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5 Business Models to Consider When Starting a Tech Company
- 20 Jul 2023
What separates successful from unsuccessful startups? Is it their innovative ideas , the way their products fill a market need , or how they distribute their offerings and make money? Is it their founders and teams or the investors and partners backing them?
According to the online course Launching Tech Ventures , it’s all of the above—which also comprise a startup’s business model.
“As an entrepreneur, the onus is on you to construct each element of your startup business model through a process of search and discovery,” says Harvard Business School Senior Lecturer Jeffrey Bussgang, who teaches Launching Tech Ventures. “In parallel, you must evaluate those elements to ensure you’re building a sustainable, valuable company. To do so, each business model element must be aligned.”
To help launch your venture on the right track, here’s a breakdown of a business model’s eight components and five examples to consider.
Access your free e-book today.
The 8 Components of a Startup Business Model
A business model is a plan for how your business will succeed. You can define success in terms of finances, product-market fit , sustainable production and distribution, or reaching and converting customers.
In Launching Tech Ventures , Bussgang presents the eight components of a business model using the Diamond-Square framework, coined by HBS Professor Thomas Eisenmann.
The first four facets are internal and operational in nature, and the remaining four encompass the stakeholders involved:
- Customer value proposition (CVP) : How will your venture deliver value?
- Go-to-market (GTM) strategy : How will your venture reach customers?
- Profit formula (PF): How will you make money?
- Technology and operations management (T&O): How will you create and maintain your product?
- Founders: Are they a strong fit for the opportunity and business model?
- Team : Do they complement one another? Can you fill any gaps?
- Investors : Who have you assembled to finance your business? Are you all aligned?
- Partners: Who have you selected to aid in your execution? How will they help?
Determining your business model is critical to mapping your direction and goals before launch. All eight components work together to form yours, so it’s crucial to carefully craft each.
“Not all business models are created equal,” Bussgang says in Launching Tech Ventures . “Some business models yield companies that are valued dramatically differently than others.”
The term “business model” often refers to how you deliver your product and drive revenue, or your GTM strategy and PF from the Diamond-Square framework. To decide how to make money and reach end users, here are five business models to consider.
Related: 5 Skills Needed to Launch a Successful Tech Business
5 Examples of Tech Startup Business Models
1. freemium model.
The freemium model—a portmanteau of the words “free” and “premium”—is popular for directly distributing to your target audience. This model offers one tier of your product for free and charges users for the full or upgraded version.
One tech startup that uses a freemium model is the screen time regulation app One Sec . It pairs with other apps so that, upon opening a particular one, you’re prompted to take a deep breath and receive statistics on how many times you’ve attempted to open it that day, followed by the choice to continue or exit.
One Sec offers one free app pairing. If you’d like to use it for multiple apps, unlock more breathing exercises, and access additional features, you must pay for the premium version.
A freemium model can be effective because it gives users a taste of the product experience before purchase. If they love the free version, they may be inclined to upgrade to the premium one.
The downside is that, sometimes, users are content with the free version and never convert to paying customers. Ensure your premium version offers features your target audience is willing to pay for before committing to a freemium model.
2. Advertisement-Based Model
If you’d rather offer your product for free, an advertisement-based model may be the right fit. Like the freemium model, it delivers your product directly to your end user, but the profit formula differs. With an advertisement-based model, you sell ad space within your product to other businesses to bring in revenue.
This model is effective when your product creates enough value for users that they engage with it despite the presence of ads. Social media apps, such as Facebook and Instagram , are common examples. You can sign up and access all their features, knowing you’ll receive ads.
Another option is to combine the freemium and advertisement-based models—like some streaming platforms do—by offering your product’s free version with ads and the premium version without them.
3. Employee Benefit Model
If your tech startup offers products focused on well-being, the most effective way to reach your end users may be through their employers or insurance providers. In the employee benefit model, your product is free to your end user and paid for by a corporation to offer as a benefit.
For example, caregiver support app ianacare partners with employee assistance programs and human resources teams. Together, they aggregate end users’ resources—including their employee benefits—into the ianacare app so they feel supported personally and professionally.
To sell to employers, ianacare cites several statistics on its website about working caregivers, including the 80 percent who report a loss of productivity at work and the 32 percent who’ve voluntarily left a job to care for a loved one. If an employee benefit model is right for your startup, ensure you communicate why your product will help boost companies’ employee productivity, retention rate, or satisfaction.
In addition to its employee benefit model, ianacare uses a direct distribution method by allowing individuals to download and sign up for the app. Certain features are “locked” and can only be accessed through a partnership with the user’s employer.
In Launching Tech Ventures , Bussgang recommends using a mix of direct and indirect methods to reach your target audience.
“Do you have the right mix of direct and indirect channels to educate, support, and distribute the product to customers in a repeatable and scalable fashion?” Bussgang prompts.
Ask yourself this question when crafting your business model.
4. Intermediation Model
Another business model to consider is intermediation, in which your business acts as the bridge between your product and end user.
For example, travel sites such as Booking.com and Expedia act as intermediaries between you and airlines, hotels, and vehicle rental agencies. You have the option to purchase tickets and book accommodations directly from each provider, but doing so through a site provides the ease of doing everything in one place. It also grants access to potentially greater deals and the convenience of comparing options.
If you can think of a way your venture would add value to the customer experience as an intermediary, consider using this model.
5. Disintermediation Model
The opposite can also make a strong business model. Disintermediation removes a step in the supply chain process to streamline product delivery.
A well-known example of disintermediation is e-commerce giant Amazon , which removes retailers’ transaction and delivery processes, simplifying the experience for the seller and end user.
A disintermediation model is a good fit for scenarios that seem cumbersome or complex. Could your product leverage innovative technology to remove one or more steps in a process? Doing so can create value for you and your end user while driving profit.
Selecting the Right Business Model for Your Tech Company
Your tech startup’s business model is a critical decision that can impact whether it succeeds or fails. When thinking it through, consider how the eight elements impact each other.
“You can’t focus on individual pieces of the model in isolation,” Bussgang says in Launching Tech Ventures. “You need to think about each element—your value proposition, go-to-market strategy, profit formula, and tech and operations management—in a holistic fashion so that you can align them clearly.”
One way to gain the perspective needed to craft your business model is by learning from tech entrepreneurs who came before you.
Launching Tech Ventures features several founders, team members, and investors who offer first-hand insight into the challenges and processes of launching a tech business—from ideation to growth stage.
Are you interested in building the skills to launch a viable, valuable tech startup? Explore Launching Tech Ventures —one of our online entrepreneurship and innovation courses —and download our free guide on how to start your entrepreneurial journey.
About the Author
10 Proven Business Models for Startups To Try In 2023
Mar 7, 2022 8 min read
Co-founder and CEO of Ideamotive. Entrepreneur, mentor and startup advisor.
The co-founder of 500Startups David McClure defined a ‘startup’ as a company that is confused about:
- What its product is
- Who its customers are
- How to make money
No matter how great the idea is, any startup needs to develop a powerful development strategy for its long-term success. As we know, different types of startups have different needs, objectives, and approaches, and the specific business models should ideally meet these criteria, as well as the industry it’ll operate in, and help companies to make a profit.
In other words, a business model is an effective outline of how a business plans to make money with its products or services and the customer base in a specific market. Overall, it is focused on the company’s products or services, their expected performance on the market, the possible marketing expenses, and how the company expects to turn a profit.
Unlike the revenue model, which explains the structure of how the revenue or income is generated, the business model makes a model-like, holistic description of the basic insights of how the company can generate value for its clients. Thus, it encompasses all the business aspects, including the revenue model and revenue streams, yet explains how they can effectively work together.
After all, Warren Buffet, the Berkshire Hathaway Chairman said: Price is what you pay. Value is what you get.
Creating effective business models for startups is essential not only for building up a powerful long-term development strategy, but also to prove to your potential investors that the specific startup will work, reasonably assess the risks and provide them with all the essential information regarding the project. With a wide range of approaches introduced so far, in this article, we’ll provide a detailed analysis of the different business models for startups, introduce the famous companies that succeed with each of the strategies, and finally, explain what benefits you will get once you implement the right business model in your business project.
The Most Popular Business Models for Startups for 2023
At present, there are dozens of different business models for startups that are successfully used by small enterprises and large corporations. However, having more options does not necessarily help us make better choices. The selected development strategy can either result in great success or else end up with the project failure.
That is why it’s essential to learn more about each of the startup business models types: the major advantages and outstanding case studies to be able to select the business model that meets your needs.
Let’s now find out the top 10 most popular yet efficient business models that have already been implemented by such businesses as Amazon, Walmart, Uber, Airbnb, and many others!
Short description, how it works, why it works, pros & cons, real-life examples of each model
#1 Marketplace Model
The marketplace model is a popular model that enables your business to work as an intermediary for sellers and buyers, operate the transactions and deliver a variety of add-on services that might be useful for your clients. One of the most famous startups which succeed using the marketplace business model implemented is Amazon – the leading online retailer, that accounted for 41% of the entire e-commerce retail market in the US.
Advantages of the Marketplace model for startups include:
- More effective customer acquisition and easier enlarging of the customer base
- No need to store the inventory – all the products are shipped by sellers
- Doesn’t require any overhead costs, since the marketplaces will only take a small percentage of each transaction
However, what you should really pay attention to when choosing this business model is that you’ll need to find out the key reason why people should search for your marketplace specifically. The reputable business analysts warn that it’s no use creating a similar service to Amazon, as it’ll take years to gain competitiveness for your startup. Instead, you can focus on a smaller and more specific marketplace first, and reach out to the exact audience that’ll want to convert into your loyal clients.
#2 On-Demand Model
The on-demand business model implies providing your customers with the specific services they can obtain anytime they need them. One of the most prominent examples of this model is a California-based Uber company, which generated $18.3 billion of revenue only in 2021 and so far has nearly 120 million users across the world.
Having analyzed the business models of successful companies, it becomes clear that this one works not for pickup services only: you can now order food, groceries, and other goods using your mobile app – that concept became extremely popular in 2020 and is now only in the first stages of evolving.
Advantages of the On-Demand model for startups include:
- The ability to provide different services within a single app (however, keep in mind that you’ll need to invest significant costs into the digital product development , hire top-notch UX/UI designers and app developers with prominent skills in working with Ruby on Rails and React frameworks)
- Is mostly focused on younger generations
- Allows using freelance labor
#3 Disintermediation Model
One of the most common yet successful business models that are actively used today is disintermediation – the strategy which is applied by hundreds of thousands of wholesalers, manufacturers, and businesses with direct sales processes. The most notable business model example you’ve surely been aware of is Apple, a giant mobile vendor with the world’s largest market share. For the last year, the company’s showing 29.49% of all the devices, according to GlobalStats data, which makes it one of the most outstanding examples of a successful business model performance, business strategists claimed.
Taken from: https://gs.statcounter.com/vendor-market-share/mobile
With this approach, the companies are able to reduce the intermediaries that impact the total product costs – an ideal solution for startups that are ready to produce and distribute their products. However, do consider hiring a well-qualified CTO for a startup to ensure your business model is producing first-class products that stand out from the competition from others within a certain field. For instance, if you’re planning to make a startup based on software product development, you’ll surely want to hire the best developers that use the latest development tools such as React Native or Ruby on Rails to design competitive apps for your business.
Advantages of the Disintermediation model for startups include:
- The lower product or service prices for the end-users
- Providing simpler, better access to the goods and services
- The ability to test various manufacturing scenarios to gain better competitive advantages for a business
- Increasing the profit margins for the company
#4 Subscription Model
If we start listing the businesses that are using a subscription model, we’re more than sure you’ll realize that you have been already involved in it as a consumer at least once in your life. Netflix, Spotify, YouTube Premium, or Apple TV – all these are companies based on a subscription principle: they’re selling a service via a subscription (usually, monthly or yearly) as opposed to one-off products. The core feature that makes it stand out from other business models for startups is that it obtains stable cash flows that are recurrent.
Advantages of the Subscription model for startups include:
- Targeting the large customer pools that are searching for the convenient services
- Locking customers in for a long duration
- Steady, recurring revenue stream
- More opportunities for improving the quality of products and services (for example, you can hire the best specialists with the use of a nearshore software development strategy)
#5 Freemium Model
This approach is another great chance to succeed with a startup focused on service distribution, as it allows combining free and premium services within a single product. How does it work? Simply put, a business gives away specific services (for instance, music streaming) to a consumer for free to establish the foundation for future transactions. When the free list of services helps your business to reach large audiences, introduce the basic features of your services and why it’s better compared to others, the paid functions will open up complete access to the top-notch components and perks compared to a free service, offering much better user experience (as an example, offline music and ad-free listening to it).
It’s more than likely that you have at least some real-life examples in your mind, like Spotify – the free cross-platform music streaming service that features different subscription plans for nearly any type of persona, offering offline listening and lots of personalized music recommendations.
Advantages of the Freemium model for startups include:
- The ability to access a large audience and different types of persona buyers
- Balanced versions of free and premium plans
- A compelling list of features to attract customer’s attention and appealing functions to encourage them to an upgrade
#6 Virtual Good Model
Originated over 15 years ago, this business model is now being reconsidered with a completely new meaning. Simply put, the virtual goods model is the approach that is commonly used for video game development and provides customers with the ability to purchase virtual goods that can only exist online (usually, within the app it’s purchased for). Today, this concept has a huge potential for being implemented in other businesses as well, such as for instance, NFT games and Metaverse development.
By the way, the last one has already announced the first cases of purchasing virtual real estate using the largest third-party marketplaces like OpenSea and Non-Fungible.com. Due to the fact that this field has only started to develop, it’s never been a better chance to successfully launch a startup that goes viral.
Advantages of the Virtual Good model for startups include:
- Offering a first-class gaming experience with the in-app purchase options
- Enhancing the user experience and engagement
- Virtual goods are unique, context-bound items that feature individual ownership, which adds to their exclusivity
#7 Reseller (Magic) Model
Similar to a marketplace model, this approach enables startups to promote and sell the products which are produced and manufactured by another company or individual. If compared to the marketplace, the reseller model delegates all the marketing efforts to the startup, encouraging them to be more proactive in the market. This model commonly implies delivering the product by the company (or individual) that has listed the item for sale, which helps resellers to avoid the common inventory problems, and delivery chores as well. Finally, the “magic” model allows you to reduce the HR and labor expenses, which is another important advantage for startups with a limited budget.
Advantages of the Reseller model for startups include:
- No inventory issues reduced costs for HR
- Product delivery is usually delivered by the enterprise that listed item for sale
- The proven method of obtaining a profit
#8 Hook & Bait Model
Also known as “razor and blade”, “product and service” or the “tied products” model utilizes the approach, in which selling the basic products at a cheap price to make a profit by selling the complementary products or refills for a higher price or else increasing the sales of the profitable complementary products. This business approach is often associated with Gillette – the inventor of disposable razors, the company inspired competitors to develop the bait and hook idea based on this concept.
Advantages of the Hook & Bait model for startups include:
- Suitable for customers, profitable for companies: you can’t use one of the supplies only – the “blade” must be locked to the “razor” similar to the coffee capsules, that can’t be used without the coffee machine
- Enhanced client loyalty – you’ll either need to create a loyal community or prevent other companies from entering your market field
- Better adaptability to the market and target audience needs
#9 Reverse Auction Model
Among the other business marketing strategies for startups used nowadays, you can also try a reverse auction approach – the strategy used in sourcing between buyers and suppliers, where they compete with one another to win the business of the buyer and sell one or more products/services he markets. After that, the buyer learns the bids and selects one or more suppliers for his business.
Advantages of the Reverse Auction model for startups include:
- Significant time savings and better ability to meet the deadlines
- Lower purchase costs through increased competition
- Enhanced compliance and data security provided by reverse auction providers
Companies that successfully use this model: Construction companies, real estate companies , and some public sector companies (in case they’re in search of a contract).
#10 Modernized Direct Sales Model
The direct sales business model implies a business’ own employees demonstrate and sell their products or services directly to the end consumer. This model is opposite to the retail marketing approach, where a business sells products in large volumes to distributors and stores instead of the end buyers. The direct sales approach allows for cutting some middlemen and provides much higher margins from a more direct, more personal interaction with consumers.
