What is A Business Model and The Different Types of Them
A business model is an integral part of an idea or a venture. A business cannot flourish if it does not have a robust business model and means of revenue generation. If you are someone with a prototype, your idea is worth nothing if you have not decided a business model yet. Venture capitalists want to invest money in projects that have a good return on investment. Hence, this is why most start up accelerators ask for a business model when you propose an idea to them.
Good business ideas have a working model that include details about the product and how the product creates value for the customers. You will hear a lot of people talk about business models, but not everyone seems to understand the term in its right essence. So, the plan is to break down this term in smaller parts so it is easier to understand. You can only explain things better when you understand them properly.
Business models are all about creating value for the customers and the company itself. In retrospect, business models can be make or break for most aspiring entrepreneurs.
Business Model: What does it mean?
To put in easier words, a business model includes the mode of operation of a company. Moreover, it includes the viability of the product or service of the business. It also includes the revenue model and the vision of the company. The policies of a company and its brand image ae also the constituent of a business model.
Peter Drucker, a management pioneer, said,
“A business model is supposed to answer who your customer is, what value you can create/add for the customer and how you can do that at reasonable costs.”
The inception of computers brought different business models into the picture. Computers made it easier to test different factors that make up a model. However, it is surprising to note that most successful models were created by accident. The computers helped to devise plans and strategies that could help to maximize the profit and value from the model.
Successful business models have certain attributes which separates them from the rest. There are three such attributes:
- A complete blueprint about the product or service. This should include all the advantages and disadvantages of your service. It should include the detail about your product that delivers value.
- A game plan that includes all the steps that need to be taken to market the product and increase sales.
- Lastly, you should have a clear insight on how your company makes money and how the customer pays for the product they receive.
Business Model and Their Different Types
Every business has a different nature. Businesses with differing natures have different business models. It is possible that a business idea can have several suitable business models. A good entrepreneur should know the business model which is best for their brainchild. For example, Uber uses the aggregator business model. There are chances that Uber might not have made the same growth if they had employed a different business model. If you are interested in how Uber makes money, then you should definitely read this article here.
We have accumulated all the basic business models that are being widely used around the world. You can read the descriptions to pick the business model which works best for your proposition.
This is one of the most common business model employed around the world. The plan is to use raw materials to make finished goods that are then sold to the public. They either sell their products directly to the customers or through a distributor. For example, automobile giants such as Ford, BMW, and Toyota use this model.
Distributors were mentioned in the last paragraph. These are known as the middlemen. Furthermore, they take the finished product from the manufacturers and sell it to the public. An example of distributors is auto dealerships.
Retailers sell directly to the customers after acquiring them from distributors. Amazon, Tesco, and Walmart are good examples that use this model.
Franchise Business Model
Big corporations start franchising to have a larger network of their services. Companies that start franchising can be retailers, distributors, or even manufacturers.
They allow other people to take their business model and set up business units in return of royalties. KFC, McDonald’s, and Pizza Hut etc. are few of the many companies that use this model.
The Brick-And-Mortar Model
This is a traditional model which includes the business owner that deals with the customers directly in an office or a shop setting. The business owners can render all kinds of services or sell products.
E-commerce is the modern version of brick-and-mortar businesses. Instead of selling goods through a shop, you sell through a website.
These companies have physical and digital presence. Most clothing companies have this business model. It allows them to reach more customers.
The idea is to provide services at a minimal cost. Basic services are available at low prices. Any extra service needs to be bought by the customer.
Low cost airline services are the prime example. You need to pay for food and baggage in these airlines.
Freemium business model
Most online businesses have a freemium model. The idea is to provide some free services to the user and hide premium features behind a paywall so that the user pays to get access to them. Netflix, YouTube, Google Drive, iCloud, Dropbox and many other companies use this model.
Aggregator business model
Amway is a prime example of this model. It is multi-level marketing where everyone is a seller of the companies’ product(s). People make money through commission.