See how a startup is wired before you trust its numbers.
truenorthwealth.net explains startup business models in plain language: who pays, when the money arrives, what it costs to win a customer and how long the cash lasts. For curious adults in Canada, free to read, with no advice and nothing to sell.
- How money moves
- Customers pay a fixed amount every month or year for continued access. Revenue repeats until they cancel.
- Key measure
- Churn, the share of customers who leave each period, set against the cost of winning each new one.
- Fragile when
- Customers stop finding value, a cheaper rival appears or households cut optional spending.
- How money moves
- Buyers pay sellers through the platform, which keeps a share of each transaction, called the take rate.
- Key measure
- Liquidity: how often a buyer finds what they want and a seller makes a sale within a reasonable time.
- Fragile when
- Participants deal directly to avoid the fee, or use several competing platforms at once.
- How money moves
- Most people use a basic version for free; a small share pays for more features, storage or support.
- Key measure
- Conversion: the share of free users who become paying customers, and what the free users cost to serve.
- Fragile when
- Free users never convert, or the cost of serving them grows faster than paid revenue.
- How money moves
- Customers pay for what they consume, such as storage, messages sent or computing time.
- Key measure
- Gross margin per unit of use, and whether existing customers use more over time.
- Fragile when
- A large customer cuts usage, or the cost of supplying each unit rises faster than the price.
- How money moves
- The audience uses the product for free; advertisers pay to reach that audience.
- Key measure
- Engaged audience size and the revenue earned per user over a period.
- Fragile when
- Advertisers cut budgets in a downturn, or privacy rules and platform changes limit targeting.
- How money moves
- Customers buy a device, often near cost, and pay a recurring fee for the service that makes it useful.
- Key measure
- Margin on the device plus how many buyers keep paying for the service.
- Fragile when
- Inventory ties up cash, manufacturing is delayed, or buyers keep the device and cancel the service.
Every business model answers three questions
Strip away the vocabulary and any startup can be described by how it creates, delivers and captures value. The rest of this site builds on these three.
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Create value
What problem does the product solve, and for whom? A model starts with someone who would miss it if it disappeared.
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Deliver value
How does the product reach that person, and what does each delivery cost: servers, staff, shipping, support?
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Capture value
Who pays, how much, how often, and how much of each payment is left once the direct costs are covered?
Six models, each wired differently
Each card shows who pays and the measure that tells you most about the model. Open one to read how it works, where it is fragile and which questions to ask.
See the full library- 01 Subscription Repeat payments for continued access. Who paysCustomers, monthly or yearly WatchChurn and payback period
- 02 Marketplace A share of transactions between two groups. Who paysBuyers, sellers or both, per transaction WatchTake rate and liquidity
- 03 Freemium A free tier that feeds a paid one. Who paysA minority of users, by plan WatchConversion and cost of free users
- 04 Usage-based Prices tied to how much is consumed. Who paysCustomers, in line with use WatchMargin per unit and expansion
- 05 Advertising A free audience that advertisers pay to reach. Who paysAdvertisers, by reach or result WatchEngagement and revenue per user
- 06 Hardware + service A device plus the recurring fee that makes it useful. Who paysCustomers, at purchase and monthly WatchDevice margin and service retention
Six measures, one dial
Founders and investors judge a model with a handful of measures. Turn the dial to read what each one means, how it is worked out and when it misleads.
Customer acquisition cost
What it costs to win one new customer.
- In words
- Sales and marketing spending over a period, divided by the new customers won in that period.
- Reads well when
- Every relevant cost is included and customers from paid and unpaid channels are shown separately.
- Be careful when
- Quoted for advertising alone, leaving out the sales team and sign-up discounts.
Lifetime value
The gross profit a customer is expected to bring over the whole relationship.
- In words
- Monthly gross profit per customer, multiplied by the number of months a customer is expected to stay.
- Reads well when
- It rests on years of observed customer behaviour rather than a few months.
