Whatever sector your company occupies and no matter how unique you think a product or service may be, a business needs a practical model with which to lead it onto success. When it comes to start-up strategy, all owners are tasked with asking themselves which business model is best suited to their idea, as it will seriously impact on the direction their venture will take in the long term.
In choosing the right business model, you have to consider that ultimately, your customers have a problem that your business, product or service will solve. That said, it is not merely enough to have a product that fits the needs of the market, you’ll have to know how you’re going to make money, too.
Rather than attempting to reinvent the wheel by doing something that’s never been done before, it’s wise to look to tried-and-true business models in order to see which is the right fit for you. Here, we’ll look at a selection of business models, as well as the organisations who have proven the success.
Simply put, the subscription model involves consumers signing up to a subscription-based service that delivers the desired product or service every month.
For consumers, it means they don’t have to think about re-ordering, it keeps them in budget, and can be assured the product will be delivered each month around the same time. As for the start-up, it can be in a position to predict revenues through recurring sales, which can be hugely beneficial to a company’s valuation and then later, its saleability.
Whether you use it or not, Netflix is so commonplace nowadays that you probably forgot it’s even a subscription-based service. Nevertheless, its revolutionary means of watching TV shows and films has proven exceptionally popular. Likewise, with Spotify and music consumption.
One company you may not be familiar with, however, is Skillshare, an educational platform for learning. The start-up previously offered individual classes for a single fee, but they’ve since pivoted to a monthly subscription model that allows anyone to attend online classes on an extensive list of topics and subjects.
Popular among start-ups over the last 10 years or so, the freemium model offers a basic service to consumers for free, while paying members are afforded a premium service with features, offers and perks as a result.
A great way of attracting a user base at an early stage of your business without the expense of costly advertising, they tend to also be more effective than 30-day trials and similar offers. It also allows customers to try your service for free first, knowing they won’t be pressured into making an obligatory purchase.
A variety of businesses such as LinkedIn, Dropbox and Tinder have all opted for a freemium strategy, and their successes using this model are clear to see. All these businesses strike a balance between what they give away as part of the free service, and then offering something different that entices existing users to upgrade to a paid plan.
Also known as the Middleman model, it was popularised by Warby Parker, who entered the eyewear market in 2010. Warby Parker sought to remove the middleman from the sales process, significantly reducing the price of its product as a result.
Rather than manufacturing their products, and selling to a company such as Luxottica (owner of the world’s largest eyewear brands including Ray-Ban, Oakley, Sunglass Hut and many more), Warby Parker sold direct to the customer – and passed on the savings.
Warby Parker therefore sought to become the middleman, significantly reducing the price
As well as Warby Parker, businesses like bridal party retail company Brideside and shoe manufacturer Scarosso have used it to their advantage. The savings that customers make through this model can be hugely beneficial to the company. Start-ups can benefit from this approach since it gives them more control over products/services, and its contracts with distributors as well as serving to foster stronger relationships with suppliers.
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Today, consumers are always on the look-out for instant service. Convenience, speed and simplicity are huge selling points in this modern age, with the press-of-a-button approach sometimes taking precedence over traditional attributes of products and services.
The on-demand model is one that can provide a business’ customers with the benefits of its services at a moment’s notice.
Uber is one of the more visible companies that make use of the model, allowing consumers to pay for transport up front, while also providing a steady stream of contracted work to them should they so desire. Handy is a similar operation, allowing for instant fixes to problems in their home by dispatching handymen and plumbers to help them in no time at all.
On the whole, it’s a model that is cost-effective, scalable and only growing in efficiency, giving start-ups the chance to utilise new technology, combining fresh innovations with existing infrastructures to further strengthen its foundations.
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