Advantages of the Modernized Direct Sales model for startups include:
- Closer connection with a customer through a shorter distribution chain
- More effective marketing strategies and enhanced marketing messages
- Advanced control of the prices and better distribution supervision
These are the most effective business models you can easily use for nearly any startup regardless of its field. Now that you have all the essential insights about the best strategies to use for your company’s development, we hope that there are some really good options that can ideally fit your company’s needs and objectives.
However, if you still need any help or want to get a second opinion before making your final choice – feel free to contact our team ! Our best funding consultants and qualified startup experts are 24/7 here to help you make the best decisions that empower your business from day one!
Robert is a co-founder of Ideamotive. Entrepreneur, who with passion spreads digital revolution all around the internet. Mentor and advisor at startup accelerators. Loves to learn and discover new business models.
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Starting your own business can be exciting, but also terrifying. You might have a great idea, but not know how to turn it into a profitable venture. This is where a business model comes in.
Introduction: Getting Started with a Startup Idea & Why You Need a Business Model?
A business model can help you define your ideas regarding who will purchase your product, how they will pay for it, and what features they desire. Additionally, it can assist you in estimating the amount of money required for starting up and determining if the company is worth the investment. This section will provide you with all the necessary information about what a business model is and how to create one for your validated startup idea .
What is a Business Model?
A business model is a set of systematic ways to create, deliver, and capture value. It is a blueprint for how your company will make money. A startup business model describes how a company earns income and profits from its operations. Startups mostly go for highly scalable business models that allow them to operate with few assets, zero heavy investments, and cheap capital expenditures.
In the digital age, the number of businesses that have a clear and well-tested business model is on the decline. This may be because it seems like you don't need one as long as you have an idea that has gone viral, or because people think they can create anything without having to worry about making money.
Importance of a Business Model
According to statistics, 90% of startups fail , with 10% failing within the first year and only 50% of businesses making it to their fifth year . A properly designed business model can help avoid these issues. A business model aids in targeting a company's consumer base and helps in the development of marketing plans, as well as income and expense projections, taking into account the various business models and clienteles. In order to learn about the potential accessible targets in the market, a business model should be designed. Understanding and choosing the appropriate business model allows companies to better understand the financial contributions they can make in the initial stage of their business. By evaluating a company's business model, a person can learn more about its products, as well as the business tactics it can use to grow and sustain future prospects. The other benefits of business models include the following:
- A good business model gives a company a competitive advantage and helps them understand their own operations better.
- A powerful business model gives the company a good reputation in the market and enables the owner to carve out a space for the company.
- Making a good business model from the outset leads to a well-established finance plan, which results in increased cash flows and rapid profit growth.
- A pre-developed startup business plan enhances the organization's financial stability.
Types of Business Models
In the market, startups are categorized into different types based on the business models they choose to pursue. However, not all of these models are necessarily profitable. Some of the most common business models used today are low-risk startup models.
Low Risk/High Reward Model
A low-risk model is one where there is minimal risk involved in starting up the company. These businesses require little capital to get started, have fewer obstacles to entry than other company models, and have high-profit potential, making them an excellent alternative for people who wish to start their own business without risking everything. For example, a company may sell its product with no upfront costs to them or their customers. This can include selling consultancy services, freelancing (selling skills), and much more. This type of model works great for people who want to sell products that they think will sell well in the market with very little investment on their part.
High Risk/High Reward Model
The most common business model is the high risk/high reward model, where the entrepreneur invests a lot of time and energy to build something that they hope will be successful. To achieve such a high degree of accomplishment, these people had to take significant risks. Successful entrepreneurship is inextricably linked to taking risks. Regardless of how strong your cash flow is or how much effort or time you put in, the end result might be positive or negative. You must be prepared for the physical, financial, and psychological stress that comes with establishing a business and keep believing in yourself and working hard to see the fruit of your efforts. This is what you typically see with startups like Facebook or Microsoft. These tech giants undertook high risks and invested their time and resources in creating exceptionally unique and highly demanded platforms. Taking risks surely leads to miraculous evolutions in the history of the business world.
Best Startup Models
There are two different types of best startup models:
- Bootstrapping is when an entrepreneur starts a business with their own time, skills, and resources. This self-funded business does not rely on the support of common financing methods, such as crowdfunding, investment, or loans from banks.
- Scaling up is when an entrepreneur starts with a small business and then invests in making it bigger. To scale a business means opening the door to more work duties and creating opportunities while remaining cost-effective and meeting your company's demands without suffering or overstretching. It's all about adjusting to the increasing workload, clients, or users, and then delivering.
Perks of Choosing Bootstrap Business Model
- Retaining Full Ownership: This business model allows the owner to fully own their business with zero shares in equity. When anyone starts a business based on investors' funding, they often ask for a huge share in equity and have a say in decision making. This is why Bootstrap is ideal in the longer run. You have control, and you get to do whatever you want.
- Gets Rid of Unnecessary Burden: When you start a business through a loan or investment, there is a burden on your shoulders to return it. Instead of designing a complete and long-term lasting business model, you focus on earning revenue even if that disturbs the essence of your business. However, with the bootstrap business model, you feel a sense of freedom. You focus on maintaining the essence of your business and strategically develop ways to increase cash flows.
- Empowers Business Owner: Starting a business on your own empowers a person. Building it from scratch highly motivates a person to keep going and gain success. We recommend following our checklist for starting a business .
Perks of Using a Scaling Business Model
- Creates Efficiency: When a business is ready to expand at the right time, it efficiently brings in more profit for the corporation. They are able to deal with different circumstances while still remaining rigorous.
- Creates Growth Consistency: When the business has grown into a stable state, the owner makes sure to scale it to keep the growth factor consistent. Though it seems like staying in the same state is safe, businesses don't last long if they aren't growing. Scaling a business ensures that growth is gradually increasing with time. The owner makes sure never to stop at some level; they keep taking new steps on the ladder while ensuring they don't trip at any step.
- Adaptable to Tough Situations: Creating flexibility ensures that the business is able to adapt to tough situations and thrive nonetheless. Businesses not only scale for growth but also to create new opportunities for income generation. The market is ever-changing, and one cannot entirely depend on a single business to maintain sustainability. Scaling your business to another aspect makes your corporation more adaptable to unplanned events. If a part of your business is disturbed by a change in the market, you can smoothly earn from another domain of your business.
Sizes of Companies and Their Typical Business Models
Different types of companies operate at varying scales in different industries. Some start-ups operate in the early stages of their life cycle, for example, operating small brick-and-mortar shops but not yet an online store. Others begin with an online store and later expand to include physical stores, while some might take the opposite approach. There are also companies that do not have either brick-and-mortar or online stores, and instead focus on other channels like social media. A start-up can be of various types, but the most common categories are:
- Business-to-business or B2B
- Business-to-consumer or B2C
Technology start-ups focus on developing a new product or service with the aim of disrupting an existing market. Since technology is in popular demand nowadays, tech start-ups are now focusing more on innovativeness, scalability, and growth.
Market research for startups is crucial in identifying potential customers and understanding their needs. A business-to-business start-up offers a product or service for sale to other businesses. Some B2B firms produce a component of a final product and sell it to distributors, who then sell it to their own customers. Moreover, a business-to-business deal can also occur when a company produces a product used as a component in another company's product. For example, Intel sells Apple processors for use in the Macbook Pro.
Business-to-consumer (B2C) refers to the process of selling products and services directly to customers who are the end-users of the company's products or services. Consumer start-ups sell products and services directly to consumers. Some early-stage start-ups will have an initial product or service that they offer for free. They do this to acquire customers and improve the product before taking it live. They may also offer their customers other products and services in addition to their core offerings in order to generate revenue while they build up their main offering.
How to Choose the Perfect Business Model for Your Start-up?
Choosing the right business model is not easy. That is why there are tools available to help you with this choice. One such tool is the Business Model Canvas, which is a diagram used to create a visual representation of a start-up's business model. A blank canvas can be found online and needs to be filled in with five important components: value proposition, customer segments, key activities, channels, and revenue streams. Another tool is the St. Gallen Business Model Navigator, which can help you select the best model for your business needs and provide templates for all models you might need when starting your own company. If you want to start raising money, you should know how to make the most out of your pre-seed funding round.
Common Mistakes to Avoid When Developing a Business Model
Developing a business model can be tricky, especially for first-time entrepreneurs. Here are some common mistakes to avoid when developing a business model:
1. Failing to Understand Your Target Market
One of the biggest mistakes entrepreneurs make when developing a business model is failing to understand their target market. It's important to conduct market research and gather data about your target audience's needs and preferences before developing your business model. Without this information, you risk developing a product or service that no one wants or needs.
2. Focusing Too Much on Features and Not Enough on Benefits
Another common mistake entrepreneurs make is focusing too much on the features of their product or service and not enough on the benefits. Features describe the characteristics of your product or service, while benefits describe how those characteristics will help your target audience. By focusing on benefits, you can create a more compelling value proposition and increase the chances of success for your business. It is important to consider these benefits when conducting startup financial modelling and projecting your revenue streams.
3. Not Validating Your Business Model
Many entrepreneurs make the mistake of assuming that their business model will work without testing it first. It's important to validate your business model by conducting market research and getting feedback from potential customers. This can help you identify any flaws in your business model and make adjustments before launching your business.
4. Failing to Plan for the Future
Another common mistake entrepreneurs make is failing to plan for the future. It's important to consider how your business model will evolve over time and make plans for growth and expansion. This can help you stay ahead of the competition and ensure the long-term success of your business.
5. Ignoring Financial Projections
Financial projections are an important part of developing a business model. They help you estimate how much money you will need to start and grow your business, as well as how much revenue you can expect to generate. Failing to consider financial projections can lead to a lack of funding or an inability to sustain your business over time.
By avoiding these common mistakes, you can develop a strong and effective business model that will help you achieve your goals and succeed in the market.
How to Test and Validate Your Business Model
Before launching your business, it is important to ensure that your business model is viable and will be successful in the market. Here are some steps to test and validate your business model:
1. Conduct Market Research
Market research is crucial in validating your business model. It involves gathering and analyzing data about the market, potential customers, and competitors. By conducting market research, you can gain valuable insights into the needs and preferences of your target audience, as well as identify gaps in the market that your business can fill.
2. Build a Prototype
Building a prototype allows you to test your product or service in the market and get feedback from potential customers. This can help you identify any issues or areas for improvement before launching your business.
3. Conduct User Testing
User testing involves getting feedback from potential customers on your product or service. This can be done through surveys, focus groups, or other forms of market research. By understanding what your customers want and need, you can develop a product or service that will meet their needs and stand out in the market.
4. Analyze Your Financial Projections
Analyzing your financial projections is crucial in validating your business model. This involves creating a financial plan that outlines your expected revenue and expenses, and then comparing it to industry benchmarks and competitors. By doing so, you can identify any potential issues and adjust your business model accordingly.
5. Seek Feedback
Seeking feedback from mentors, investors, and other business owners can be invaluable in validating your business model. They can provide valuable insights and advice based on their own experiences, which can help you identify potential issues and adjust your business model accordingly.
By following these steps, you can test and validate your business model to ensure that it is viable and will be successful in the market.
Tips for Creating a Successful Business Model Canvas
The Business Model Canvas is a popular tool for creating a visual representation of a start-up's business model. Here are some tips for creating a successful Business Model Canvas:
1. Start with a Value Proposition
The first component of the Business Model Canvas is the value proposition. This describes the unique value that your product or service provides to your customers. It's important to start with a clear and concise value proposition that communicates your product or service's benefits in a compelling way.
2. Identify Your Customer Segments
The next step is to identify your customer segments. This involves understanding who your target customers are and what their needs and preferences are. By doing so, you can tailor your product or service to meet their specific needs and develop targeted marketing strategies to reach them.
3. Define Your Key Activities
The key activities component of the Business Model Canvas describes the activities that are necessary to deliver your product or service to your customers. This includes everything from product design and development to marketing and sales. It's important to identify the key activities that are essential to your business and focus on optimizing them for maximum efficiency.
4. Choose Your Channels
The channels component of the Business Model Canvas describes how you will reach your customers. This includes everything from traditional marketing channels like advertising and public relations to digital channels like social media and email marketing. It's important to choose the channels that are most effective for reaching your target customers and focus on optimizing them for maximum effectiveness.
5. Determine Your Revenue Streams
The revenue streams component of the Business Model Canvas describes how your business will make money. This includes everything from product sales to advertising revenue. It's important to identify the revenue streams that are most important to your business and focus on optimizing them for maximum profitability.
6. Consider Your Cost Structure
The cost structure component of the Business Model Canvas describes the costs associated with running your business. This includes everything from product development and marketing to overhead costs like rent and salaries. It's important to identify the costs that are most important to your business and focus on optimizing them for maximum efficiency.
7. Keep it Simple and Clear
Finally, it's important to keep your Business Model Canvas simple and clear. Avoid using jargon or technical language that may confuse your audience. Instead, focus on communicating your business model in a way that is easy to understand and compelling to your target customers.
By following these tips, you can create a successful Business Model Canvas that effectively communicates your business model and helps you achieve your goals.
The Role of Market Research in Developing a Business Model
Market research is a crucial step in developing a successful business model. It involves gathering and analyzing data about the market, potential customers, and competitors. By conducting market research, you can gain valuable insights into the needs and preferences of your target audience, as well as identify gaps in the market that your business can fill.
The first step in market research is to conduct a market analysis. This involves gathering data about the overall market size, growth trends, and key players in the industry. By understanding the broader market landscape, you can identify opportunities and potential challenges for your business.
Once you have a good understanding of the market, the next step is to conduct customer research. This can involve surveys, focus groups, or other forms of market research to gather information about the needs and preferences of your target audience. By understanding what your customers want and need, you can develop a product or service that will meet their needs and stand out in the market.
In addition to understanding the broader market landscape and the needs of your target audience, it's also important to conduct a competitive analysis. This involves gathering data about your competitors, including their strengths and weaknesses, pricing strategies, and marketing tactics. By understanding your competitors, you can identify ways to differentiate your business and develop a unique value proposition.
Market research is an iterative process, meaning it requires ongoing analysis and adaptation. As your business grows and evolves, it's important to continue gathering data and refining your business model. By staying up-to-date with market trends and customer needs, you can ensure that your business remains competitive and successful.
In conclusion, market research is a critical step in developing a successful business model. By conducting a market analysis, customer research, and competitive analysis, you can gain valuable insights into the needs and preferences of your target audience, as well as identify opportunities and potential challenges for your business. By making market research an ongoing process, you can ensure that your business remains competitive and successful in the long run.
How to Pivot Your Business Model When Things Aren't Working Out
Sometimes, even the best-laid business plans don't work out as expected. In these situations, it may be necessary to pivot your business model in order to adapt to changing market conditions or customer needs. Here's how to do it:
1. Identify the Problem
The first step in pivoting your business model is to identify the problem. What is not working in your current business model? Is it a lack of demand for your product or service? Are you not generating enough revenue to sustain your business? Are there new competitors in the market that are taking away your customers?
2. Brainstorm Solutions
Once you've identified the problem, it's time to brainstorm solutions. What changes can you make to your business model to address the issue? Can you change your target market or customer segments? Can you offer new products or services that better meet customer needs? Can you change your pricing model to better reflect the value of your offerings?
3. Test Your Ideas
Before making any major changes to your business model, it's important to test your ideas. This can be done through surveys, focus groups, or other forms of market research. Determine what your customers want and need, and test different ideas to see what works best.
4. Implement the Changes
Once you've tested your ideas and determined what works best, it's time to implement the changes. This may involve rebranding your company, changing your product offerings, or targeting a new customer segment. It's important to communicate these changes to your customers and stakeholders so that they understand why you are making them.
5. Monitor the Results
After implementing the changes, it's important to monitor the results. Are you generating more revenue? Are you attracting new customers? Are you meeting your business goals? If not, it may be necessary to pivot again or make further adjustments to your business model.
Remember, pivoting your business model is not a sign of failure. It's a necessary step in adapting to changing market conditions and customer needs. By identifying problems, brainstorming solutions, testing your ideas, implementing changes, and monitoring the results, you can successfully pivot your business model and ensure the long-term success of your company.
