Business Models-There are a variety of business models practiced by startups. Furthermore, some early-stage startups may not even have a business model today. However, they should have one or more identified potential business models that they could practice in the future due to their value creation.
Below is a brief description of some examples of early business models.
A market is a place where two or more types of users come together to transact business. The market typically earns its revenue from what is known as the market rake. Usually, a percentage of the income is traded in the market. Instead of a commission percentage, some marketplaces may charge a flat transaction fee. eBay (a marketplace for buyers and sellers of used goods), Uber (a marketplace for drivers and drivers), Airbnb (a marketplace for hosts and guests), and Instacart (a grocery and consumer marketplace and FundersClub portfolio company). Markets are tough to start and reach a point of consistently high liquidity (supply meets demand) but are very defensible once established.
A SaaS business model involves providing software to customers, typically enterprise software for SMB and/or enterprise customers, and charging a subscription (e.g. monthly, yearly, etc.) for the software. Sometimes service contracts are also included to generate revenue from custom support or integration. Sometimes SaaS companies opt for a freemium model, where entry-level plans are free and more robust plans pay. Examples of SaaS startups are Salesforce.com and Dropbox.
An e-commerce business model refers to selling products online and earning revenue from the transactions through margins on the products sold or otherwise. It may seem like an outdated business model, in 2015 only about 7% of all retail sales makes is online. Amazon.com and Warby Parker are examples of e-commerce startups.
A consumer model typically involves a free or low-cost application distributed to consumers that provides value and consumer interaction, which in turn creates a valuable consumer distribution channel that has intrinsic value today or be monetize later . Examples of top startups are Instagram and SnapChat; still heavily monetized, but have accumulated significant value due to their ubiquity and commitment to consumers. Consumer apps can sometimes try to make money through advertising, data, and other means.
API business model startups serve the emerging development economy and typically monetize through a subscription, SaaS-like model based on API usage, in other cases they monetize through transaction fees when currency is process. Stripe and Twilio are examples of API startups.
Data business model startups derive value from collecting and, in some cases, cleaning, reformatting and analyzing data.
New licensing companies derive value from intellectual property licenses, including patents, trademarks, trade secrets and know-how. Examples of licensing business models include Arm Holdings, an off-the-factory semiconductor company.
Hardware startups make hardware-enabled devices and monetize them by charging for the machines and the software and services associated with the hardware. companies include Apple (which also developed a market model with the App Store and iTunes) and Tesla.
Business model vs. revenue model vs. a source of income
Before we delve into the different types of revenue models . The difference between a revenue model, a revenue stream and a business model?” Alex Genadinik explains the difference between these terms very well. It is summarize below:
An income stream is the only source of income for a business and Depending on its size and A company may have zero or multiple revenue streams.
A revenue model is a company’s strategy for managing revenue streams and the resources required for each revenue stream.
A business model is the structure of all aspects of a business that including the income model and income streams, and describes how they all work together.
Remember to do your research and take the time to decide which model is best for your startup because once you’ve settled on one revenue model and it can be challenging to decide on another. Especially if you are in the early stages. As mentioned above, this blog post doesn’t cover every revenue model used by all startups. Still, by highlighting the most popular ones. You should have and enough information to decide which revenue model will propel your startup into the big leagues.
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