Understanding the problem you are solving for your
customers is undoubtedly the biggest challenge you’ll face when you’re starting
a business. Customers need to want what you are selling and your product needs
to solve a real problem.
Yet ensuring that your product fits the needs of the
market is only one part of starting a successful business.
The other key ingredient is figuring out how you’re
going to make money. This is where your business model comes into play
Simple or Sophisticated business model works best?
Well each kind of model has its pros & cons. The
simple business model is easy to copy either by you or even by your competitor
when it comes that your model is successful. Incase you don’t have a great
experience it’s preferred going for the easy copied business model however you
need to differentiate it. Think of a beauty shop, although it may looks so
familiar model however you can add an edge like serving population in a unique
location, offering a loyalty program where the customer can get a benefit of
saving with you, a money back guarantee or even a nice experience in your
store.
Going for a be spoke business model will be really
tough, coming up with a new idea, looking for a real problem your clients are
facing & you will help them.
Such a sophisticated business model will takes a lot
of work, studying, investigating, testing, and making surveys. Not only that
but also will take time for your clients to understand it & trust it. But
after a while it will be a STAR.
Think of Amazon, Although it’s crystal clear the
success of this model however you will find it very tough to copy or compete
which will act as your armor & barrier of coping it & competing.
We don’t recommend going for such sophisticated business
model unless you have a good experience in the industry you are planning to
penetrate & have a clear deep study.
What is a business model?
Your business model is a description of how
your business makes money. It’s an explanation of how you deliver value to your
customers at an appropriate cost.
Business models can be
broken into three parts:
1. Everything it takes to make something:
design, raw
materials, manufacturing, labor, and so on.
2. Everything it takes to sell that thing:
marketing,
distribution, delivering a service, and processing the sale.
3. How and what the customer pays:
pricing strategy,
payment methods, payment timing, and so on.
As you can see, a business model is simply an
exploration of what costs and expenses you have and how much you can charge for
your product or service.
A successful business model just needs to collect
more money from customers than it costs to make the product. This is your
profit—simple as that.
New business models can refine and improve any of
these three components. Maybe you can lower costs during design and
manufacturing. Or, perhaps you can find more effective methods of marketing and
sales. Or, maybe you can figure out an innovative way for customers to pay.
Keep in mind, though, that you don’t have to come up
with a new business model to have an effective strategy. Instead, you could
take an existing business model and offer it to different customers. For
example, restaurants mostly operate on a standard business model but focus
their strategy by targeting different kinds of customers.
1. Advertising
The advertising business model has been around a long
time and has become more sophisticated as the world has transitioned from print
to online. The fundamentals of the model revolve around creating content that
people want to read or watch and then displaying advertising to your readers or
viewers.
In an advertising business model, you have to satisfy
two customer groups: your readers or viewers, and your advertisers. Your
readers may or may not be paying you, but your advertisers certainly are.
An advertising business model is sometimes combined with a crowdsourcing model
where you get your content for free from users instead of paying content
creators to develop content.
Examples:
CBS, The
New York Times, YouTube
2. Affiliate
The affiliate business model is related to the
advertising business model but has some specific differences. Most frequently
found online, the affiliate model uses links embedded in content instead of
visual advertisements that are easily identifiable.
For example, if you run a book review website, you
could embed affiliate links to Amazon within your reviews that allow people to
buy the book you are reviewing. Amazon will pay you a small commission for
every sale that you refer to them.
Examples:
TheWireCutter.com,
TopTenReviews.com
3. Brokerage
Brokerage businesses connect buyers and sellers and
help facilitate a transaction. They charge a fee for each transaction to either
the buyer or the seller and sometimes both.
One of the most common brokerage businesses is
a real estate agency
, but there are many other
types of brokerages such as freight brokers and brokers who help construction
companies find buyers for dirt that they excavate from new foundations.
Examples:
ReMax,
RoadRunner Transportation Systems
4. Concierge/customization
Some businesses take existing products or services
and add a custom element to the transaction that makes every sale unique for
the given customer.
For example, think of custom travel agents who book
trips and experiences for wealthy clients. You can also find customization
happening at a larger scale with products like Nike’s custom sneakers.
Examples:
NIKEiD, Journy
5. Crowdsourcing
If you can bring together a large number of people to
contribute content to your site, then you’re crowdsourcing. Crowdsourcing
business models are most frequently paired with advertising models to generate
revenue, but there are many other iterations of the model. Threadless, for
example, lets designers submit t-shirt designs and gives the designers a
percentage of sales.
Companies that are trying to solve difficult problems
often publish their problems openly for anyone to try and solve. Successful
solutions get rewards and the company can then grow their business. The key to
a successful crowdsourcing business is providing the right rewards to entice
the “crowd” while also enabling you to build a viable business.
Examples:
Threadless,
YouTube, P&G Connect and Develop, Cuusoo
6. Disintermediation
If you want to make and sell something in stores, you
typically work through a series of middlemen to get your product from the
factory to the store shelf.
