Today scaling up a startup isn’t just about the product but primarily about the Business Model. In short, a business model is a way a company monetizes over time.
How many Business Model exist? Think about two simple examples. A startup has created a software. That software can be sold for a monthly fee. This kind of business model is called “subscription-based” because to make it work you have to have customers willing to renew the subscription each month. Therefore, you have to find ways for your customers to keep their interest in the product high.
Another example is the “Freemium” business model. In other words, some companies have two versions of a product: free and paid. They use the free product as a hook to get new potential customers. Once those customers get used to the product, they make money by convincing users to become paying customers.
Why is the business model relevant at all? First, based on the business model a company will “behave in a certain way.” From the previous example, a subscription-based company with no Freemium will find right away strategies to get paying customers. Instead, a Freemium based company will focus more on funnel optimization to convert users into customers.
Second, it tells you what metrics to look at. For instance, if you have a software service with a monthly subscription, metrics as CAC, LTV, ARR are crucial.
How many business models can you find in the entrepreneurial world?
The answer should be: your creativity is the limit.
However, the most used are:
- Hidden revenue business model: Google and Facebook are two popular examples
- One-for-one business mode: TOMS Shoes innovated on this front
- Razor and blade revenue model: Apple, for instance, uses an inverse form of that
- Cash conversion cycle or cash machine business model: Amazon is the master
- peer-to-peer business model: Airbnb has mastered this model
- Bricks and clicks business model
- Collective business models
- Cutting out the middleman model
- Direct sales model
- Distribution business models, various
- Fee in, free out
- Sourcing business model
- Freemium business model
- Pay what you can (PWYC)
- Value-added reseller model
- Auction business model
- All-in-one business model
- Chemical leasing
- Low-cost carrier business model
- Loyalty business models
- Monopolistic business model
- Multi-level marketing business model
- Network effects business model
- Online auction business model
- Online content business model
- Online media cooperative
- Premium business model
- Professional open-source model
- Pyramid scheme business model
- Servitization of products business model
- Subscription business model: one interesting case is ConvertKit that scaled to over one million in MRR
Short Definition: figure out how to make money, now!