The Importance of Flexibility in Your Business Model
Flexibility is an essential aspect of any successful business model. In today's ever-changing market, it is crucial to be able to adapt quickly to new technologies, customer needs, and market trends. A flexible business model will allow you to pivot your strategy when needed and take advantage of new opportunities as they arise.
One of the most significant benefits of a flexible business model is the ability to respond to customer feedback. By listening to your customers and their needs, you can adjust your product or service offerings to better meet their demands. This can lead to increased customer satisfaction and loyalty.
A flexible business model can also help you stay ahead of the competition. By continually innovating and adapting to new technologies and trends, you can differentiate yourself from other businesses in your industry. This can give you a competitive edge and help you attract new customers.
In addition to responding to customer needs, a flexible business model can also help you navigate economic downturns and other unexpected events. By being able to pivot your strategy and adjust your offerings, you can better position your business for success even in challenging times.
Overall, building flexibility into your business model is essential for long-term success. By being willing to adapt and change as needed, you can stay ahead of the competition and better meet the needs of your customers.
Examples of Successful Business Models in Different Industries
The following are some examples of successful business models in different industries that have been able to grow and sustain in today's competitive market.
Subscription Box Model
Subscription boxes are becoming increasingly popular in the e-commerce industry. This business model involves sending customers a box of products on a regular basis, such as monthly or quarterly, for a set price. The products in the box are curated according to the customer's preferences. Birchbox, a beauty subscription box, and Dollar Shave Club, a grooming subscription box, are two examples of companies that have successfully implemented this business model.
The freemium business model offers customers a basic version of the product or service for free, with the option to upgrade to a premium version for a fee. This model is commonly used in the digital industry, particularly with mobile apps and online tools. Dropbox, a cloud storage service, and Spotify, a music streaming platform, are two examples of companies that have successfully used this business model.
Direct-to-Consumer (DTC) Model
The DTC business model involves companies selling their products or services directly to consumers, bypassing traditional retail channels. This model has become increasingly popular in the fashion industry, with companies like Warby Parker, an eyewear company, and Everlane, a clothing company, successfully implementing this approach.
The platform business model involves creating a platform that connects buyers and sellers, earning revenue through transaction fees or advertising. Airbnb, a home-sharing platform, and Uber, a ride-sharing platform, are two examples of companies that have successfully implemented this business model.
The membership business model involves charging customers a fee to gain access to exclusive content, products, or services. Amazon Prime, a membership program that offers free shipping and access to streaming services, and LinkedIn Premium, a subscription service that offers additional features for job seekers, are two examples of companies that have successfully implemented this business model.
The razor-blade business model involves selling a product at a low cost, then making a profit on the consumable products required to use the product. This model is commonly used in the printer and shaving industries. Gillette, a shaving company, and HP, a printer company, are two examples of companies that have successfully used this business model.
The crowdfunding business model involves raising funds from a large number of people, typically through an online platform, to finance a project or product. Kickstarter, an online crowdfunding platform, and Indiegogo, a similar platform, are two examples of companies that have successfully implemented this business model.
The pay-what-you-can business model allows customers to pay what they can afford for a product or service. This model is commonly used in the restaurant industry, with some restaurants allowing customers to pay what they can for a meal. Panera Bread, a bakery-cafe chain, has implemented this model through its Panera Cares program.
These are just a few examples of successful business models in different industries. By understanding these models and how they have been implemented, entrepreneurs can learn how to create a sustainable and profitable business model for their own venture.
How to Choose the Right Pricing Model for Your Business
Choosing the right pricing model for your business depends on several factors, including your target audience, industry, and business goals. Here are some tips to help you choose the best pricing model for your product or service:
- Know your target audience : Understand your target audience's willingness to pay and what they value in your product or service.
- Research the competition : Analyze your competitors' pricing strategies and determine how you can differentiate yourself in the market.
- Consider your business goals : Determine what your revenue targets are and which pricing model will help you achieve them.
- Test and iterate : Don't be afraid to experiment with different pricing models and adjust as necessary based on customer feedback and market conditions.
Different Pricing Models
There are several pricing models that you can use to monetize your product or service, including:
- Cost-plus pricing : This model involves adding a markup to the cost of producing your product or service to determine the selling price. It is a straightforward approach that ensures you cover your costs and make a profit.
- Value-based pricing : This model involves setting a price based on the perceived value of your product or service to the customer. It requires a deep understanding of your target audience and their willingness to pay.
- Subscription pricing : This model involves charging customers a recurring fee for access to your product or service. It is a popular model for software-as-a-service (SaaS) companies and other businesses that offer ongoing services.
- Freemium pricing : This model involves offering a basic version of your product or service for free while charging for premium features or services. It is a common model for mobile apps and online tools.
- Dynamic pricing : This model involves setting prices based on current market conditions, demand, and other factors. It is commonly used in the airline and hotel industries.
How to Monetize Your Product or Service with Your Business Model
Creating a successful business model requires not only defining your value proposition and target customer segments but also determining how you will generate revenue. In this section, we will explore various ways of monetizing your product or service and how to choose the right pricing model for your business.
Once you have chosen the right pricing model for your business, it's time to start monetizing your product or service. Here are some ways to generate revenue:
- Direct sales : Sell your product or service directly to customers through a website, online marketplace, or physical store.
- Affiliate marketing : Partner with other businesses and earn a commission for promoting their products or services to your audience.
- Licensing : License your product or service to other businesses for a fee.
- Advertising : Sell advertising space on your website, mobile app, or other digital platform.
- Sponsorship : Partner with other businesses to sponsor your product or service in exchange for exposure to your audience.
Monetizing your product or service is a crucial aspect of creating a successful business model. By understanding your target audience, researching the competition, and choosing the right pricing model, you can generate revenue and build a sustainable business.
The Role of Customer Feedback in Developing a Business Model
Customer feedback is a critical component of any successful business model. It provides valuable insights into how customers perceive your product or service, what they like and dislike, and what changes they would like to see. Incorporating customer feedback into the development of your business model can help ensure that you are meeting the needs of your target audience and delivering a product or service that they truly value.
One effective way to gather customer feedback is through surveys. Surveys can be conducted online or in-person and can provide valuable information about customer preferences, pain points, and satisfaction levels. Another method is to engage with customers through social media or email and encourage them to share their thoughts and opinions.
Once you have gathered customer feedback, it is important to analyze and interpret the data. Look for patterns and trends in the feedback to identify common themes and areas for improvement. Use this information to make informed decisions about how to adjust your business model to better meet the needs of your customers.
It is also important to continue gathering feedback and making adjustments over time. The needs and preferences of your customers may change, and your business model should be adaptable to these changes. By staying attuned to customer feedback and making adjustments as needed, you can ensure that your business remains relevant and successful in the long term.
Developing a successful business model requires careful consideration of several key factors. Conducting market research, understanding your target audience, choosing the right pricing model, and incorporating customer feedback are all essential components of creating a sustainable and profitable business. By following the tips and examples outlined in this guide, entrepreneurs can develop a strong and effective business model that will help them achieve their goals and succeed in the market.
A successful business model starts with a clear and concise value proposition that communicates your product or service's benefits in a compelling way.
Identifying your target audience and tailoring your product or service to meet their specific needs is crucial for success.
It's important to choose the channels that are most effective for reaching your target customers and focus on optimizing them for maximum effectiveness.
Choosing the right pricing model for your business depends on several factors, including your target audience, industry, and business goals.
Customer feedback is a critical component of any successful business model. It provides valuable insights into how customers perceive your product or service, what they like and dislike, and what changes they would like to see.
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- Who is this guide for?
How to choose the right business model
Business model inspiration, companies to learn from, who is this guide for.
When in need of a business model for your next startup or corporate venture, there are more than a couple of options to explore. To make your decision-making a little easier, we’ve analyzed 50 innovative revenue models and partnership ideas.
Browse these business model examples to spot the ideas that are fit for your company’s needs, and let these use cases inspire you to start building your own business plan.
At Board of Innovation, we specialize in innovation and business design. If you feel you need help moving forward, you can dive deeper into how we do business model innovation or get in touch .
In this deck, you will find a comprehensive guide through business models from different companies and industries.
This guide will help you understand how each business model works, the products or services they offer, and what makes it unique. These key insights will help you in the selection process of a business model that works best for you.
Have you ever wondered how some companies are profitable?
In this deck, we deep dive into business models used by companies in multiple industries. Using our Business Model Kit , we offer a visual overview of how each business profits from the model that drives it. .
Free (or nearly free) for the user:
- Early exit strategy
- Pay-what-you-want (PWYW)
- Tip jar/donation
- Freemium model
- Barter or swapping for services
- Barter or swapping for products
Third party options:
- Advertisement (ad-based) model
- Affiliate/referral fee
- Get-one-give-one model (G1G1)
- Franchise model
Mixed business model:
- Razor and blade model
- Open source model
- No frills model (discount or budget model)
- Commission-based model:
- Auction model
Paid (direct sales business model):
- Subscription model
- Premium model
- Pay-per-use model
- Add-ons/In-app purchases
- License fees
- Single purchase model
- Pay-as-you-go model (PAYG)
Grab is an on-demand ride service that has since expanded to everyday services like deliveries, financial services and more – making it a superapp. It charges a service fee of 20% ~ 30% for every transaction that goes through its platform.
Hubs charges clients for each industrial manufacturing job they begin through the platform. Prices are determined by a machine learning algorithm.
Patients Like Me offers a free health community service to its users. They make money by selling the data, generated by the community, to pharmaceutical companies.
WHOOP offers a wearable fitness gadget that gives personalized recommendations and feedback. WHOOP charges a monthly subscription fee to access the data on the platform, while the first device is free.
Digit is a financial service application that monitors financial behavior and automates its users’ savings. Digit receives a fixed monthly fee of $5 from its users. On top of that, it can leverage the funds it has under management for greater returns
Kiva is the first online non-profit lending platform for underserved populations.As a non-profit, Kiva doesn’t profit from loans received — lenders donate to Kiva to cover operating costs. The remainder of costs are covered through grants, supporters, and field partners.
Appear Here is the Airbnb of retail spaces — an online marketplace to list, find, and book short-term retail spaces. After the landlord sets a daily, weekly and monthly price, Appear Here takes commission between 12% - 15% on a completed transaction, while the space owners pay no listing fee.
Kaggle makes money in two ways: With Kaggle competition, they receive a “listening fee” for each competition posted on the platform. Also, they provide a service for matching companies to the top 0.5% of their community, which they call Kaggle Connect.
23andMe makes money with personal genetic tests, providing reports on lineage discovery & +240 health conditions. It’s believed that their DNA research studies & surveys will soon be an additional way of making money, with a mainly B2B focus instead of B2C.
Friendsurance works as a broker between Policy Holders and existing Insurance Partners. They’re letting customers share risks with friends, allowing them to lower prices due to reduced fraud & process costs, better risk pools, etc.
AliveCor makes money by selling ECG devices ($199) that fit on existing smartphones and via their AliveInsights Service – a professional analysis service that makes it easy to get expert insight on your ECG readings.
Glow sells “data insights” regarding conceiving to Research Institutions & gives exposure to trustworthy Infertility Treatment Clinics. The data is generated by users who use the Glow free fertility-tracking app.
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Best Startup Business Models (and How to Choose the Right One)
- Startup Basics
- Startup Business Models
Last Updated: September 28, 2023 By TRUiC Team
Launching a successful startup begins with choosing the right business model.
Your business model is the core logic for how you deliver value to customers and generate sustainable profits. It touches every aspect of your startup operations.
But with so many potential models to choose from, how do you select the right one for your venture?
This article will explore the significance of business models for startups, provide an overview of popular models and examples, and give tips for choosing one aligned with your goals.
Understanding Startup Business Models
Choosing the right business model can spell the difference between startup success and failure. That's why it's so important for entrepreneurs to understand the pros, cons, and use cases of various models. Let’s dive in!
What Is a Business Model?
- Why Startup Business Models Are Important
- Common Types of Startup Business Models
How to Choose the Right Startup Business Model
Creating a business model canvas.
Essentially, a business model outlines how your startup works and earns money. It addresses crucial questions like:
- What value do you deliver to the customer?
- How do you deliver that value?
- How does the customer pay for that value?
- How do you convert payments to profit?
The key elements that make up a business model include your unique value proposition , customer segments, revenue streams, cost structure, resources, activities, channels, and partnerships.
Your business model essentially serves as a blueprint for how all the components of your company work together to create value, attract customers, and generate sustainable revenues. It's a holistic framework for how you operate your startup.
Business Model vs. Revenue Model vs. Revenue Stream
It's important to understand the differences between a business model, revenue model, and revenue stream:
- Business Model – The holistic logic for how a company operates and creates/delivers value to customers. It encompasses everything from value proposition to resource management.
- Revenue Model – How a company makes money from each customer segment. It focuses specifically on the revenue side of the business model.
- Revenue Stream – Each specific source of revenue for a company. A business model or revenue model may have multiple different revenue streams.
For example, a ride-sharing startup's business model explains everything from matching drivers to riders to ensuring reliable rides. Their revenue model entails taking a percentage commission on every ride. And revenue streams include commissions from regular rides, luxury rides, food deliveries, etc.
The business model is the big-picture view of how a startup operates sustainably. Revenue models and streams focus just on how it generates income.
Why Business Models Are Important for Startups
Your business model directly impacts all elements of your startup operations. It determines:
- How you generate revenue and profits: The revenue streams and profit formula in your business model influence everything from your pricing to sales processes.
- Your competitive positioning: Your business model shapes your startup's value proposition and competitive advantage. It's a key differentiator from rivals.
- Your growth opportunities: Some business models lend themselves better to rapid scaling and expansion than others.
- Capital and resource requirements: Certain business models demand more upfront capital, inventory, equipment, or other resources.
- Your cost structure: Your revenue model drives cost structure decisions like whether to focus on reducing fixed or variable costs.
- Team roles and competencies: Specific business model choices determine the types of expertise and talent you need in your startup team.
8 Common Types of Startup Business Models
There are many proven startup business models to choose from. Here are some of the most common:
Examples: Netflix, Dollar Shave Club
The subscription model provides ongoing access to a product or service with monthly/annual billing. Revenue is predictable, and value stems from convenient access and membership benefits.
- Predictable recurring revenue
- Build customer loyalty/retention
- Churn risks
- Higher customer acquisition costs
Examples: eBay, Upwork
Marketplaces connect users on both sides of a transaction, like buyers and sellers. Value is created by enabling these connections, and revenue comes from taking a % fee on transactions. Examples include ecommerce, ridesharing, home rentals, and freelance service marketplaces.
- Benefits from network effects
- Attractive unit economics
- Need critical mass of users on both sides
- Vulnerable to competitors
Examples: Facebook, Google
Media sites, search engines, and social networks commonly use the ad model. These platforms attract users through free content/tools and monetize through selling ad space. Value is created through quality free services.
- Scales massively
- Small marginal costs per additional user
- Relies heavily on data collection
- Privacy concerns
Examples: Dropbox, Canva, Mailchimp
The freemium model provides a free basic product to attract users and then upsells premium features or upgrades for monetization. Value is created through free entry-level access.
- Low barrier to entry
- Potential to upsell existing users
- Slow conversion from free to paying users
Examples: Amazon Associates, Shopify
In the affiliate model, companies pay commissions to “affiliates” for generating leads, clicks, or sales on their behalf. Affiliates earn through their promotional channels, while vendors acquire marketing reach.
- Little overhead
- Leverages influencer networks
- Low control, rely on the trust of partner brands
Examples: AWS pay-per-use cloud services, Audible
The pay-as-you-go model bills customers based on actual usage or consumption rather than fixed fees. Value comes from flexible, metered pricing. Common for cloud services.
- Matches customer payment to usage, flexibility
- Complex billing and usage monitoring
Examples: Walmart, Nike
This model often involves direct, one-time engagements between the customer and the business without ongoing commitments. It's commonly found in retail or e-commerce startups, where the primary focus is on making single sales rather than building recurring revenue streams.
- Simple and clear transactions
- No long-term commitment required for customers
- Less predictable revenue
- Potentially lower customer lifetime value
Examples: Salesforce, Slack
The SaaS or software-as-a-service model provides access to software applications over the internet for a recurring fee, usually monthly or annual. Companies avoid large upfront costs.
