggestions:

• By far the most common tactic is to take payment details in order to qualify for the free trial. The company will start debiting your credit card automatically at the end of the trial and many users forget to cancel. This does create great conversion rates but users are wise to the tactic so getting leads this way is much harder and more expensive than offering a trial without capturing payment details.
• Since change is hard, you need to make it as easy as possible. If your product is part of the problem then conversion will be impossible. You can’t do everything for your users but simplifying and reducing the effort to set up and use your software is vital.
• Linked to making it easy is making it mobile. Users increasingly prefer mobile and the majority of internet traffic is now mobile in virtually every country. Mobile also forces you to think about making the user experience simple. Great mobile apps are easy and intuitive which is exactly where you need to be.
• Think about how you can change the dynamic. For example, instead of asking a user to configure a blank set of forms, have the software set them up with automatic defaults and then your user only needs to delete or change those that don’t apply. Its quicker and the first thing the user sees will be an active living version of your system not a blank form.
• Offer free use of some premium features. Many start ups restrict free trials to the most basic version of the software, the one with the lowest subscription. Let your users try the best stuff and not only will they be more likely to convert, they may go for a higher priced subscription as well.
• SaaS marketing teams have become very good at regular contact with leads. Many run a programme of e-mails, tutorials and challenges during the trial period. This is all fine but be careful. If the user feels hassled or pestered then it can be counter productive.
• Remember if you do sign up large numbers then you will have a great pool of qualified leads. You may not convert immediately but you can personally reach out these people and find out what they need, why they might convert and so on. Hit the phones to follow up, test out new ideas and learn. Improving conversion is an iterative process every bit as much as product development.
• It may also be time to think again about your free trial. The trouble with cheap and easy sign up is you have made it simple to get the wrong customers as well as the right ones. Maybe you need a first cohort of 100-500 and then use that group to narrow and focus your market. Then target much more closely. You will have less leads but a much higher conversion rate if you get this right.
• Think about moments of change. Instead of trying to persuade your customers to change, catch them when they have to change anyway. Perhaps they are launching a new product or changing their CEO or even just taking on their first employee for smaller businesses. The right offer at the right time could be priceless.

Innovation in the start up world is not restricted to mobile and digital technology. Almost every week someone announces a new business model. There has also been a bit of a surge in literature about the whole idea of a business model. Perhaps the two best known examples are Business Model Generation by @AlexOsterwalder & @ypigneur and Running Lean by @ashmaurya. 

Despite this, I sit in lots of meetings where potential investors struggle to understand how the pitching business makes money. I also read many business plans where the founding team and their advisors have had difficulty articulating a clear business model. I believe that the whole question has become confused and obscured. It is true that there are occasional brand new business models. In practice though the overwhelming majority of start ups have innovative products and marry these to an established and well tried model.

For software based companies, all the business plans and propositions I see are based on one of six core business models: 

• Software as a service or SaaS is currently the most common and popular model. Essentially this is a subscription model where the buyer is able to use the seller’s IP for as long as they continue to pay. The underlying model is not new. Newspapers, clubs and many other services have operated a similar model for many years. However, applying this to the software industry is relatively recent. SaaS depends heavily on cloud computing.
• Less common but still valid are usage based models. The difference here is that the customer pays on the basis of the amount of a product or service consumed. This is how utilities tend to work and it was the accepted model for the telecom industry for many years. Nowadays telecom operators are moving gradually towards a flat rate subscription model.
• The online world is a great opportunity for a marketplace, most famously eBay but also the many crowd funding sites which have started recently. There are lots of good ideas based on this model where the provider of the marketplace charges a small fee for each transaction. This model requires both buyers and sellers and the key challenge is to be able to attract a sufficient users on both sides of the equation.
• eCommerce is simply selling goods online. This has become easier and easier with affiliate marketing and dropship suppliers enabling sales without the need for any inventory or supporting logistics. In addition digitisation makes many products available without any physical manifestation.
• The other option is not to charge your users but to attract paying advertisers. Advertising has been transformed in many ways by the advent of the Internet but the business model has not really changed. If you can attract the right audience, people with goods to sell will pay to put their message in front of that audience.
• The traditional model for the software industry is licensing. The cloud has made this seem almost obsolete and global players like SAP, Oracle and Microsoft are scrambling to move towards SaaS. Nonetheless licensing is still a valid model and I suspect it will not die out anytime soon.

I am always eager to hear about truly innovative business ideas. However, business models are rarely the focus of genuinely new thinking. If you are evaluating the potential of a start up business, whether as an investor, an advisor or a founder, figuring out which of these models is most appropriate is a great first step. Applying one of these six ideas will make it much easier to understand and explain how any business actually makes money. 

How do you link the operating metrics of your business model to your financial performance?

You cannot escape the growth of mobile devices in the years since the iPhone launched the smartphone era in 2007. Sometimes our obsession with smartphones and tablets slightly obscures the underlying fact that mobile was already the fastest growing technology in history before Steve Jobs came along. 

It doesn't take a genius to figure out that mobile is a huge business opportunity and there are thousands of start ups across the world which aim to take advantage of the mobile ecosystem. This is great and I love working with these companies. But mobile is not just about mobile. Every start up and every company needs to view the world mobile first, no matter what, how or where they aim to sell.

Every business should be mobile because it has the greatest market reach.

A defining feature of mobile is reach. It is fairly well known that phones are the main way of accessing the Internet in many parts of the world. Mobile is also the primary access to information of any kind in the developing world. It's reach is far greater than television, radio and newspapers as well as fixed line communications. This access is quickly becoming better and faster. Informa believes smartphones will reach 30% of Africans by 2017 and at least 14 countries on the continent already have 4G networks.

Reach is not just global though. Mobile reaches far more individual people in any country than traditional communication. This is most obvious with the young who tend not to watch TV news or read the papers. They do pay attention to their phones. Tablets have also opened up the web to an older generation. @PewResearch reported that 43% of US Senior Citizens accessed social media in 2013 up from just 26% in 2010.

Every business should be mobile because it is close to customers.

Mobile is personal. Smartphones and tablets have become essential to people's lives because they are the preferred method of communicating with anyone who we cannot see face to face at any particular moment. In fact mobile has extended our ability to communicate more widely than ever before and all the evidence is that people across the world love it. 

As a result, businesses can only succeed in mobile by understanding the behaviour of ordinary people and communicating in ways which respond. Success with mohile will make your business a better business.

Every business should be mobile because it is a better way of doing business.

Mobile has brought a new focus to user experience, a sharper understanding of user behaviour and a more agile way of building, testing and regaining products. The whole way of doing business in mobile first businesses is different. New product cycles are measured in hours or days not weeks or months. User experience comes first and technical requirements well behind. Business practices follow user needs rather than dictate how the user will behave.

Start ups and technology giants which have been winning in mobile are reinventing management and we should all learn to adapt. 

If you are thinking about starting a business today why would you not want greater market reach, closer to customers and better business? How can your start up become mobile first?