The different types of business models
Everyone (including me) has been in the same boat when they start a business, understanding the problem you are solving for your customers. Undoubtedly this would be the biggest challenge when starting a business. Customers need to want what you are selling, and your product/service needs to solve a problem, a real problem.
Like every piece of advice you get from friends, family, and mentors, they mention the first step in starting a business. But, there are a lot of “first steps”. On top of figuring out what the first steps are, you need to make sure there is revenue flowing in. So, where does a business model come into play?
What is a business model?
A business model is a conceptual framework supporting the viability of a business, including its purpose, goals and ongoing plans for achieving them.
In simple terms, a business model is a plan for how a company can create value. n
A business model answers fundamental questions about the problem you will solve, how you will solve it and the growth opportunity within a given market.
Creating a successful business model is essential, especially if you are starting a new venture, entering a new market, or changing your go-to-market strategy. The foundation of every business is its business model. It is the foundation because you need to look at the different avenues, partners, channels, customers, and values your company should be a part of to flow significant revenue inwards. If you look at your direct competitors doing “something” better than your company, that affects whom the audience will listen to. People want to work with companies that are more solid foundationally. A transparent, impactful business model is one of the only ways to increase the probability of success.
Let’s get into the different types of business models.
If you go online, some articles and blogs mention over 50 different types of business models, and we’ve summed them up into four different types (5 if you include businesses inside the metaverse, but that’s a whole other topic):n
- Business-To-Business (B2B)When dealings or transactions occur between two companies or the business, this type of business model is known as Business-to-Business. What is important to note here is that for transactions to be successful in a B2B model, participating businesses need adequate planning, relationship building and relationship management. Ensure that relationships with other companies are well nurtured and that your business is positioned as a force to be reckoned with. Other models evolve from B2B; models like Business-to-Government or Business-to-Business-Consumer are specific niches that show other challenges to overcome.
- Business-To-Consumer (B2C) The B2C model is a retail model where products move directly from a business to the end user who has purchased their product/service for personal use. For example, a B2C retail experience can be shopping at a local grocery store or purchasing new headphones from an online store. A B2C service experience can be a visit to the doctor, visiting a hair or nail salon, dining out at a restaurant or using the Uber app to purchase transportation. nnTransactions here tend to be more product/service-driven and less relationship-building (excluding service providers). As a result, impulsive or emotive buying decisions are frequently made in B2C models.
- Subscription Based Models Any application-based businesses or software companies have subscription-based business models. They offer their product as a one-time or recurring purchase. In return, the company earns monthly or annual revenues. This business model allows the company to earn regular income by allowing the client to pay for the purchase in 12 equal payments rather than asking them to pay the wholesome amount in one go.
- On-demand Models The on-demand business model follows a simple rule: “Access is better than ownership.” Hence, the idea is to make the services and products easy to access, including those the customer cannot own. For instance, you can rent a car instead of buying one. Likewise, the on-demand delivery business model works on the same pattern. The objective is to deliver the products to the customer safely in less time. Because of the new tech, users tend to use mobile apps for most services. Due to the increasing trend of on-demand services, businesses are now focusing on on-demand business equipment and delivery software. Companies can use non-employees for shipping goods on demand, wherein they may hire local workers or delivery companies to build this business model.
The word “model” conjures up images of whiteboards covered with arcane mathematical formulas. Business models, though, are anything but mysterious. At heart, they are stories that explain how enterprises work. When a new model changes the economics of an industry and is difficult to replicate, it can, by itself, create a substantial competitive advantage.
Another great use of the business model is that it can help crystalize the vision you have for the business. It can get arduous to explain what your vision is and get it to resonate with the network around you. In our business model and innovation series, we will be addressing all areas we know are difficult to maneuver in the early-stages of the business. Creating a sustainability business can get difficult if you’re unaware of the different situations you would experience in “the system”. If you are currently experiencing any stress around your current business model, please feel free to reach out to one of our business model innovation experts.