- Costly to acquire customers
1. Understand Your Value Proposition
First, clearly articulate the core value you will provide to customers. Outline the specific problem you are solving for target customers and determine if your solution is primarily product-driven or more of a platform/network. Defining this value proposition is key to determining which business models could effectively deliver that value.
2. Define Your Target Customers
Create detailed buyer personas that analyze the demographics, behaviors, needs, and values of your ideal target customers. Outline what the customer journey typically looks like for engaging with your type of product or platform. Getting very specific on your customer profile and journey will inform suitable business models.
3. Evaluate Your Market Landscape
Do thorough research on competitors and alternatives in your space. Identify any gaps, opportunities, or customer pain points not being adequately addressed. Assess the overall market size for your solution and projected growth potential. Factoring in the competitive landscape will help reveal promising models.
4. Align with Core Team Strengths
Consider if you have the right mix of skills and experience within your core team to execute on a given model. Certain models align better with specific backgrounds and competencies. Choose a model that plays to the strengths of founders and early team members.
5. Evaluate Required Resources
Assess the key resources – financial, human, technical, equipment, etc. – required to successfully execute each potential business model under consideration. Evaluate if you have access to the necessary resources or if they would need to be developed or funded. Resources required often vary significantly between models.
6. Generate Business Model Options
Brainstorm two to three potential business models that seem well-suited to delivering your value proposition to target customers in your market. Weigh the relative pros and cons, trade-offs, and risks of each model under consideration. Review which models competitors are utilizing successfully or struggling with and develop a shortlist of viable models.
7. Project Costs and Revenue
For each potential model, estimate both the operating costs as well as the potential revenue based on your pricing strategy and target customer segment. Compare the costs and earnings across models to understand profitability. Choose a model that optimizes the financials based on your current resources.
8. Test and Validate Your Model
Share and discuss the two to three potential business models with prospective customers and people in your network. Gauge their feedback on what resonates or causes concerns about each model. Incorporate these customer insights into selecting and refining the best model. Experiment with the chosen model on a small scale first and be ready to adapt as needed based on market feedback.
Every startup should create a business model canvas as a blueprint for their business. A canvas provides a structured way to analyze and define all key components of your business model in one place. This ensures you craft a model that covers all the essential elements required for success.
Elements of the business model canvas include:
- Value Proposition – What value you provide customers
- Customer Segments – Who your target customers are
- Channels – How you reach customers
- Customer Relationships – How you engage with them
- Revenue Streams – How you earn revenue from each segment
- Key Activities – What activities your business performs
- Key Resources – Assets required to create/offer value
- Key Partners – Outside parties you leverage
- Cost Structure – Your expense drivers
- Unfair Advantage – Exclusive edge over competitors
Overall, your canvas creates an actionable plan for your startup's business model. Revisit it often as your model evolves.
How to Start a Startup
What Is a Startup?
Best Startup Ideas
- The company
- The product
- The customers
Business models for startups
When launching a startup, the way you structure the business to generate money is absolutely crucial. Your business model will very often be the difference between gaining funding, or not. And achieving commercial success, or not.
To help you get to grips with business models, we’ve put together this guide to outline the most common types of business model you might want to consider.
What is a business model?
In short, a business model is a plan of how your business is going to make money. It deals with two main elements: pricing and costs. Both are equally important as they’ll directly impact your gross profit.
Your business model will set the scene for potential investors by showing them exactly how you plan to make a profit – so it’s worth taking time to research your options.
Your business model will also help you identify a base set of needs for the business. By understanding how your business will operate you can then establish what talent you’re going to need . The business model will also make it clear to your team what you want to achieve and how.
When planning your startup’s business model, you should take into account the following elements:
- Products and/or services you’re planning to sell
- Type of customers you’re targeting
- Market you’ll be competing in
- Any partners you’re considering working with (e.g. suppliers, distributors, etc)
Your business model will set the scene for potential investors by showing them exactly how you plan to make a profit.
What’s the difference between a business model and a revenue model?
Just quickly, before we crack on with the types of business models out there we thought it would be useful to clarify the difference between a business model and revenue model:
- A revenue model is the strategy that outlines the different ways in which a business will make money and the resources needed for each.
- A business model is the structure of the business as a whole, including the revenue model and how all the various elements of the business will work together.
Business model vs business plan
Your business model details how you plan to generate revenue and drive profits. Your business plan then builds upon that model and sets out your company’s strategy for achieving its goals. That includes identifying key milestones and forecasting the financial performance of the business in the future.
Often we find there’s some confusion between a business model and a business plan . It’s easiest to think of the business model being the central column of your business plan.
Do startups have a business model?
There is no one fixed business model for a startup. Thanks Dickens. Every startup is different and choosing the right business model is a fundamental step in getting started – you need to make sure the shoe is gonna fit.
Keep reading to find out more about the various business models that are commonly used by startups.
Startup business model innovation
Your business model will most likely change and evolve over time. This is important in order for you to react to changes in your target market, technology, competition and other factors that influence how your business operates and performs.
These changes are known as business model innovation. They can include things like a change in your distribution or product strategy, or a pricing shift due to a change in the market.
Staying on the ball and making necessary changes to the way your business operates can be a real game changer. A business that can pivot in response to external factors will stand a far greater chance of succeeding in the long run.
A business that can pivot in response to external factors will stand a far greater chance of succeeding in the long run.
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Most popular startup business models
There are a wide range of business models out there to choose from so we’ve put together a brief overview of some of the most common ones. Some of them will seem more appropriate to your business than others, based on your main revenue stream (direct sales, advertising-based, franchises, hybrid, physical stores, an online store, etc.).
Once you’ve read through them all, we recommend deep diving with further research into the specific business models that sound most relevant for your business.
1. Freemium business model
This type of business model offers customers a basic version of a service for free, with the option to pay for an upgraded version of the service. The revenue from the upgrades then drives profit. Some of the most well-known brands using the freemium model include Spotify, LinkedIn and Dropbox.
2. eCommerce business model
One of the business models that has massively grown in popularity in recent years is the eCommerce business model. This model is for businesses whose sole revenue comes from sales that take place online, through a web shop other online portal.
3. Distributor business model
This model is for businesses who plan to buy products from a manufacturer and resell them to either retailers or directly to the consumer.
4. Brick-and-mortar business model
As one of the most traditional business models, the bricks-and-mortar model is based on face-to-face sales. Those sales will take place in a shop, showroom, office or other physical venue.
5. Franchise business model
Rather than creating a new product or service, this model is for a startup that plans on using a parent company’s brand and associated business model. In return for using the existing brand, the franchise business pays royalties to the parent company.
Other types of business model
Manufacturer business model.
This is a business that manufactures its own products to then sell on. This can be sales direct to the consumer, or to another business who will then resell to consumers.
Retailer business model
This is similar to the distributor model, only it specifically involves a business that buys products from a manufacturer and sells directly to the consumer. This model isn’t designed for business-to-business sales.
Hybrid business model
If your business combines both a physical and online presence to make money, then consider the hybrid business model. This brings together the elements from both the bricks-and-mortar and eCommerce business models.
“When I first started out, I was just working doing bits and pieces as a consultant, selling my time. It didn’t take me long to realise I’d never be able to scale a business to the size I wanted to that way, so I went back to the drawing board and started brainstorming for ways to build something really scalable.
I didn’t know it at the time, but what I set my sights on was building a software as a service (SaaS) business model – meaning I could build something once and sell it to multiple customers on a subscription plan. That was a really important moment for me, as it changed my mindset to thinking about growing something truly scalable. After all, if I could get 1 customer, I could get 10… and if I could get 10… I could get 100. You get the idea. If I hadn’t pivoted to the SaaS model, I’d never have built my business and sold it to one of the world’s largest cyber-security companies.
Never underestimate a business model!”.
– Eddie Whittingham, Founder
Software as a service business model
You may have heard the term SaaS, which stands for ‘software as a service’. This model is where a business owns software that it stores centrally (often on a cloud platform) and then licenses use of the software to customers using a subscription plan. Examples of SaaS brands are Microsoft Office 365 and Salesforce.com.
Add-on business model
This model is for businesses that supply a base product that is priced as low as possible, with optional add-ons that help drive up the final price. Budget airlines are a great example of add-on businesses. The basic cost of a flight is kept very low to attract customers, then add-ons (baggage, extra leg room, meals, pre-selected seats, etc) all help to increase the overall revenue generated.
Razor blade business model
This model is so-called as a result of companies such as Gillette, who sell their razor handles for a very low price but then generate profit from sales of their blades. It’s relevant if you’re setting up a business that will have a core product (or set of products) and then generate repeated sales of related accessories.
Auction business model
As with a traditional auction, this model brings together buyers and sellers with no fixed prices. The business then allows buyers to bid on a product and the buyer with the highest bid wins. eBay is the classic example of an auction business.
What are the different types of revenue models?
A revenue model forms part of your business model. Put simply, it outlines what you’re selling, how you’re selling it and to whom. It goes into detail about the money-making aspects of your business to show the feasibility of financial growth, and the potential for long-term profits.
There are various ways that a business can make money. Some popular examples are selling advertising, offering subscriptions, markup on the sale of products, and commission on services.
To find out more, read our Guide to revenue models for startups .
To stay competitive, make sure you innovate as and when market conditions change.
Which types of startups are most profitable?
Many of the most profitable businesses are online, but not all of them. The COVID-19 pandemic will likely further increase the gap between online and other business models – with brick and mortar businesses perhaps being the worst affected.
Some of the business models we mention above can hold more risk than others. The add-on model, for example, is often criticised by customers once they’re aware of how the model works. Therefore, it’s important to choose your business model carefully. And, to stay competitive, make sure you innovate as and when market conditions change.
Check out our blog for more tips, tricks and advice to help your startup succeed.
Check out our other articles for more tips, tricks and advice to help your startup succeed.
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How to Choose a Business Model for a Startup?
Updated 18 Aug 2023
A startup without a business model is no more than a hobby. That's because a business model, among many things, explains how the business works, what products or services it provides, and how it'll make a profit.
So after you’ve been struck with a powerful idea of a software startup, the first thing to do is start looking for the startup business model.
In this guide, we’re going to discuss different business models for startups and how to choose the right one for a software company.
How to Choose a Business Model for a Software Startup
A startup business model is a company's plan for making money. It contains information about the company's products or services, target markets, and any expenses that may occur.
The business model answers questions like:
- What value do we create?
- How we deliver the value?
- How will we bring in revenue?
- How can we earn money?
There’s also a revenue model, which is a part of the startup business model. It describes how the company generates income.
For example, Facebook gives people a platform to communicate and works with advertisers. It’s their business model . Selling ads is their revenue model .
UberEats transfers the order from a customer to a restaurant and arranges the delivery. Users pay Uber for the food; Uber collects a fee and transfers the rest to the restaurant. It's their business model .
UberEats doesn’t give all the money it collects. It charges a fee from the eatery (and users) for delivering the food. It's their revenue model .
There’s no universal business model that’ll work just for any startup. Even the largely popular ‘ Uber for X ’ model (where X means any deliverable service) won't work for each company.
Learn more about Uber for X business model and how to start Uber-like business : how it works, how it makes a profit, and which successful startups use it.
Before choosing the business model for a software startup, consider these things:
- Target market
- Potential customers
- Revenue sources
Let’s go over them one by one.
#1. Target Market
Before you launch a startup, ask yourself: is there anyone who needs your service/product?
When Uber was launching, taxi markets in many countries could only offer high prices and poor customer focus. There was a need for a cheap and good-quality taxi service. That allowed Uber to compete for customers and gain a market share.
Besides, moving from point A to point B is a recurring need. Customers loved the service and kept coming.
And the more users Uber got, the better it became. For example, the company collects data from both riders and drivers to facilitate payments for drivers, monitor for fraudulent activity, and troubleshoot user bugs.
#2. Potential Customers
Who exactly is going to use your product or service?
If the startup solves unexisting problems or sets sky-high prices that their target audience can’t afford, maybe it'd be better to not launch at all.
Same if the people are satisfied with another product they already use and you bring nothing new to it.
Before food delivery services like Uber Eats or GrubHub , people had to cook food at home or eat out. Both activities are time-consuming, and not all restaurants could afford to hire couriers.
So food marketplaces focus on three categories of users:
- Time-pressured people
- People with kids
- Tech-savvy millennials
Food delivery startup business model focuses on three categories
All these people are too busy to deal with food preparation or don’t have enough time to eat out. So it’s more convenient for them to order food delivery from restaurants and pay for its delivery.
Most likely, there are already people doing what you’re planning to do. Your job is to understand who they are and how you can do their job better.
Let’s take a look at Uber Eats, Just Eat, and Glovo . All three are food marketplaces but with slightly different approaches:
- Just Eat uses the 'order-only' business model: people choose food from their catalog, and restaurants themselves take care of the delivery.
- Uber Eats works with the 'order & delivery' model: people order food in the app, and Uber's couriers deliver it.
- Glovo offers delivery from restaurants as well. But their couriers can also bring you carrots or other groceries from nearby stores, deliver alcohol, and pharmacy.
We have a separate guide explaining the process required to build app like Uber Eats . Check it out for more details.
The best way to prevent a competitor from copying your service is to grow the quality. The more customers you get, the better service or product you should provide. Your competitors would eventually fall behind.
#4. Revenue Streams
Your big idea already implies the main source of revenue. If it’s a social network, you sell ads. If it’s a marketplace, you charge commission from sellers.
Some of the best business models for startups include several revenue streams. Amazon is a good example of such a company.
Amazon's core business model is based on its platform, which is now a blend of an e-commerce site and a marketplace. The company sells its own products and allows individual sellers to list on Amazon, too.
Amazon charges $39.99 + 10-15% of transaction from professional sellers (those with 40+ sold items/month) and $0.99 + referral fees and variable closing fees from individual sellers (those having fewer than 40 items/month).
The company also has physical stores, subscription service (Amazon Prime), AWS cloud hosting, and an advertising business competing with Google.
Amazon’s revenue streams in 2019 (Source: Statista )
The easiest way to determine a revenue source for a startup is to look at competitors and analyze their value for money.
Why Use Business Model Canvas?
To understand which tech startup business model will work for your startup, try filling in the Business Model Canvas (BMC) developed by Alexander Osterwalder. BMC is a visual template that'll help you identify and organize different elements of your business model.
Osterwalder divides the canvas into nine sections:
- Customer Segments
- Key Partnerships
- Key Activities
- Revenue Streams
- Value Propositions
- Key Resources
- Customer Relationships
- Cost Structure
Business model startup canvas template by Alexander Osterwalder
To give you an example, we’ve filled in the Business Model Canvas for the Uber app.
Business Model Canvas for the Uber taxi app
The canvas has lots of modifications, including the Lean Startup Canvas designed specifically for startup launching. It's simpler than BMC and takes less time to fill in.
5 In-Demand Business Models for Startups
There are 55+ time-proven business model patterns, which is quite enough to choose from. We're going to focus only on modern-day business models for startup companies that create software.
Freemium model offers a basic service for free, while additional premium functions or services are only available for a fee.
Phil Libin CEO of Evernote The easiest way to get one million people paying is to get one billion people using.
Freemium is a very common business model for a startup in social gaming. The games are designed to have limited playtime or tough levels that require upgrades. Each upgrade is $1.99 or less.
May not sound like too much money, but games like Candy Crush Saga made over $600,000 per day using this approach.
Services like Evernote, Skype, LinkedIn, Dropbox, Spotify, MailChimp , and others have adopted the freemium model.
Don’t mix up freemium with the subscription model. You can use YouTube for free if you’re fine with ads, no background mode, and no downloads. Same for Dropbox or Spotify.
But if you miss a monthly subscription payment on Netflix, you can’t watch anything there.
The subscription-based model works great if you're selling software or your customers want to keep the flexibility of choice.
Rather than offering a product as a one-time purchase, companies like Netflix, Amazon Prime, Adobe, New York Times offer users monthly payments.
It's more convenient for users to pay Netflix $8.99 or $15.99/month (depending on the plan) instead of $108 or $192 collected in one payment. And the lower Netflix prices are, the more people can use the services.
And for businesses, it’s easier to predict the next months or annual revenues, seeing the number of subscribed customers and their plans.
Companies choose this model not only because they want to make their service more convenient for users. For Adobe and similar software-based companies, subscriptions are a way to pay off long-term development costs (adding new features, maintenance, etc.). For Netflix, it's a way to pay off the production of TV series and purchase rights to them.