- Be careful when
- Small changes in assumed churn move it a great deal, so it is a forecast with wide uncertainty.
Churn
The share of customers, or of revenue, lost in a period.
- In words
- Customers who cancelled during the period, divided by the customers at its start.
- Reads well when
- It is reported both by customers and by revenue, over a clear period.
- Be careful when
- Averaged across very different groups, which hides where the losses are.
Gross margin
The share of revenue left after the direct costs of delivering the product.
- In words
- Revenue minus direct delivery costs, divided by revenue.
- Reads well when
- Hosting, payment processing, support and other delivery costs are all counted.
- Be careful when
- Delivery costs are moved into other lines so the margin looks higher.
Net burn
How fast the cash balance falls each month.
- In words
- Cash spent in a month minus cash received from customers in the same month.
- Reads well when
- It is measured over several months, not one unusually quiet one.
- Be careful when
- A large prepayment or a delayed bill makes a single month look better than the trend.
Runway
How many months the company can continue before cash runs out.
- In words
- Cash available divided by monthly net burn.
- Reads well when
- Several versions are given, including one with lower revenue than planned.
- Be careful when
- It is quoted as a single precise figure that assumes nothing will change.
Latest long reads
Explainers researched and checked by the editorial team. Each defines its terms and ends with a short note on its limits.
- 01 Why Most Startups Fail and What That Means for Anyone Who Invests in Them Most new companies do not survive in their original form. A plain look at the common reasons, how outcomes are spread among startups, and the specific risks that come with buying shares in a private company in Canada.4 min read
- 02 Burn Rate and Runway: How Startups Measure the Time They Have Gross burn, net burn and months of runway: the simple arithmetic that decides when a startup must raise money, cut costs or reach profitability, and why the estimate is never as firm as it looks.4 min read
- 03 Unit Economics Without Jargon: CAC, Lifetime Value and Payback Customer acquisition cost, lifetime value, gross margin and payback period, explained in plain words with an illustrative example and the reasons each figure can mislead.4 min read
- 04 Marketplaces Explained: Take Rates, Two Sides and the Chicken-and-Egg Problem A marketplace earns a share of transactions it does not own. Here is how take rates work, why both sides must grow together, and what makes these platforms hard to start and sometimes hard to keep.4 min read
Revenue mechanics side by side
The same four questions asked of each model. Read across a row to see a model, or down a column to compare one property.
| Model | Who pays | When | Grows with | Fragile when |
|---|---|---|---|---|
| Subscription | The customer | Every month or year | More customers who stay longer | Churn rises or acquisition gets dearer |
| Marketplace | Buyer, seller or both | On each transaction | More matches between the two sides | Deals move off the platform |
| Freemium | A minority of users | When they upgrade | Free users who convert | Free users cost more than they bring |
| Usage-based | The customer | In line with use | Customers using more over time | A large customer cuts back |
| Advertising | Advertisers | By reach or by result | A larger, engaged audience | Ad budgets shrink |
| Hardware + service | The customer | At purchase, then monthly | Devices sold and services kept | Inventory ties up cash |
How we work, and what we read
Four rules that apply to every page, and the public bodies whose publications we rely on most.
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No rankings
We explain models and measures. We never rate companies, name winners or comment on offerings.
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Sources first
Claims about rules and statistics are checked against the body that publishes them, and the check is dated.
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Risk stated plainly
Wherever investing comes up, the chance of losing money is described in the same breath.
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Open corrections
Readers can report an error through the contact form. Substantive changes are dated at the end of the article.
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Sources we rely on
- Statistics Canada
- Innovation, Science and Economic Development Canada
- Business Development Bank of Canada
- Canadian Securities Administrators
- Provincial securities commissions
- Office of the Privacy Commissioner of Canada
A business model is a set of connections. Learn to read them, and every pitch, headline and funding announcement becomes easier to question.
Questions readers ask us
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