Choosing the right business model for your company is like picking the right shoe size. On the one hand, you need to find a model that not only fits well with your particular business, but also leaves you with ample room for expansion and growth. On the other, you mustn’t go too broad as such a loose structure might seriously jeopardize the stability of your business causing it to fracture and collapse on itself.
As a result, your company’s business model makes the backbone of your business. Essentially, it determines the way your business generates revenue, makes a profit, as well as the way you create and deliver your products and services to prospective clients. In short, it encompasses some core aspects of a company’s day-to-day operations such as its trading practices, its consumer base, its infrastructure, its policies, and so on. Now, if you’re looking for a business model for your particular business, here’s what you need to know.
Startup Business Model
While a startup in itself is not a business model, per se, its main purpose is to seek out and develop one that will either meet the market demand or offer a solution to a specific problem. To achieve this, startups most commonly resort to the release of a working prototype (an early version of a product designed to test the market demand) which is then further optimized via user feedback and support. At their core, startups are extremely experimental in nature and operate on high levels of uncertainty; mainly due to their trial and error methods. Eventually, a startup wants to get out of its initial, lean, phase and become a fully-fledged business with employees and concrete ways of making a profit; other than resorting to user crowdfunding, or kickstarting efforts to stay operational.
Product Leadership Business Model
This business model is all about differentiating yourself from the rest of the competition by providing more value to your customers (than the competition is currently offering). Similarly to startups, it uses research and development to enhance its products and services by adding more beneficial features, improving performance, or by lowering the market price.
As such, it’s a highly competitive model which seeks to ‘outplay’ its industry opponents to take center-stage as the de facto industry leader. It requires some exceptional market and competitor analysis and a legitimate understanding of your target audience. The software giant Microsoft is a prime example of this model as the company is constantly improving its products and services for its users. For instance, Windows 10 provides users with regular updates with interesting new features at no additional cost.
Franchise Business Model
Franchising is markedly different from the lean startup and product leadership models. Namely, it does not revolve around the concept of creating and developing products (or services) from scratch, but rather on ‘borrowing’ a pre-established business model from a partnering brand that has already been tried and tested.
This mutual partnership is embodied in the franchisee vs franchisor dichotomy, where the franchisee licenses the right to use the franchisor’s trade name and business model, and in return, the franchisor helps them ‘set up shop’, so to speak. Likewise, the franchisor provides the franchisee with all the assistance they need to get the ball rolling, including extensive staff training, advertising and marketing support, expansion opportunities, and so on. So, instead of reinventing the wheel, with this business model, you have all the hard work already done for you, allowing you to focus on other, more important, business matters.
Freemium Business Model
As you may have noticed, the word ‘freemium’ is actually just a clever combination of the words ‘free’ and ‘premium’. In essence, this model operates on the basis of providing customers with products and services free of charge. However, there’s a twist. Those who are willing to pay the premium fee get to unlock additional features and services on their account. In the software sector, this business model has been particularly popular for many years, so much so that it has now become the industry standard. In addition, there’s even a subdivision of this business model within the video game industry called free-to-play (which is often mockingly referenced by players as pay-to-win). Nowadays, it’s all about gaining the customer’s trust, and this model conveniently offers them a chance to test products and services beforehand to ensure they’re of sufficient quality.
Subscription Business Model
Finally, we come to the subscription-based business model where a customer needs to pay a recurring fee, periodically, to gain access to a business’s products or services. The fee in question is usually paid in monthly, yearly or even seasonal intervals and as such has become the preferred payment method of many online services; for example, Netflix, Birchbox, and Dollar Shave Club just to name a few. Yet, this does not mean that it works exclusively for online businesses as there are many offline businesses that use this model as well, such as TV providers, magazines, mobile operators, and so on. Additionally, it’s most commonly used in conjunction with the freemium model where each premium tier necessitates a higher subscription fee.
Now that you know the different types of business models, it’s time to choose one for your business. Remember to keep your particular industry and your target audience in mind when you do so and you’ll find the perfect fit in no time.