Besides, subscription-based companies simply earn more money in the long run.
If the people like the service Netflix provides, they won't need much convincing to renew their subscription (or hit the auto-renew button). Still, to get enough revenue monthly or annually, you need to have an extremely large customer base.
Here you don't manufacture any of the products you offer to customers. You're representing a partner company and gain money by promoting their offers to your target audience.
That's the way Amazon and eBay work. Their platform offers different companies a partnership, then promotes and sells their products.
For sellers, the revenue comes from the difference in the selling price and the price they acquire the stuff for. For Amazon, it's $39.99 seller fee + transaction fees.
Free product or service is at the core of this model. You gather an audience by creating content or attracting interaction and engagement, then sell access to advertisers.
The more people you can reach, the higher your profits will be.
The best examples are Facebook and Google . Their products are free for users, but these two companies make money on advertising. In 2019, they took up 59% of U.S. digital ad revenue.
- Sharing Economy Model
Among the most popular examples of the on-demand model are Uber, BlaBlaCar, and Airbnb .
The on-demand model works by 'access is better than ownership' principle. It's when owners (drivers or landlords) provide services to seekers (people looking for a taxi or a flat to spend a night in), and the platform serves as an intermediary.
The platform itself does not possess any of the assets it offers. Airbnb doesn't own a single room; Uber works with people who own cars. They only match users.
On-demand platforms earn money by charging a fee, often from both users and service providers:
- Uber charges 25% on all fares
- Lyft takes 20% on fares + service fees
- Airbnb charges 3% from owner + 6-12% from guests
- Instacart takes $3.99 for 2-hour deliveries + up to 15% product markup
Explaining on demand app development , what features it requires, and how to build an on-demand service app.
Each of the startup business model examples we've mentioned is good in its own way. Still, the best idea may be to combine a few models—or create your own. Tech giants like Google, Facebook, Uber, Amazon may have started with a simpler business model, but now they get revenue from quite a few sources.
And don't forget about the tech component of your business model. Uber wouldn’t be that popular if its app could not process a taxi request, crashed, or had an awful UI/UX design .
Need help with the tech part?
We’re offering a free of charge tech consultation. Describe your idea and any questions you have.
A startup business model is a company's plan for making money . It contains information about its products or services, target markets, and any expenses that may occur.
Because a business model is the startup's foundation. It explains how the business works, what products or services it provides, how it'll make a profit, lists the target markets, and lists any expenses that may occur.
A startup without a business model is no more than a hobby.
A business model's choice doesn't guarantee the company will be a successful one, but it matters a lot.
Most billion-worth companies combine a few business models to get revenue from a few sources. For example, Amazon uses the reseller model as well as provides subscription services and hold physical stores.
Start with looking at your competitors: which business models they use, how they make a profit, and what value provides.
Next, check what business models are there. Business model navigator lists 55 patterns , including the popular ones like direct selling, subscription, e-commerce, two-sided market, etc.
Or maybe you'd want to combine a few business models or create a unique one.
Startup business models generally include information about products/services the business plans to sell, its target markets, and any expenses that may occur.
In general, there are 55+ business model patterns. The most popular for software startups are:
Evgeniy Altynpara is a CTO and member of the Forbes Councils’ community of tech professionals. He is an expert in software development and technological entrepreneurship and has 10+years of experience in digital transformation consulting in Healthcare, FinTech, Supply Chain and Logistics
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Investopedia / Laura Porter
The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.
Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.
- A business model is a company's core strategy for profitably doing business.
- Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
- There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
- The two levers of a business model are pricing and costs.
- When evaluating a business model as an investor, consider whether the product being offer matches a true need in the market.
A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.
A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.
Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .
When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.
A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.
One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.
The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.
When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.
Types of Business Models
There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .
Below are some common types of business models; note that the examples given may fall into multiple categories.
One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.
Example: Costco Wholesale
A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.
Example: Ford Motor Company
Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.
Example: DLA Piper LLP
Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.
Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.
Example: LinkedIn/LinkedIn Premium
Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.
If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.
Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business models attempts to make transacting easier, safer, and faster.
Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.
Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.
Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.
Example: HP (printers and ink)
"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.
Reverse Razor Blade
Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.
Example: Apple (iPhones + applications)
The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.
Example: Domino's Pizza
Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.
Example: Utility companies
A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.
There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:
- Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
- Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
- Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
- Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
- Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
- Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
- Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.
Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.
Criticism of Business Models
Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .
For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.
However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.
As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.
Example of Business Models
Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:
- Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
- Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
- More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.
A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.
What Is an Example of a Business Model?
Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.
What Are the Main Types of Business Models?
Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.
How Do I Build a Business Model?
There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.
A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.
Harvard Business Review. " Why Business Models Matter ."
Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."
Microsoft. " Annual Report 2021 ."
- How Companies Make Money 1 of 23
- How IBM Makes Money 2 of 23
- How Micron Makes Money 3 of 23
- How Snapchat Makes Money 4 of 23
- How Spotify Makes Money 5 of 23
- How X (Formerly Twitter) Makes Money 6 of 23
- How Uber Makes Money 7 of 23
- How Alibaba Makes Money 8 of 23
- How Amazon Makes Money 9 of 23
- How Lockheed Martin Makes Money 10 of 23
- How Nike Makes Money 11 of 23
- How Starbucks Makes Money 12 of 23
- How Bank of America Makes Money: Consumer Banking 13 of 23
- How Berkshire Hathaway Makes Money 14 of 23
- How BlackRock Makes Money 15 of 23
- How JPMorgan Makes Money 16 of 23
- How Square (Block) Makes Money 17 of 23
- How Visa Makes Money 18 of 23
- How Does Robinhood Make Money? 19 of 23
- How Acorns Makes Money 20 of 23
- How Chime Makes Money 21 of 23
- How Credit Karma Makes Money 22 of 23
- How Reddit Makes Money 23 of 23
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Business Models for Startups: Choose the Best One
Young entrepreneurs are enthralled to venture into new businesses to quench their thirst to succeed in the market. The adrenaline rush in their business-focused mind pushes them to make things faster –whether it is to work on a business idea, hire remote developers, kick start the project, or deploy the product, the startup owners aren’t afraid of taking risks.
Nevertheless, for a seasoned businessperson or a novice, you must need the best business model for the startup in place or else your all efforts may end up in vain. Also, having knowledge about the ideal business model will also help to hire developers that are best fitted for your requirement.
Table Of Content
What is a business model for startups, revenue model vs business model, factors that help you decide the best business model for a startup.
- Business models for startups a broad classification
- Best Business model ideas for startups
- Top business models
While companies have fancy goals, visions, and missions, the ultimate aim is to lead the market to the top list. Nevertheless, a business model is an umbrella term that includes several other factors, and if you want to make it simple, ask yourself these questions –
- Who is your target audience, customer, client, or consumer?
- How would they buy your products or avail of your services?
- How much do you feel your targeted customers would pay for your products/services? And, would they find it worth it?
Simply put, the business models for a startup would establish a strong bond or connection between your business (products or services) and your clients. This is the factor your entire venture depends on; this is the pillar of your project and the backbone of your future prospects. It is worth noting that if you choose the wrong business model, your business would suffer despite having great products and unparalleled services.
Young business owners are known to adopt aggressive strategies as they want quick ROI and revenues due to the intensely competitive market; however, they often confuse business models with revenue models. Hence, it is important that you clearly distinguish between the revenue model and the business model.
A revenue model houses all of your revenue sources. It is, as compared to a business model, a narrow term. Any transaction of money through any source would be considered a revenue model.
On the flip side, a business model for a startup is a broader term that involves, of course, the revenue model as well as other factors and processes that build your business and help your business to perform effectively, such as the cost of production.
For instance, if only customers’ transactions are considered as a revenue model for a retailer, their business model would also include suppliers, marketing, staff, transportation, and the like.
Before we get on to the types of business models that help your startup boom, having a glance at different factors that impact your choice is will help have a better insight. Here is the chunk you would mind before putting your finger on an appropriate business model for your startup –
Jump on the bandwagon (success stories)
You don’t need to reinvent any strategy! There are many players already in the market and also in the past. Use a blueprint that has proved itself in leading the markets among tough competitors. Established players in the market are the epitome of success and hence you shouldn’t ignore their journey. Certain business models have always worked (for instance, say freemium) for all companies. There is no harm in adapting something that is a sure shot for any business.
Another aspect, as industry experts opine, is to apply the same successful model to the places where they are not being experimented on yet. Though riskier, this model has a fair chance to boost your startup business. Booking.com, for instance, implemented the online marketplace business for the hospitality industry (as they got inspired by eBay).
Assure the scalability
The volatile market and uncertainty in consumer demands have made all industries quite riskier. Hence, the business model should be flexible because depending on the circumstances, the model can be modified.
Running a service or building a product involves several costs and so does storing and delivering it. Also, competitive analysis and market costs should be considered while choosing the startup business model. Cost structure or pricing and marketing costs should be considered while finalizing the business plan. If you are going for a freemium model, calculate all the risks plus the pros and cons of it. This goes true with other models as well; hence, choose everything carefully.
Don’t ignore the sister concern of the business model – the revenue model. Depending on the revenue streams , your business model shall change, and hence it cannot be ignored. Subscription-based models and freemiums are the most common among startup owners.
Business models for startups: A broad classification
Young entrepreneurs are visionary and present-day business owners have better tools to market and manage their businesses of all kinds. A few decades back, the traditional business models worked well but they took quite a long to reach every potential customer. Today, with the advent of the latest technologies, it is possible to boost any business. Nevertheless, we shall start with the basic (broad classification) of the business models for startups before the super seven models.
Business to Business (B2B)
The business-to-business model involves two businesses -it could be a manufacturer and wholesaler or a retailer and a wholesaler. Not between a company and a consumer, this model works between two companies. The transaction terms, methods, and types could be larger and different than day-to-day trades.
Business to Consumer (B2C)
Here, the model describes the business between a company and a consumer. Direct sales to consumers through a company can be called as a B2C model. Most startups these days still rely on this traditional model because of its promising results.
Customer to Customer (C2C)
Unlike between two businesses or a business and a client, this model works between two customers. The classified section in a newspaper shows a deal between two customers where one wants to sell and another wants to purchase. Such digital platforms are available in the market based on C2C models.
Super seven business models for startups
As technology evolves, the business models for startups also grow. Today, entrepreneurs have contemporary ways to handle businesses. Super seven business models have been serving various industries with their assured results. Still, you need to be careful choosing the one.
There is no one size fits all because each startup has its own strategies and hence the business model for startups would differ from case to case. It all depends on the targeted audience, cost to develop and deploy the customized solutions, storage and delivery, and top of all marketing and maintenance. Here we present to you the top seven innovative business models for startups proven to have excelled in the market by all accounts.
The freemium business model for startups tops the list as most businesses must have run this model at least once in their tenure. The best part of this model is the perfect blend of free and premium products/services that startups have to offer. While the free services can attract any consumer, creating a free premium service with more features and perks has an even mightier impact on the consumers.
For instance, if the startup is based on web design and development offering a free package of basic designing and developing services would attract a certain number of customers; on the other hand, a premium package that includes extra features such as video making more design revisions would attract and retain more customers.
Another popular business model for a startup is the subscription model which works on subscriptions of various kinds and prices for a particular product or a service. Such a model is generally an apple of mid-sized to large-size companies’ eyes because they are more into generating stable revenue. The cash flow is recurrent and customers turn into loyal clients through this model.
Giants like Netflix and Spotify run on subscription models that offer music, movies, and even channels. Even further, most companies create an option of ‘auto-renewal’ of the subscription which guarantees a smooth and regular cash flow.
The business model of disintermediation has been a pet model for wholesalers, direct sales companies, and manufacturers. The primary reason for adapting the disintermediation business model for startups is to keep middlemen at bay. In a standard-retail business model, the middlemen had a significant cut. But here, as a result of disintermediation, the cost of the product or service markedly goes down, and the chances of increased business profits are manifold.
The best example we can quote for this model is a retailer who would take an order and ship it directly to the consumer cutting down on any perks paid to intermediary agencies. The ideal startup business model could be disintermediation as there is always a budget constraint in the initial stages of any such business. Walmart, Alibaba, Amway, and Dell are a few giants in the market who worked on the disintermediation model at least once in their tenure of success.
The marketplace business model is actually a platform that just provides a digital ground where buyers meet sellers. This digital fun-and-fair provides enormous opportunities for companies and consumers to have long-lasting and trustworthy relationships. The biggest advantage of having a marketplace business model for startups is that they don’t need to maintain the supply chain or inventory. Nor do they need to bother about the product development services and manufacturing; being a digital marketplace platform, this business just maintains the transactions between buyers and sellers.
Amazon, the best example of a marketplace model, offers zillions of products worldwide without manufacturing and direct selling them. Nevertheless, they put a gigantic amount of bucks into creating the best user experience through their UI and innovative marketing methods.
Exactly going by its term, the on-demand business model for startups is something that is provided to the seeker (customer or client) as and when needed. The clients would request a service and will obtain it in time. Uber could be the best example to quote for an on-demand customized business model that allows a traveler to request a ride and get it right then.
Another business that works on an on-demand model is the laundry business and other businesses such as Postmates wherein consumers can order groceries and even foods through mobile devices and the goods are delivered to their doorsteps. While a model for on-demand delivery app could focus on a niche business, newer models have a blended approach to develop a potential over-the-top on-demand business model for startups. For example, last-minute or 10-minute delivery option for groceries and food has been the rage these days in the market.
Chiefly for the gaming industry, virtual goods’ selling has been getting immense popularity these days as a newer effective business model for startups, with the best monetization strategies. Virtual goods models offer virtual products to consumers which could range from weapon or vehicle upgrades, coins, credits, and much more.
While for the gaming industry, this is the backbone, smart business owners can also implement virtual goods models innovatively in their businesses. For instance, Facebook offered a digital (virtual) gift that a user can send to another user.
Cafu fuel app
The Cafu fuel app is transforming the car service industry by making it simpler, smarter and hassle-free. It helps car owners save their most precious asset which is time by offering 24/7 petrol and diesel delivery. Cafu is among the successful on-demand fuel delivery apps . It provides two fuel delivery business models, one is an on-demand method and the other is a subscription model.
With an on-demand fuel delivery app, customers can quickly and conveniently get their cars fueled up at the same price as the petrol station without any delivery fees.
Also known as a magic model, the reseller business model for startups is quite similar to the marketplace model. Here, one can use different types of reseller models depending on the products or services sold and investments or budgets. For instance, eBay promotes products and sells on its platform; nevertheless, when the goods are sold it is the listed company that has to take care of deliveries.
Such reselling model is a perfect fit for startups that don’t want to get into the hassle of handling deliveries. In this model, the cost is brought down significantly because the staff required for deliveries isn’t required by the reseller.
What are the business models for market leaders?
Let us take some examples of the world’s most renowned companies and their business models.
The quick eCommerce grocery delivery application, Zepto, has set the epitome of 10-minute hyperlocal delivery where customers can order groceries and get the goods delivered to their doorsteps within the shortest possible time, ten minutes, approximately.
Delivery charges, Membership fees, Advertisements, and Dark Store charges are some of the monetization models that are used in 10-Minute Grocery Delivery Apps like Zepto, Gorillas, and BlinkIt,
This marvelous marketplace application provides ample opportunities for skilled workers, handymen, and service seekers to be on the same board and solve their purposes. This model has provided a fair example of a digital marketplace to many young entrepreneurs all over the world. Based on a simple business model, TaskRabbit can be customized with many other features and facilities.
Marketplace apps like Taskrabbit, Thumbtack, Handy, and Upshift can have additional revenue generation models and features such as Usage fees, Peak Pricing, Advertisement, Paid plans, Pay-per-Lead, Brand Partnership, and more.
BookMyShow is a 360-degree solution for entertainment in multitier towns and cities. Initially developed as a ticket booking application, this digital platform has grown manifold in just a few years of its establishment. BookMyShow is a perfect answer to the ever-increasing global mobile ticketing market which has been growing at a whopping 18% CAGR.
Movie review and cast, proper display of seats, short trailer of the movie, review rating and offer, and bifurcation of theatres according to the city are top features that should be added in the ticket booking app like BookMyShow.