Disintermediation is when you sidestep everyone in
the supply chain and sell directly to consumers, allowing you to potentially
lower costs to your customers and have a direct relationship them as well.
Examples:
Casper,
Dell
7. Fractionalization
Instead of selling an entire product, you can sell
just part of that product with a fractionalization business model.
One of the best examples of this business model is
timeshares, where a group of people owns only a portion of a vacation home,
enabling them to use it for a certain number of weeks every year.
Examples:
Disney
Vacation Club, NetJets
8. Franchise
Franchising
is common in the restaurant
industry, but you’ll also find it in all sorts of service industries from
cleaning businesses to staffing agencies.
In a franchise business model, you are selling the
recipe for starting and running a successful business to someone else. You’re
often also selling access to a national brand and support services that help
the new franchise owner get up and running. In effect, you’re selling access to
a successful business model that you’ve developed.
Examples:
Ace
Hardware, McDonald’s, Allstate
9. Freemium
With a freemium business model, you’re giving away
part of your product or service for free and charging for premium features or
services.
Freemium isn’t the same as a free trial where
customers only get access to a product or service for a limited period of time.
Instead, freemium models allow for unlimited use of basic features for free and
only charge customers who want access to more advanced functionality.
Examples:
MailChimp,
Evernote, LinkedIn
10. Leasing
Leasing might seem similar to fractionalization, but
they are actually very different. In fractionalization, you are selling
perpetual access to part of something. Leasing, on the other hand, is like
renting. At the end of a lease agreement, a customer needs to return the
product that they were renting from you.
Leasing is most commonly used for high-priced
products where customers may not be able to afford a full purchase but could
instead afford to rent the product for a while.
Examples:
Cars,
DirectCapital
11. Low-touch
With a low-touch business model, companies lower
their prices by providing fewer services. Some of the best examples of this
type of business model are budget airlines and furniture sellers like IKEA. In
both of these cases, the low-touch business model means that customers need to
either purchase additional services or do some things themselves in order to
keep costs down.
Examples:
IKEA, Ryan
Air
12. Marketplace
Marketplaces allow sellers to list items for sale and
provide customers with easy tools for connecting to sellers.
The marketplace business model can generate revenue
from a variety of sources including fees to the buyer or the seller for a
successful transaction, additional services for helping advertise seller’s
products, and insurance so buyers have peace of mind. The marketplace model has
been used for both products and services.
Examples:
eBay,
Airbnb
13. Pay-as-you-go
Instead of pre-purchasing a certain amount of
something, such as electricity or cell phone minutes, customers get charged for
actual usage at the end of a billing period. The pay-as-you-go model is most
common in home utilities, but it has been applied to things like printer ink.
Examples:
Water
companies, HP Instant Ink
14. Razor blade
The razor blade business model is named after the
product that essentially invented the model: sell a durable product below cost
to increase volume sales of a high-margin, disposable component of that
product.
This is why razor blade companies practically give
away the razor handle, assuming that you’ll continue to buy a large volume of
blades over the long term. The goal is to tie a customer into a system,
ensuring that there are many additional, ongoing purchases over time.
Examples:
Gillette,
Inkjet printers, Xbox, Amazon’s Kindle
15. Reverse razor blade
Flipping the razor blade model around, you can offer
a high-margin product and promote sales of a low-margin companion product.
Similar to the razor blade model, customers are often
choosing to join an ecosystem of products. But, unlike the razor blade model,
the initial purchase is the big sale where a company makes most of its money.
The add-ons are just there to keep customers using the initially expensive
product.
Examples:
Apple’s
iPod & iTunes, and now MacBooks & Pages, Numbers, and Keynote
16. Reverse auction
A reverse auction business model turns auctions
upside down and has sellers present their lowest prices to buyers. Buyers then
have the option to choose the lowest price presented to them.
You can see reverse auctions in action when
contractors bid to do work on a construction project. You also see reverse
auctions anytime you shop for a mortgage or other type of loan.
Examples:
Priceline.com,
LendingTree
17. Subscription
Subscription business models are becoming more and
more common. In this business model, consumers get charged a subscription fee
to get access to a service.
While magazine and newspaper subscriptions have been
around for a long time, the model has now spread to software and online
services and is even showing up in service industries.
Examples:
Netflix,
Salesforce, Comcast
This is by no means an exhaustive list of all
business models that exist—but, hopefully, it gets you thinking about how you
might structure your business.
The key thing to remember is that you don’t need to
invent a new business model when you’re starting your
business. Using existing models can help lead you to success because
the model has been proven to work. You’ll be innovating in smaller ways within
that existing business model to grow your business.
A new business model could be extremely lucrative but
also brings with it higher risk. You don’t know if customers will accept the
model or not.
If you think I should add another business model to
this list, please comment & send me your feedback.
