In the early stages of starting a business, choosing the right business model can be the difference between success and failure.
The business model will run through every decision you make, from growth to marketing and sales.
What Type Of Business Models Exist To Choose From?
Before choosing the right business model, it’s worth understanding what options are out there. Some popular ones include:
Subscriptions: The clue is in the name, but subscription models work by engaging customers with recurring fees for services. This can be by providing a product or a service to them directly. Companies that do this successfully include Netflix, Spotify and Apple TV.
Franchise: A franchise works by either taking on, or providing the business operations, branding and products. The franchise model works by allowing brands to scale quickly through being funded by individuals. The franchise gets a fee for use of their branding, and the person is able to operate a business that is already well known. Companies that work in this way include McDonald’s, Subway and Baskin Robbins.
Freemium: This model works by giving businesses or customers access to some free services with extra features available for a fee. For example Spotify works by allowing people to listen for free, but removes adverts if people pay. Likewise, Dropbox will let you store a certain amount of documents, but you have to pay to unlock more. This hooks people into the product, giving them a small fee for extra benefits.
Affiliate: The affiliate model works through commissions. A business will give influencers or other marketers their sales link, allowing them to earn revenue with each sale. The business is able to get the benefit of these increased sales, whilst the marketers can get commissions without doing any of the operations.
E-commerce: The e-commerce business model relies on online selling. This can be a business-to-business model, a business-to-consumer model or a direct-to-consumer model. Businesses or people set up to sell directly online, meaning they don’t have to invest in big offices or retail stores.
Whilst these are only just a few of the available options, they certainly give entrepreneurs a lot to think about!
If you don’t know where to start, luckily a number of books exist to help. Let’s take a look at some of them:
Business Model Generation
This book is a must-read for anyone looking to design or reinvent their business model.
It talks about the Business Model Canvas, a visual tool that allows business leaders to better understand and implement their chosen models. For those who want to think in new and innovative ways, this book is a great place to start.
Read the book here.
Profit First
The role of any business is to make money. Author Mike Michaowicz turns traditional thinking about profit on its head, seeing it as a way to define what businesses have to spend, instead of using it as a metric post-spend.
By using this formula, business leaders are able to build better models that prioritise profitability from day 1.
Read the book here.
Start with Why
This book encourages business leaders to constantly ask ‘why’ when it comes to every area of their business. This level of critical thinking not only helps them justify actions, but ensures they keep innovating.
Even from the business model stage, this book shows leaders why the ‘why’ should be the basis of their decisions.
Read the book here.
The Lean Startup
Eric Ries challenges the way startups think about building businesses with his Lean Startup approach.
This book focuses on choosing and creating the right business model through innovation and learning. By staying ‘lean’ and constantly improving, businesses can test how effective their decisions are, before it’s too late.
Read the book here.
The Startup Owner’s Manual
This book takes business owners through everything they need to think about when building a company. Written by Silicon Valley startup expert Steve Blank and Bob Dorf it’s a blueprint in how to grow a successful business.
From understanding customers to choosing the right business models, it’s a great place to start for anyone looking to create a successful business.
Read the book here.
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