Probably the most popular taxi booking application in the world, Uber houses a wide range of services from carpooling to hourly car rent and regular cab booking for on-demand purposes. Uber helps set powerful transport networking and thus makes various jobs and businesses flow smoothly in urban settings.
With several monetization options such as profit sharing, premium accounts and in-app advertisements, a taxi booking application like Lyft, Cabify, Gett, & Uber can be immensely beneficial for your business.
Should one quote a proven application that works on a subscription-based business model for startups, Netflix is the example. With a revenue of billions of dollars, this video streaming application has successfully attracted 220+ million paid subscribers worldwide . The application has several subscription options from running the content on one to several devices.
SVOD, TVOD, and AVOD are the Business model followed by video streaming app like Netflix, HBO Max, Acorn TV, Disney+ Hotstar, and Amazon Prime.
Extending its service benchmark, Uber ventured into UberEats, a decent food ordering and delivery application that enables its users to order their favorite dishes from their favorite eateries and restaurants. Even further, UberEats with customized features also allow users to book tables at their favorite places to avoid waiting.
Premium advertisement services, 3rd party sd services, a commission from restaurants, user subscriptions, and delivery charges are some of the ways to generate revenue that food delivery apps like GrubHub, Uber Eats, Doordash, Instacart, and Postmates use.
Drizly is an alcohol delivery application that allows local liquor retailers to bring their inventory to their fingertips. Moreover, consumers can choose from a wide range of options and get their favorite beer, wine, spirits or liquor delivered to their doorstep. In the era of contactless and convenient delivery, on-demand apps like Drizly allow a contactless liquor buying experience.
With several monetization features such as premium accounts, chatbot integration, push notifications and in-app advertisements, you can build an alcohol delivery app like Drizly that can be exceedingly beneficial for growing your business.
Unique in its approach, PagarBook combines a foolproof method to manage employees and their payrolls smoothly. This digital platform combines the best features of human resource management software and accounts in a way that the company can handle everything from the same application. The employee attendance and payroll application simplify the heftiest tasks of managing employees’ records in small to mid-sized and large enterprises.
Integrating employee payroll and attendance management software like PagarBook, Paylocit, and Paychex will help to improve your organization’s benefits such as happy employees, stress-free process, avoid costly errors, save money on taxes, better RoI, and makes the process fast.
The huge potential of face-paced eCommerce growth brought the idea of Ajio to the market. The cost of developing an eCommerce app depends on various factors such as the size of the business, app location, and the complexity of the app features. This eCommerce application is fashion-focused and houses plenty of varieties of apparel and accessories for all genders.
All the business models for startups have their own advantages but picking up the right one depends on the nature of your business, the budget you have, and the targeted clients. If you are not sure about a suitable business model, you may take the help of startup app development company .
He is the Co-Founder and CEO of Prismetric . An enthusiastic entrepreneur, interested to discuss new app ideas, rich gadget tricks and trends, and admires signature tech business styles to readily embrace. He enjoys learning most modern app crafting methods, exploring smart technologies and passionate about writing his thoughts too. Inventions related to mobile and software technology inspire Ashish and he likes to inspire the like-minded community through the finesse of his work.
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What is a Business Model? Types of Business Models
Ever wonder how businesses work? What goes on behind-the-scenes? How Google makes money? Or how there's a McDonald's a stone's throw from wherever you are! Every business follows a certain style of working. And that style is its business model.
A business model is a framework that defines how you generate long-term value in terms of revenue by providing value (products/services) to your customers. Here, comes an exhaustive but hopefully not exhausting list of business models that various companies have adopted and modified according to their needs. I bet my non-existent Cadillac that you have heard of them.
Types of Business Models
1. Hidden Revenue Business Model 2. Advertising Business Model 3. Razor Blade and Reverse Razor Blade Model 4. Franchise Business Model 5. Direct Sales Business Model 6. Peer-to-Peer Business Model 7. Subscription Business Model 8. Freemium Business Model 9. Customization Business Model 10. User-Generated Content Business Model 11. Multibrand Business Model 12. Attention Merchant Business Model
How to Write A Business Model? FAQ's
The Ancient Three
These are the oldest and most basic business model types . They were popular before the time of computers and spreadsheets. All subsequent models evolved from:
- Manufacturer : Conversion of raw materials or assembly of pre-made parts into finished goods is the job description here. The sales can be taken care of by the parent company or outsourced. Say, cement manufacturers.
- Distributor : This person acts as the in-between for manufacturers and retailers/customers. For example, auto dealerships.
- Retailer : Through a physical or online location, the retailer purchases products from the manufacturer/distributor and sells them to the public.
1. Hidden Revenue Business Model
" Google , Facebook " I'm sure you wonder how the owners of Google and Facebook are oh-so-rich when you have probably never paid a cent to use their services. Consider google. It charges its users not in money but in data. The keywords searched are sold to the highest bidder who then sends you ads relevant to your searches.
Also, the ads you see on many webpages are 'spaces' rented out to advertisers. Every click or action pays the website owner a commission. Google has adopted an advertising business model within a hidden revenue model. Facebook works similarly using targeted ads.
2. Advertising Business Model
"Buzzfeed, Medium , Google" This model is used by firms/companies that have a wide user base or user traffic. They sell digital space to advertisers. The revenue is generated by three modes- cost per click (CPC), cost per thousand (CPT), or cost per action (CPA). This model works only if the content generated engages and retains the audience. There is a tradeoff between user experience and the need to generate revenue. There is also the issue of trust. The important thing is to never sacrifice quality chasing clicks.
3. Razor Blade and Reverse Razor Blade Model
"Gillette, X-box" The strategy here is to pair a dependent good with a consumable good. The former is sold at a very low cost and the latter at a high price.
Let's take a look at these business model examples .
Gillette Its inexpensive razor and expensive blades. A periodic income is generated for the owner. The company revolutionized this business model and is aptly named. Apple Apple's products such as MacBook, iPhones, etc., are priced way higher than their manufacturing and any additional production costs but the additional features such as iTunes and the play store come at a nominal cost.
4. Franchise Business Model
" McDonald's , Starbucks " A franchise is an agreement between a franchisor and a franchisee. The latter buys the right to use the established name, trademark, operational strategy, and sell products under their name. The fee paid is known as the licensing fee and apart from that, the parent company charges royalties which is a percentage of gross sales. The former takes care of the overall and affiliate operation strategy such as products and advertising. A franchise is a much safer operation as compared to starting a business from scratch.
5. Direct Sales Business Model
"Avon, Amway, Herbalife" There are no retail stores. An army of salespeople connected with the company act as links between the company and the retailer or customer. The product demonstration takes place in the customer's home or any business setting of the salesperson's choosing. He/she takes a cut of the sale made, while the parent company retains the rest.
6. Peer-to-Peer Business Model
" Airbnb , Uber " This is the buyers-meet-sellers model. The company provides a platform for that. There is no physical inventory for which the company takes responsibility. Their only duty is to assure the users of their credibility. Therefore, this is a model of minimum responsibility and risk. Revenue can be generated in a variety of ways:
- Charging a fee from sellers for using the platform
- Charging a fee for advertising
- Getting a cut of buyers' successful transactions
7. Subscription Business Model
" Netflix , Digit, Dollar Shave" One of the more popular and successful business models. Periodically- say every month or year, an amount is charged. A subscription model implies a continued relationship with the customer. In order to retain your customer base, new and updated content must be provided regularly. A subscription is much more beneficial than pay-per-product or lifetime access as it generates steady revenue at manageable content updation costs.
8. Freemium Business Model
" LinkedIn , Skillshare" Companies implementing this model offer a basic set of features for free to establish how their product works. It is one of the successful business models in India . This builds a relationship with the customer. If the user is satisfied, he/she may pay an amount to access the premium features of the product, have an ad-free experience, or utilize any such service the company chooses to provide.
Companies utilizing this model are often those which offer personal or business services. LinkedIn for example services HR as well as job-seeking professionals. The platform, for a fee, makes it more sophisticated for the users to meet their requirements.
9. Customization Business Model
" Nike , Tailoring industry" Customization took the industry by storm. There was no better way to make customers feel as if the product was made for them unless you actually made it for them. With the advent of 3D printing, customization has become all the easier with the availability of build-on-demand services. Every transaction is unique to the customer. Nike's custom shoes are an example of customization on a large scale.
10. User-Generated Content Business Model
" Quora , Youtube , Reddit " Content is generated by the users. But the users get paid neither do they pay. Their reward is recognition for their content. An advertising business model is used within the model. The revenue is generated as per the same. A system of ranking based on 'likes' or popularity attracts the user base.
11. Multibrand Business Model
" Unilever , Kering Group" One corporation owns many brands none of which are marketed in relation to each other or the parent company. Take Unilever for example. It owns over four hundred brands. You might have heard of Dove, Lipton, Magnum, and Pepsodent. See how diverse their product portfolio is ?
The supply chain, marketing & branding strategy, and other key operations are centralized while product research & development, and other product-specific operations are decentralized to ensure creativity. The independent nature of this model allows the corporation to enter any market from ( economical to luxury ) without affecting its existing product range and sales. Unilever is the fourth largest advertiser in the world.
12. Attention Merchant Business Model
"Snapchat" This business model aims to capture human attention for extended periods. This again has an advertising business model hidden within. Snapchat with its face recognition and corresponding 'filters' managed to keep its users clicking 'selfies'' nonstop. They also gather the geographic data of the user after obtaining their permission. The data is theirs to use. This is a risky business model and is dependent on the number of consumers.
Business models are not mutually exclusive. More than once you have seen how one model is hidden in another. The aim is to find the model best suited for your business. The list does not stop here. Since every company has given it's model a unique twist, it is safe to say there are as many business models as there are companies. However, I have covered the most well-known companies or list of business models and I hope you have a better understanding of how they work.
How to Write A Business Model?
Simple steps to writing a business model:
- Identify your specific audience.
- Establish business processes.
- Record key business resources.
- Develop a strong value proposition.
- Determine key business partners.
- Create a demand generation strategy.
- Leave room for innovation.
1. What is a Business Model?
Business model meaning : A business model is a framework that defines how you generate long-term value in terms of revenue by providing value (products/services) to your customers.
2. What are examples of business models?
Business models example: direct sales, franchising, advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA.
3. What is a startup business model?
A business model explains which consumer pain your startup chooses to relieve, why your solution works better than competing ones and how big a wedge a company can drive between what customers are willing to pay and the costs.
Top 7 Best Revenue Models for Your Startup
Nykaa Business Model | How Does Nykaa Make Money?
What Is Creator Economy & How Is It Driving India’s GDP?
Business Models for Startups: Choose the Best One
Uptech is top-rated app development company, table of content.
Building startups is about crazy ideas becoming true. Well, not quite so. Enthralled by their know-how ideas, some cofounders sometimes forget that startups are businesses, which should be profitable to exist. And without proper business modeling, a startup is doomed for failure.
So at some point in startup development , you should answer the focal question – how to develop a business model? Well, this questions entails a row of others:
- What are the revenue model types?
- How to develop a business model, which brings profit?
- Who can help me with business modeling?
In this article, I will highlight the most popular business models for startups and tell how to choose the model that will bring success to your business. Let’s start!
What is a Business Model After All?
So is the business only about what your users will pay for? Well, that too. But in reality, the business model or a revenue model covers numerous elements and requires answering several questions:
- Who buys your products? And why?
- Where do customers buy your products?
- How much does the customer pay for the product/service?
In other words, any revenue model type explains the connections between all elements of your business: your product/services and your clients.
One shouldn’t underestimate the meaning of a business model. In fact, many business giants, which we think are great products, are nothing more than well-functioning business models.
For example, Amazon has become the biggest online retailer worldwide with no brick-and-mortar shop. Samely, Starbucks sells ordinary coffee for prices above average.
4 Questions, that will help to choose startup business model
As mentioned before, a business model is not only about “how much my product/service will cost”? The suitable startup business model helps find answers to the questions about your startups that explain why your business should exist. Before choosing the model, ask yourself:
- Who is my customer?
- What’s the domain of my business?
- How is my business different from the competitors?
- What value do I bring to my customers?
Well, these are the questions you should answer before plunging into the development and seeking funds.
Can startup business models iterate?
Do not be afraid to change something that does not work for you anymore – that’s the main rule of startup development that applies to business models too. Your startup business model is not a sentence (though they also change), and it can iterate throughout the business cycle.
Sometimes you can substitute the model as a whole. But more often, the change can be partial. For example, you can cancel annual or 6-month subscription options if you see that users rarely use them.
Expert Tip: While a change in the startup business model is ok, these should not be radically different changes. For example, if you used the ads business model for your startup, it would be risky to skip to the annual payment format.
What’s Your Startup Business Model? 4 Steps to Choose
As a Product Manager, I always help startups to find their business models. For that, I always follow the algorithm of these 4 steps.
Step 1. Whose problem are you solving?
Firstly, identify who the final customer of your product/service is:
- B2B (Business to Business) – an entrepreneur, not a private person. In this case, you work for the same company as you are. Classic examples of B2B models are software development companies, or web design agencies, outsourcing companies.
Examples: Microsoft Teams , Slack , Plai .
- B2C (Business to Customer) – promoting the product and services to individual customers. Vivid examples of such models are online shops, where people buy products, mobile apps, and games for daily life usage.
Examples: Netflix , Hulu , Dollar Shave Club .
- C2C (Customer-to-customer) – such platforms work as a connecting space for customers to provide products or services to each other. On such platforms, the peers are equal, interacting for economic benefits. This model is also called the “sharing economy”. Examples: EBay , Uber , Horizon .
Step 2. Analyze your competitors
You cannot make a statement on the market niche unless you know your competition. So take time to look at the leading game setters in the niche:
- Whom are they targeting?
- Which monetization model do they use?
- What’s the added value?
Step 3. Make a Lean Canvas
Business Model Canvas is an instrument that helps gather all your business elements in one scheme. The template usually includes nine blocks, each one dedicated to a specific direction of business processes:
- Problem – what’s the problem of each segment of users that you will be working with?
- Consumers’ Segment: to whom are you bringing value? Who’s your most important client?
- Value Proposition: what’s the consumer’s problem are you solving? What value are you bringing to the client?
- Channels of communication. How do you communicate with the consumers? How do you communicate your value proposition to them?
- Customer relations. How do you interact with a consumer? Directly or via a personal manager? Or via self-service?
- Revenue Streams. For which value will the customer pay? How are you going to monetize your project?
- Key resources. What do you need to bring your product to market? Or communicate the product’s value to the consumer? These are resources, and they can be financial, material, intellectual, etc.
- Key action steps. What does it take to make the business work? It can be production, distribution, solution search for an individual client, etc.
- Key partners – are those stakeholders who make your business possible: suppliers integrated services.
- Expenses – which expenses are necessary to make your business work.
- Unfair advantage – think about what the value is that you can have and others cannot buy.
The Lean Canvas comes especially handy in business modeling for startups with a lot of uncertainty. This artifact will give you a clearer vision of your business’s different aspects.
Step 4. Choose your business model
Finally, we have arrived at the main point of this algorithm – the choice of the business model. What your business model will be depends on a variety of factors that we have discussed before. Depending on your Business Model Canvas and the answers you will give to the questions above, you should choose the type of monetization model that suits your business best.
7 Types of Business Models for Your Business
These days, there are a lot of types of operating models. Here are the most popular ones that will be especially useful for startups.
The Freemium revenue business model is a popular format of monetization among subscription-based services. Within this model, a client can access an app's basic functionality for free and get access to the full version for payment.
The Freemium model aims to demonstrate the product's features to the client. Besides that, it attracts the maximum number of users, the majority of which buy a premium version.
Examples: Spotify, and Netflix.
Learn more about the freemium model in our article How Do Free Apps Make Money?
One-Time Payment (Pay-per-Use)
This is the simplest model that one can imagine. According to this one, you simply buy a product or a service and pay for it on a one-time basis. This type of business model is relevant for services or products that, by its nature, need not to be used more often than once in a year or half a year—for example, legal services, psychological help, car rent.
Example: STUDENTEN – a job-seeking platform for students in the Netherlands.
Slack, Zoho, Microsoft Office – all these are examples of Saas-based revenue business models. If you have ever worked in an office, you might know this one. According to this model, a company can buy software from another company for long-term usage. Besides the product or service itself, the consumer also receives technical support and customized services if needed. SaaS (software as a service) is a business model relevant to the B2B market.
