What business are you in?

Ah, bike racing. It’s a beautiful sport, and a difficult business. Like every racer, every team manager or race promoter has his or her own way of doing things. But in general terms, there are two ways to look at running a team or putting on a bike race.

Some property owners (i.e. team managers or race promoters) would say that their business model is to provide team or event operations services to companies that want to sponsor cycling. In this, the ‘operations model,’ you find the sponsors, figure out how much it will cost to run the team or put on the bike race, and set the prices accordingly.

The advantages of the operations model lie in its simplicity. Once you find the sponsors or they find you, your sole responsibility is to get the team on the road or the race off the ground – that’s what the sponsors pay for and that’s what you’ll give them. Also, the operations model encourages you to be very disciplined with your budget, since that’s all the money you have.

The other model is to present an image that sponsors want to be associated with and a price based on the value of that image. In the ‘image model’, you have all the responsibilities of the operations model – you still have put on the race or run the team – but also the responsibilities of establishing how much the image is worth, marketing it, and delivering data that shows the sponsors the value that you’ve provided.

In other words, the promotional burden is on you. A sponsor can say, “We’re a proud sponsor of the Brand X Cycling Team,” but using the image model implies that you will establish what the “Brand X Cycling Team” means to people. And you need to provide the numbers that prove your case.

This is a more complex way to run your property, and some sponsors won’t see the value – they’re just in it for the love of the sport. And that’s ok.

But the image model has one very important advantage as a way to run a business: it makes it easier to benefit financially from a great event or a winning team.

In the operations model, you’ve positioned yourself as a provider of services, so the price of sponsorships is limited by the operating budget to provide those services. Your sponsors know how much it costs to put on the race or run the team, because that’s how you explained price. They have no incentive to allow the budget that they’re funding to include more than a nominal profit margin.

But in the image model, your sponsors don’t need to know what your budget is or what margin you’re making. If you position your team or event as a distinct entity with its own image with which sponsors pay to be associated, then you can set a price based on the value of that image, which is potentially much greater than your operating budget.

And down the road, employing the image model allows the price of sponsorship to grow as the property becomes more valuable. In the operations model, sponsors can easily point out that the team or race isn’t more expensive to run just because more people are watching.

Not that there’s anything wrong with asking a sponsor to fund your operating budget. Lots of great teams and races have used the operations model, and many more will. But if profitability is a goal for your team or race, the image model makes sense.