A business model is a blueprint for operating a business and is considered the most crucial component of any venture. It outlines how a company will generate revenue for its customers, taking into account factors like identifying the target audience, understanding their problems, and finding solutions to those issues. Even a simple lemonade stand requires a business plan, which involves sourcing lemons, storing them, and transporting them to the stand.
This is different from a company's revenue model, which demonstrates how it earns money. A business may have multiple revenue streams, but it typically has only one business plan.
Many startup founders determine their business plan and revenue strategies later in the process, but it is advised to establish them early on. For a minimum viable product (MVP), founders need a plan to generate revenue. Without a business plan, it is impossible to know what to offer customers or how to expand the business.
Here are some intriguing business models that tech startups can adopt:
Marketplace A marketplace connects two parties interested in conducting business and generally profits from each transaction. Unlike a traditional brokerage, a marketplace enables both buyers and sellers to search for each other instead of offering a service to locate a buyer or seller. This model requires attracting two distinct groups, making it one of the most challenging businesses to launch and manage. Amazon and Ebay are well-known examples of marketplace businesses.
Aggregator An aggregator compiles information about businesses offering products or services within a specific area and sells these services under its own brand. Uber and Airbnb are examples of aggregators where individual drivers or homeowners use the platform as a tool rather than running their own businesses. Aggregators also handle payments and disputes, unlike marketplaces.
On-demand This model is often confused with the marketplace model. The primary distinction is that a marketplace neither owns the products and properties it sells nor employs the service providers. On the other hand, companies like Tier, which offers electric bikes for short-term use, and WeWork, which owns the buildings it rents out, follow the on-demand model. This approach requires more upfront investment but generates higher revenues.
Reverse auction Similar to the marketplace model, the reverse auction has buyers making requests for services or products they need, while sellers compete to fulfill these requests. Job board companies like Upwork and Taskrabbit exemplify this business model, which has the same advantages and disadvantages as a marketplace.
Crowdsourcing In crowdsourcing, individuals collaborate to create something valuable. Platforms like Wikipedia, Facebook, Instagram, Pinterest, and LinkedIn rely on user-generated content to attract more people to the site. The network effect significantly benefits crowdsourcing businesses, as the platform becomes more valuable and grows faster with increased user-generated content.
Traditional software product Although this business model is quite standard, it remains one of the most popular for tech startups. In this model, a software product is created to solve customers' problems, either through user-friendly interfaces, unique information presentation, or process management. The internet has provided software developers and distributors new ways to market and sell their products, making the development of software products an appealing business endeavor.