When was the last time you paid for your Netflix subscription? Well, I bet you will have a hard time remembering that. The thing is, we do not even pay attention to these monthly payments from our bank accounts. Yet, this is precisely how Netflix makes money – via subscriptions.
Such services usually give their customers different subscription options – annual, half-annual, or monthly. Unlike the SaaS model, the subscription format is more typical for the B2C sector.
The transactional model is typical for products and services integrated with payment systems. This one is relevant for businesses that serve as a chain between sellers and buyers. They take fees for the transaction either with the buyer, seller, or both.
Examples: real estate agencies, PR agencies, event companies, recruiting agencies, financial/banking products.
Marketplaces allow retailers to sell their products and provide the clients with simple instruments for communication with retailers. In addition, this business model offers monetization from different channels, including purchase fees or extra services.
Examples: iHerb , Amazon , Ebay .
Ads business models have existed for many years but have become more and more unique as the world becomes more digital. You should create content that people want to read and watch to use this model while showing ads to your readers and viewers.
In this model, you can provide users with free content while monetizing your business on ads. Sometimes this model goes in hand with the crowdsourcing model, where users create the content themselves.
Examples: The New York Times , YouTube
Famous Apps and Their Business Models
Let’s look at some famous examples of revenue business models used by popular apps today.
Airbnb – Marketplace Business Model
Today Airbnb is one of the most popular marketplaces worldwide. Airbnb is a platform that connects accommodation givers with those who seek accommodation in any corner of the world. The main idea behind Airbnb’s business model is that it does not own any accommodation itself while staying the biggest accommodation provider in the world. However, it provides the instrument for people to find each other and earns from the users’ fees.
Netflix – Subscription Business Model
Netflix is the biggest entertainment platform with 193 million members (as of July 2020) from over 190 countries and annual revenue of $20.16 billion. Netflix’s key partners are prominent filmmakers, script-writers, animators, and production companies that generate quality content to stream on the platform. Users can enjoy this content 24/7 with no ads interruptions, paying a monthly, six-month, or annual subscription.
Amazon Web Services – Pay-Per-Use Business Model
Amazon Web Services (AWS) is Amazon’s subsidiary that provides cloud computing services to individual users, companies, and governments. Using AWS, users have 24/7 access to a virtual cluster of computers.
Once the users sign in to the AWS platform, they get free credits at the beginning. So partially, this resembles a freemium model. However, once the users need more cloud space and server capacity, they can purchase them and pay accordingly. This is how the pay-per-use business model works in practice.
Choosing the best type of revenue business model for your startup defines the success of your business. However, suitable business modeling answers specific questions about your business. Lean Canvas is a great instrument that helps to answer these questions and systemize all elements of your business in a simple scheme.
Uptech has broad experience in business modeling for startups based on Lean Canvas and detailed information.
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7 Different Business Model Ideas for Your Startup
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Different business models are used for different types of startups.
As a startup business seeking long-term success, it's not enough for you to have a great idea for a product or service. No matter how great an idea is, startups may have difficulty finding success if they have yet to determine how the business will sustain itself in the long run.
As such, you should work on developing a business model that will help you ascertain how your business is going to be run. To create an effective business model, you'll want to identify your customer base, any sources of revenue , financing details, and the products or services that you're going to provide.
Different business models are used for different types of startups. For instance, if your startup is going to be selling a service online, you may want to consider the freemium model, which allows you to provide free and premium tiers for your service. If you plan on selling a subscription for the service that you provide, the subscription model is likely your best option. Once you've made a decision on how you want your company to be financed, what kinds of products you want to sell, and what your customer base is going to be, you'll be able to select the business model that meets your needs.
The seven different business model ideas that will be detailed in the following include the:
Virtual good model
Each of these business models offers many distinct advantages, which is why they have been implemented by such businesses as Amazon, Walmart, Uber, and Hulu.
1. Marketplace Model
The marketplace model is a type of business model that allows you to act as the go-between for sellers and buyers. Likely the most popular company to use the marketplace model is Amazon. They only act as the online marketplace that takes care of the transactions between buyers and sellers.
The main advantages of using a marketplace model include the fact that you won't need to store any inventory and that you won't have any overhead costs, which takes away a significant amount of the frustration and expenses that typically come with running a business. Since you don't manufacture a product, you won't need to worry about selling it. Marketplaces will usually take a small percentage of the transaction between the buyer and the seller.
If your business makes use of this model, you will need to provide customers with a reason to use your marketplace. To be successful , you likely shouldn't create a marketplace that's similar to Amazon. You could instead focus on a market that would be receptive to a smaller marketplace. For instance, a startup might want to create an art marketplace where customers can request artwork for logos, branding, and book covers. The artists on the other end could then fulfill these requests. The key is to reach out to a customer base that will be receptive to your idea.
Examples of Companies who use this model:
2. on-demand model.
The on-demand model is exactly as it sounds, which means that you will be tasked with providing customers with a service that they can request and obtain any time they please. Uber is a top example of this business model that allows customers to request a ride, after which a driver will pick them up and take them to their destination. Other businesses that use this model handle all kinds of on-demand services for everything from the beauty industry to the laundry and dry cleaning industry. With a service like Postmates, it's possible to order food, groceries, and other items via a mobile phone app. A delivery person for the company will then pick up these items and deliver them to the individual who made the request.
While this business model is similar to a marketplace, it requires more work to be put in by the startup in question. This business model is ideal for startups that are looking to cater to younger demographics that require instant gratification.
Keep in mind that this is a relatively new business model that's becoming more efficient and cost-effective with each passing day. Startups will usually need to leverage existing infrastructures and new forms of technology to provide customers with this kind of business model. Likely the most notable benefit of this model is that it takes use of freelance labor, which helps keep costs down.
Examples of Companies who use this model :
3. the disintermediation model.
The disintermediation model is a standard business model that's used by a wide range of wholesalers, manufacturers, and businesses that offer direct sales. The goal of this model is to get rid of the middleman, which lowers the cost of doing business for the manufacturer. The main benefit of using this business model is that the end-user should be able to pay a much lower cost than they normally would for a product or service.
With a standard retail business model, manufacturers will ship their products to a distributor that will act as the intermediary between the manufacturer and the customer. This intermediary will usually take a cut of the sales, which lessens the amount of money that the manufacturer or producer obtains from the transaction. This business model is ideal for startups that have the necessary resources to produce and distribute goods. The low prices that are possible with this business model should attract new customers.
4. Subscription Model
The subscription model is an increasingly popular business model that involves a company selling a service via a subscription as opposed to a one-off product. This business model is being used by a large number of companies to obtain stable cash flows that are recurrent. The most popular subscription services are Spotify and Netflix, which provide customers with access to music, movies, and TV shows for a monthly or yearly subscription fee.
If you believe that your startup can use the subscription business model, you need to target the customer base that's looking for convenience. Most customers will choose to auto-renew their subscriptions, which ensures that they always have the service that you're providing to them. Because of recurring sales, this model allows you to predict what your yearly revenues are going to be, which is fantastic when you're trying to bring in new investors.
5. Freemium Model
The freemium model is among the more popular business models for startups since it combines free and premium services into one business model via a tiered approach. The free service that you offer to everyone would include basic features of the service. The premium component of this business model allows you to create a premium service that offers more features and perks than the free service. If your startup is centered around web design and development, you could start by offering a free package that includes some basic design services. You could then create a premium package that includes extra features like free hosting, video production, and unlimited design revisions.
These additional features may entice customers to purchase the premium package. When you select this business model, it's important that the free and premium tiers are balanced. While the free tier should offer enough features to be compelling, it's essential that the premium offering is much more appealing to your core audience. With this business model, you'll be able to bring in customers who are interested in trying out your service for free, which allows them to become familiar with the service before upgrading to a premium option.
6. Virtual Good Model
The virtual good model is commonly used by video game developers but can also apply to a range of other businesses. This type of business model provides customers with the ability to purchase virtual goods, which only exist online. In a video game, these virtual goods could be extra lives or weapon upgrades.
Many companies that create smaller games for smartphones will implement a virtual good store within the game where users can purchase all kinds of online goods. Aside from game developers, creative thinking will be needed to use this business model. A company like Facebook allows users to purchase and send a virtual gift to another user, which has proven to be popular. Since you only need to bandwidth for these virtual goods, the margins are very high.
- Acclaim Games
7. Reseller (Magic) Model
The reseller model is a business model that's very similar to the marketplace model. When a startup operates as a reseller, they will focus on promoting and selling products that are produced or manufactured by another company or individual. There are a couple of different reseller models that you can use for your startup. With companies like eBay, the products are promoted and sold on their website. Once sold, however, delivery of the product will need to be handled by the individual or company that has listed the item for sale. This type of reseller is able to avoid inventory problems.
You can also benefit from the fact that you won't need as many salespeople, which significantly lessens the costs associated with HR. The most common reseller model is the retailer model, which involves products being held at a store or warehouse by the reseller before being passed on to the customer who buys the product. While retailers hold some inventory in their stores, they only purchase a small amount from the manufacturer or producer at a given time. The primary benefit of this business model is that it's a tried and true method of obtaining a profit.
How to Choose the Most Profitable Startup Business Model
Each of these business models have different advantages that you can make use of when developing your own startup. For instance, the marketplace business model ensures that you have very little overhead and that you won't need to carry any inventory. These businesses are great because they can be run from wherever you want.
You could choose to purchase an office space or could decide to run the business virtually. The best way to identify which of these business models is right for you is to make sure that the business owner is informed about each type of business model and what the company will need when implementing one of these models.
Once you've found the business model that's right for your startup, you should be able to create a roadmap of growth for your company. With a business model in hand, you can get started on building your business. Creating a startup will usually involve identifying sources of funding , creating a business plan, and making sure that your product or service is market viable . At the beginning, you'll likely find that your budget is low, which could put a damper on growing your business. Likely the best way to navigate this obstacle is by joining an incubator for low-cost access to office space, lab space, and high-end equipment.
If you are developing a medtech or bioscience startup and require access to a laboratory, consider applying today for a space at University Lab Partners , the first wet lab incubator in Orange County ! From here, you can complete the work that's necessary for growing your business without needing to spend all of your precious startup resources to do so!
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Five Tech Startups Business Models Explained
A business model is a crucial part of the life of any business . In fact, although there are many ways of monetizing.
A business model isn’t only about monetization. Instead, that is more about the overall value unlocked by the business and how it affects several stakeholders.
In fact, if we look at most of the companies that have been wildly successful in the last decades ( Microsoft , Apple , Google , and Facebook ), those companies were able to involve several players before being able to scale up.
For instance, Google before becoming wildly profitable spent some time tinkering with several monetizations strategy before coming up with its advertising networks which involved three main players as explained here .
In this article, we’ll look at five companies’ business models :
- Wolfram Alpha
Table of Contents
Quora and the content value matrix
Quora recently started to monetize the platform by testing an advertising program that allows publisher and businesses to add their product or service to Quora’s feed with a text ad.
The company has been very successful in building a trusted platform where users post any question, asked by committed non-professional writers.
Besides, on Quora often famous writers and authors host Q&A sessions that make the platform even more engaging.
Wolfram Alpha: the smartest engine around (so far)
Wolfram Alpha is the search engine created by a former physicist turned a successful entrepreneur : Stephen Wolfram.
Today, Wolfram Alpha, a computational engine is the smartest engine around. Its business model is based on subscriptions, APIs, and applications.
As Google is getting smarter and smarter from a computational standpoint, one might wonder whether Wolfram Alpha will lose competitiveness over time.
And by the way, if you thought you didn’t know Wolfram Alpha, most probably you’re wrong. In fact, Wolfram Alpha powers some queries of the iPhone’s voice assistant, Siri.
Airbnb: disrupt modern hospitality to go back to the old days
When Airbnb came into the hospitality industry a few years back.
Few players realized how disruptive it was until it was too late for stopping its growth .
Today Airbnb is one of the wildest tech successes of the last decade, based on a simple business model , which relies on the trust between guests and hosts.
Also, over the year as quality pictures have become an essential aspect of Airbnb ’s growth , the company started to work regularly with a freelance that would take photos of hosts’ accommodations for free so that the listing could be more appealing to guests.
DuckDuckGo: where Google loses DuckDuckGo wins
DuckDuckGo is a search engine that doesn’t track its users. In short, it gathers the data that might be useful to offer a localized search, but it throws it away on the fly.
Thus, Google mainly monetizes thanks to the information, it gathered from users. DuckDuckGo does the opposite.
It allows its users to rely on a private navigation experience; while it monetizes mainly through localized keywords and affiliate earnings.
LinkedIn: the multi-sided platform where hunters and hunted grow together
LinkedIn is the most significant professional network on earth and also one of the most engaging social networks as of the time of this writing.
The value of the platform comes from its multi-sided customer focus. In fact, LinkedIn, on the one hand, offers services to HR professionals that allow them to find the right fit for the open positions.
At the same time, LinkedIn offers its users a learning platform useful to bridge the gap with the professional world. Thus, making the platform more valuable for those HR professionals.
LinkedIn is part of Microsoft’s business model .
Read : Business Strategy: Definition, Examples, And Case Studies
More business models?
Tell us in the comments below which business models you’re curious to hear about! In the meanwhile the list of some of the business model types I identified throughout my research:
- Hidden revenue business model
- One-for-one business model
- Razor and blade revenue model
- Cash conversion cycle or cash machine business model
- Peer-to-peer business model
- Multi-sided platform business model
- Direct sales business model
- Freemium business model
- Affiliate marketing business model
- Subscription business model
- (Management) consulting business model
- Agency-based business model
- Vertically integrated supply chain business model
- E-commerce marketplace business model
- The discount business model that focuses on high quality
- Attention merchant business model
- Privacy as an innovative business model
- The most successful franchising business model in the world
- On-demand subscription-based business model
- User-generated content business model
- The educational niche business model
- A mix of chain and franchise business model
- Instant news business model
- Blockchain-based business models
- Multi-brand business model
- Family-owned integrated business model
- Humanist enterprise business model
- Direct-to-consumers business model
- Enterprise business model built on complex sales
- Distribution based business model
And those among the most successful companies:
- Amazon Business Model
- Netflix Business Model
- Starbucks Business Model
- LinkedIn Business Model
- Google Business Model
- Nike Business Model
- DuckDuckGo Business Model
- ALDI Business Model
- Apple Business Model
- TOMS Business Model
- Walmart Business Model
- Snapchat Business Model
- Paypal Business Model
- Alibaba Business Model
- Salesforce Business Model
- Microsoft Business Model
- Baidu Business Model
- Facebook Business Model
- YouTube Business Model
- Spotify Business Model
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40 Startup Ideas to Try in 2022
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Coming up with brilliant startup ideas may feel tricky to aspiring entrepreneurs, especially when it may seem that everyone’s already swooped up every good idea for a business. Still, it’s entirely possible to become successful by improving on existing products or putting a unique spin on an old idea.
The benefits of self-employment can make the effort of launching a startup worth it. In addition to the freedom that comes from being your own boss, starting a business can bring greater job satisfaction and higher earning potential.
40 startup ideas
Even startup ideas that seemingly come out of left field can yield incredible success. Read through this list for instant inspiration and get your creative gears turning.
1. Create educational content or activities
Parents are always looking for tools and activities to keep their kids entertained and engaged. Printable activity guides for different age groups, home-school lesson plans or even virtual nature walks or story time could all be viable startup ideas.
2. Offer virtual team-building
Companies need new ways to boost morale and build camaraderie among remote and hybrid teams. Enter the virtual team-builder. Cheesemongers, mixologists, chefs, magicians, artists, historians, master gardeners — almost anyone can create and offer bonding experiences for virtual companies.
3. Start a meal-prep business
By 2026, more than 217 million people in the U.S. will use online food delivery services. Tap into that market and start a meal-prep service to make people’s lives easier and cater to specialized diets (keto, vegan, Whole30).
4. Create a food waste solution
Creating a startup focused on reducing food waste could not only earn you some serious funding, but also positively change the food system and help save grocery stores and restaurants money.
5. Capitalize on plant-based foods
The U.S. plant-based market is exploding, with sales of plant-based foods doubling in recent years to $7.4 billion in 2021. Creating a vegan supermarket or making meat-free versions of traditional foods could be the ticket to success for aspiring entrepreneurs.
How Much Do You Need?
6. Start a drop-shipping business
The e-commerce business model of drop-shipping is especially attractive because it doesn’t require you to purchase inventory upfront. Selling higher-end products with low shipping costs could become profitable quickly if you do thorough competition research.
» MORE: 25 low-cost business ideas
7. Curate subscription boxes
Subscription boxes are a $22.7 billion dollar business globally, and the industry is still set to grow. Pick a niche, and then curate a collection of specialized goods to deliver unique experiences to consumers. Some subscription boxes focus on makeup; others focus on sustainability. Find the right starting point for you and run with it.
8. Create an airport-centric app
Creating an all-in-one app that allows travelers to navigate unfamiliar airports with real-time information is a relatively untapped startup idea. Though various travel applications exist, an app that shows amenities, TSA line wait times, ground transportation options and airport maps could be useful to passengers.
9. Become a destination wedding planner
The coronavirus pandemic added an extra layer of stress to destination weddings, creating added demand for wedding planners who can help manage wedding and travel logistics, including local guidelines and testing requirements. If you love exploring, are great under pressure and don’t mind working long hours, this could be the startup idea for you.
10. Make local guides
Even if you don’t consider yourself a local expert, creating local guides can get you familiar with your surroundings and help tourists enjoy off-the-beaten-path experiences in your area. Make themed guides, highlight attractions and partner with local businesses for advertising opportunities.
» MORE: 25 side business ideas
11. Create a local grocery delivery service
A grocery delivery startup can come with minimal setup costs — you only need a vehicle and a cell phone to get started. Help older people or others who are too busy to shop by offering this community-friendly service. You can even approach grocery stores in your area to see if they're willing to partner with you to get the service off the ground.
12. Start a virtual event planning company
Virtual event planning is a new booming business as in-person gatherings go online or take a hybrid approach. A skilled planner who can ensure all attendees are engaged, regardless of location, will be in high demand for years to come.
» MORE: Best business credit cards for LLCs
13. Sell zero-waste products
Starting a zero-waste company is more than just a trendy thing to do; it can be an ethical, environmentally conscious decision. Selling sustainable products such as reusable bags, bamboo toothbrushes or products with zero-waste packaging could appeal to a growing number of sustainability-focused consumers.
14. Make products for pets
Create innovative pet products to take advantage of the fact that 70% of U.S. households (about 90.5 million families) have at least one animal companion. Look into developing toys, accessories or even clothing for furry friends.
15. Create custom clothing
Selling custom clothing or offering a tailoring service could be your winning startup idea. The custom clothing industry is gaining popularity and offers room for long-term growth.
16. Sell vintage clothing online
Demand for sustainable fashion has helped propel second-hand clothing into a $36 billion industry in the U.S. with projections to double in the next five years. Consider selling thrifted, vintage or upcycled clothing on social media, an ecommerce platform or an app such as ThredUp or Poshmark.
» MORE: 14 profitable ecommerce business ideas
17. Begin niche blogging
Find a niche (think e-sports or urban farming) and create engaging content around it. You can earn money through advertising, affiliate links and even product sales once you build an audience.
18. Become an e-book writer
If you’ve got a way with words, consider becoming a self-published author and selling e-books on virtual platforms.
19. Start ghostwriting
Create content for busy professionals who don’t have the time or the skill to write themselves. If you don’t mind not attaching your name to your writing, ghostwriting is a great way to earn money with little to no startup costs attached.
20. Become a resume writer
Everyone needs a resume, but few people are skilled at or enjoy writing their own. If you’ve got writing experience and are looking to launch a startup with no setup costs, creating a resume-writing service could be the path for you.
21. Open a coworking space
Capitalize on the rising popularity of remote work by creating a modern coworking space that addresses pain points of entrepreneurs. Pick a convenient location and build it out with highly sought-after amenities.
» MORE: 35 businesses that every community needs
22. Become an online coach
If you enjoy helping others achieve their goals and are a people person, this startup idea could be fulfilling for yourself and for your clientele. You can provide wellness, business or life coaching.
23. Flip failing websites
Buy an existing website, make improvements on it and sell it for a profit. You’ll need to understand the market well and have some web development skills, but this can be a profitable pursuit.
24. Become a web developer
The need for custom websites isn’t ever going away, and if you know your way around WordPress or know a programming language or two, you can start a profitable website development startup.
25. Start a podcast
If you’re deeply knowledgeable or passionate about a subject, consider getting into podcast production or hosting. Building an audience takes time, but once established, podcasters can earn money through affiliate marketing, donations and sponsorships.
26. Be a social media influencer
Once you find a niche and build a personal brand, amassing a large following on Instagram or YouTube can lead to a solid source of income through influencer marketing.
» MORE: 30 Instagram business ideas
27. Create online courses
Obscure hobbies can lead to lucrative business ideas if you make them easy for others to learn. If you’d like to teach others but aren’t interested in the coaching route, creating an online course could lead to reliable passive income.
28. Become a marketing consultant
If you’ve got digital marketing chops, help small businesses reach their target audiences by providing SEO, social media or copywriting services.
29. Develop an app
If you’ve got a unique idea and the necessary technical skills, creating an app could be your gold mine. It’s also possible to build an app without extensive coding skills, and once it launches, it can bring in passive earnings.
» MORE: 25 tech business ideas
30. Make a smart appliance
Smart accessories and home appliances are all the rage and becoming an important part of daily life for the average consumer. For inspiration, take note of daily tasks at home or at work that would be easier with a smart appliance.
31. Tap into virtual reality experiences
VR is the future, and the future is now. Create virtual reality experiences or accessories to tap into a global industry that’s projected to grow to a $44.7 billion market by 2024.
32. Make a niche dating site
The stigma around online dating has decreased over the past decade, so take the opportunity to help others find love. With various dating sites targeted to everyone from sea captains to farmers, there is market demand for specialty dating options.
33. Develop a chatbot
Create a chatbot — which uses artificial intelligence to communicate with people — to help businesses improve their communication. Chatbots have become more popular in recent years, and you can create one without knowing how to code.
34. Offer matchmaking skills
This is like creating a dating site but with a personal touch. If you have a knack for knowing what types of people and which personalities get along well, you might be the perfect person to start matchmaking. You can do this online or meet clients in person as well.
35. Be a virtual assistant
Being an online assistant for someone, or starting a company of virtual assistants, can be a huge success. Everyone could use a little extra help, and creating a startup focused around getting people that help for the administrative tasks in their lives, professional or personal, can be a huge moneymaker.
» MORE: Home-business ideas: 40 remote jobs to explore
36. Reinvent exercising
If there's one thing people get bored with, it's doing the same type of exercise day in and day out to stay healthy. Plenty of people have turned the exercise industry on its head, with businesses like CrossFit and Peloton popping up. You can do the same if you have an idea for a new regimen or activity for exercise enthusiasts.
37. Create eco-friendly, health-friendly makeup and beauty products
As people become more aware of the impact their personal choices have on their health and on the environment, they're looking for more health and beauty products that are also eco-friendly. Creating safe and eco-friendly products could be a great startup idea.
38. Open a food truck or restaurant pop-up
Opening a food truck or restaurant pop-up is a great startup idea for entrepreneurs with a knack for cooking. Both options are easier to launch than a full-scale restaurant and allow you to get started with a smaller staff and menu. You can open a food truck that only sells french fries with crazy toppings, for example, or launch a breakfast sandwich pop-up in your neighborhood coffee shop.
39. Start an organization business
Shows like "Tidying Up With Marie Kondo" and "The Home Edit" put professional organizing on the map, exposing millions to the magic of a tidy home. If you have a knack for making order out of chaotic spaces, you could start a business offering those services to those who need them. Organizing kitchen pantries, closets, bookshelves and more are all options you could offer customers at your new business.
40. Do interior design for young professionals
Have an eye for decorating? Start an interior design business, offering your services at an hourly rate virtually to young professionals looking for inspiration. It can be as simple as them uploading some images of their new space to your site and you sending back a few links with furniture in their budget and example images of what the room might look like when it's finished.
How to choose a startup idea
Do your homework before diving headfirst into a startup idea. First, make sure there's demand for the business you want to start, where you want to start it. More than 35% of businesses fail because there isn't a market need for their services or product.
You also need to write a business plan , which should include your company’s objective, sales plan, market analysis and financial projections. A good business plan can help to keep your business on track. Lenders will also want to see your business plan when considering you for a startup business loan . You should also consider the skills you already have and see how those align with any of the startup business ideas you might go with.
The bottom line
Whether you choose from one of these startup business ideas or come up with your own, opportunities abound for entrepreneurs motivated to make money and start an endeavor all their own.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.
On a similar note...
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It's never been this easy to build a $1 billion AI company
- You don't have to be Sam Altman to build a $1 billion AI company.
- Kai-Fu Lee's new startup and Mistral AI have shown that AI companies can scale by going open source.
- The rise of open source has made it easier to achieve the kind of success OpenAI's enjoyed.
The opportunity to build a $1 billion AI business has never seemed this straightforward for entrepreneurs aspiring to be the next Sam Altman.
As OpenAI boss, he's succeeded thanks to billions of dollars of backing from Microsoft, while maintaining an allure around ChatGPT by keeping the stuff that makes it tick a secret.
It's becoming clear, however, that this closed approach isn't the only way to build a successful AI business: being open can get you there too.
This month, Taiwanese computer scientist and AI whiz Kai-Fu Lee celebrated as his startup 01.AI achieved a $1 billion valuation less than eight months after launch, following an investment round, Bloomberg reported.
What makes 01.AI different from OpenAI was its conscious decision to go open source.
This means 01.AI's AI model Yi-34B is more transparent about the data it's fed, and can be benchmarked more accurately against other AI models on platforms such as Hugging Face to determine how smart it really is.
It's not just Lee who has achieved this. Mistral AI, which is just six months old, has been in discussions to raise around $400 million in funding at a valuation of at least $2 billion, Insider reported.
The Paris-based startup, which hopes to be Europe's biggest rival to OpenAI , has also prioritized open source. In September, it made its Mistral 7B model available for free.
The growth of these startups to unicorn status is a sign that entrepreneurs don't need Big Tech's billions and a black box to develop a competitive edge. Being transparent about their AI can do just the same.
"Best way to become a unicorn in record times? Train and release AI openly on @huggingface !" Clément Delangue, cofounder and CEO of Hugging Face, wrote on X.
In response, Lee credited Hugging Face as the reason his company was able to take its AI mode public "rapidly, credibly, and impactfully."
By going open source, 01.AI has been able to show very publicly that its AI can outperform technology from the industry's big guns. The Hugging Face leaderboard for pretrained models puts Yi-34B ahead of Meta's open-source model Llama 2 and Abu Dhabi's Falcon 180B.
Support for open source has become more evident in recent months amid fears that lawmakers may harm developers in the open-source community in their attempt to regulate AI.
Meta's chief AI scientist, Yann LeCun, has been one of the most vocal proponents of the technology, describing his belief that "the benefits of open-source AI platforms in terms of progress, safety, economic development, and cultural diversity are overwhelming."
Developers wanting to build AI businesses at scale will want open source to thrive.
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Pioneering revenue models for digital servitization: a comprehensive framework for value capture
(The image displayed above was generated using the artificial intelligence program Midjourney.) Introduction: the digital transformation of manufacturing
Manufacturing companies are currently undergoing a digital transformation, launching innovative, digitally enabled service offerings. These "digital services" represent a shift in business logic, moving from upfront product sales to advanced service contracts. This shift has significant implications for cost structures, risk management, and revenue streams, challenging manufacturing companies to rethink their value capture strategies.
Designing new revenue models for digital services
A new research paper, "Revenue Models for Digital Servitization: A Value Capture Framework for Designing, Developing, and Scaling Digital Services," presents a comprehensive framework for designing new revenue models for digital services. The researchers conducted a multiple case study of 11 companies to enhance knowledge on this topic. The results reveal a highly customer-centric, iterative, and agile process where close collaboration with key customers during the early stages guides the framing of revenue models for digital services.
The framework: key phases and activities
The research paper presents a revenue model design framework that outlines key phases and activities. This framework carries implications for the emerging literature on digital servitization and the business model innovation literature. It provides practitioners with hands-on advice on how to implement the design, development, and scaling processes for revenue models in the context of new digital services.
About the researchers
The research team comprises:
- Lina Linde (Ph.D., in entrepreneurship and innovation at the Luleå University of Technology, Luleå, Sweden). Her research interests include servitization, digitalization, business model innovation, and strategic management.
- Johan Frishammar, a Professor in entrepreneurship & innovation with the Luleå University of Technology, and a Research Fellow with the House of Innovation, Stockholm School of Economics, Stockholm, Sweden. His research interests include circular economy, innovation measurement, business model innovation, innovation platforms, and sustainability transitions.
- Vinit Parida, a Professor of entrepreneurship and innovation with the Luleå University of Technology, and a Visiting Professor with the University of Vaasa, Vaasa, Finland. His research interests include organizational capabilities, servitization, business model innovation, digitalization of industrial ecosystems, and the circular economy.
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Exclusive: Google in talks to invest in AI startup Character.AI
An illuminated Google logo is seen inside an office building in Zurich, Switzerland December 5, 2018. REUTERS/Arnd Wiegmann/File Photo Acquire Licensing Rights
Nov 10 (Reuters) - Alphabet's (GOOGL.O) Google is in talks to invest hundreds of millions of dollars in Character.AI, as the fast growing artificial intelligence chatbot startup seeks capital to train models and keep up with user demand, two sources briefed on the matter told Reuters.
The investment, which could be structured as convertible notes, according to a third source, will deepen the existing partnership Character.AI already has with Google, in which it uses Google's cloud services and Tensor Processing Units (TPUs) to train models.
Google and Character AI did not respond to requests for comment.
Founded by former Google employees Noam Shazeer and Daniel De Freitas, Character.AI allows people to chat with virtual versions of celebrities like Billie Eilish or anime characters, while creating their own chatbots and AI assistants. It is free to use, but offers subscription model that charges $9.99 a month for users who want to skip the virtual line to access a chatbot.
Character.AI's chatbots, with various roles and tones to choose from, have appealed to users ages 18 to 24, who contributed about 60% of its website traffic, according to data from Similarweb. The demographic is helping the company position itself as the purveyor of more fun personal AI companions, compared to other AI chatbots from OpenAI's ChatGPT and Google's Bard.
The company previously said its website had attracted 100 million monthly visits in the first six months since its launch.
Character.AI is also in talks to raise equity funding from venture capital investors, which could value the company at over $5 billion, sources said. In March, it raised $150 million in a funding round led by Andreessen Horowitz at $1 billion valuation.
The talks with Google are ongoing and terms of the deal could change, said the sources, who requested anonymity as the discussions are private.
Google has been investing in AI startups, including $2 billion for model maker Anthropic in the form of convertible notes, on top of its earlier equity investment. Anthropic uses Google's cloud services as well as its latest version of TPUs.
That is part of a recent trend in which big tech cloud services providers are striking deals with AI companies to entice them to use certain cloud or hardware in the computer-intensive race to build models and serve consumers, including Microsoft (MSFT.O) investments in OpenAI and Google and Amazon's (AMZN.O) bets on Anthropic.
U.S. Federal Trade Commission chair Lina Khan said at an event in San Francisco last week that the agency is looking into cloud provider investments in AI startups to examine any anti-competitive behaviors.
Reporting by Krystal Hu in New York, additional reporting by Anna Tong and Jeffrey Dastin; Editing by Bill Berkrot
Our Standards: The Thomson Reuters Trust Principles.
Krystal reports on venture capital and startups for Reuters. She covers Silicon Valley and beyond through the lens of money and characters, with a focus on growth-stage startups, tech investments and AI. She has previously covered M&A for Reuters, breaking stories on Trump's SPAC and Elon Musk's Twitter financing. Previously, she reported on Amazon for Yahoo Finance, and her investigation of the company's retail practice was cited by lawmakers in Congress. Krystal started a career in journalism by writing about tech and politics in China. She has a master's degree from New York University, and enjoys a scoop of Matcha ice cream as much as getting a scoop at work.
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