Business Models

Business model is a conceptual structure that supports the viability of the business and
explains how it operates, makes money, and how it intends to achieve its goals.

All the business processes and policies that a company adopts and follows are part
of the business model. According to management guru Peter Drucker: 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.
Thus, a business model is a description of how a company creates, delivers, and
captures value for itself as well as the customer.

Components Of A Business Model

An ideal business model usually conveys four key aspects of the business
1. Offerings – What the business provides (the product),
2. Customers – Whom the business serves to (the target market),
3. Infrastructure – How it provides the offering (the operating model),
4. Financials – How the business makes money and what are the costs involved (the
revenue model)
Usually, these components are defined using a business model canvas that’s
further divided into nine components

The Importance Of Business Model

The business model acts as the blueprint of the business and a roadmap for its success
(or failure). It is the only documentation that makes clear

1. The business concept – the market opportunity the business capitalises on.
2. The target market the business caters to.
3. The problems the business intends to solve.
4. The solution the business offers and how it creates customer value.
5. How the business gets its customers.
6. The operating model the business follows.
7. How the business makes money and what are the costs incurred to get the same.
Moreover, the business model gives a reason for the customers to choose the
offering over others in the market. People chose Facebook because it helped them connect
and chat with other people around the world (operating model) and it didn’t even charge
for it (revenue model). Netflix’s business model was preferred over others as it provided
value in the form of consistent on-demand content instead of the usual TV streaming
business model.

The 30 Types Of Business Models

There are different types of business models meant for different businesses.
Some of the basic types of business models are:
Manufacturer
A manufacturer makes finished products from raw materials. It may sell directly to the
customers or sell it to a middleman i.e another business that sells it finally to the customer.
Examples – Ford, 3M, General Electric.

Distributor
A distributor buys products from manufacturers and resells them to the
retailers or the public. Examples – Auto Dealerships.

Retailer
A retailer sells directly to the public after purchasing the products from a
distributor or wholesaler. Examples – Amazon, Tesco.

Franchise
A franchise can be a manufacturer, distributor or retailer. Instead of creating a new
product, the franchisee uses the parent business’s model and brand while paying royalties to
it. Examples – McDonald’s, Pizza Hut.

Brick-And-Mortar
Brick-and-mortar is a traditional business model where the retailers, wholesalers, and
manufacturers deal with the customers face-to-face in an office, a shop, or a store that the
business owns or rents.

ECommerce
E-Commerce business model is an upgradation of the traditional brick-and- mortar
business model. It focuses on selling products by creating a web-store on the internet.

Bricks-And-Clicks
A company that has both an online and offline presence allows customers to pick up
products from the physical stores while they can place the order online. This model gives
flexibility to the business since it is present online for customers who live in areas where
they do not have brick-and-mortar stores. Examples – Almost all apparel companies
nowadays.

Nickel-And-Dime
In this model, the basic product provided to the customers is very cost- sensitive and
hence priced as low as possible. For every other service that comes with it, a certain amount
is charged. Examples – All low-cost air carriers.

Freemium

This is one of the most common business models on the Internet. Companies offer basic
services to the customers for free while charging a certain premium for extra add-ons. So there
will be multiple plans with various benefits for different customers. Generally, the basic service
comes with certain restrictions or limitations, such as in-app advertisements, storage
restrictions etc., which the
premium plans shall not have. For example, the basic version of Dropbox comes with 2
GB storage. If you want to increase that limit, you can move to the Pro plan and pay a premium
of $9.99 a month for it. Some online image editors allow you to edit only a certain number of
images in the free basic plan while an unlimited number of images in the paid plan. Youtube’s
free plan comes with ads while the premium (Red) plan has no ad interruption plus it has
other benefits too. This model is one of the most adopted models for online companies
because it is not only a great marketing tool but also a cost-effective way to scale up and
attract new users.

Subscription

If customer acquisition costs are high, this business model might be the most suitable
option. The subscription business model lets you keep customers over a long-term contract
and get recurring revenues from them through repeat purchases. Examples – Netflix, Dollar
Shave Club.

Aggregator
Aggregator business model is a recently developed model where the company
various service providers of a niche and sell their services under its own brand. The money
is earned as commissions. Examples – Uber, Airbnb, Oyo.

Online Marketplace
Online marketplaces aggregate different sellers into one platform who then compete
with each other to provide the same product/service at competitive prices. The marketplace
builds its brand over different factors like trust, free and/or on-time home delivery, quality
sellers, etc. and earns commission on every sale carried on its platform. Examples – Amazon,
Alibaba.

Advertisement
Advertisement business models are evolving even more with the rise of the demand for
free products and services on the internet. Just like the earlier times, these business models
are popular with media publishers like Youtube, Forbes, etc. where the information is
provided for free but are accompanied with advertisements which are paid for by identified
sponsors.

Data Licencing / Data Selling

With the advent of the internet, there has been an increase in the amount of data
generated upon the users’ activities over the internet. This has led to the advent of a new
business model – the data licencing business model. Many companies like Twitter and
Onesignal sell or licence the data of its users or users of users to third parties which then use
the same for analysis, advertising, and other purposes.

Agency-Based
An agency can be considered as a partner company which specialises in handling the
non-core business activities like advertising, digital marketing, PR, ORM, etc. This company
partners with several other companies thatutsource
their non-core tasks to them and is responsible to maintain privacy and efficiency in their
work. Examples of such agencies are Ogilvy & Mathers, Dentsu Aegis Network, etc.

Affiliate Marketing
Affiliate marketing business model is a commission-based model where the affiliate
builds its business around promoting a partner’s product and directs all its efforts to convince
its followers and users to buy the same. In return, the affiliate gets a commission for every sale
referred. An example of a business operating on affiliate marketing business model is
lifewire.com.

Dropshipping

Dropshipping is a type of e-commerce business model where the business owns no

product or inventory but just a store. The actual product is sold by partner sellers who
receive the order as soon as the store receives an order from the ultimate customer. These
partner sellers then deliver the products directly to the customer.

Network Marketing

Network marketing or multi-level marketing involves a pyramid structured network of

people who sell a company’s products. The model runs on a commission basis where the
participants are remunerated when – They make a sale of the company’s product. Their
recruits make a sale of the product.

Network marketing business model works on direct marketing and direct selling
philosophy where there are no retail shops but the offerings are marketed to the target
market directly by the participants. The market is tapped by making more and more people
part of the pyramid structure where they make money by selling more goods and getting
more people on board.

Crowdsourcing
Crowdsourcing business model involves the users to contribute to the value provided.
This business model is often combined with other business and revenue models to create an
ultimate solution for the user and to earn money. Examples of businesses using the
crowdsourcing business model are Wikipedia, reCAPTCHA, Duolingo, etc.

Peer 2 Peer Catalyst/Platform

A P2P economy is a decentralized internet-based economy where two parties interact
directly with each other to buy or sell goods or to conduct a transaction without the
intervention of any third party. A P2P catalyst is a platform where these users meet. Examples
of P2P platforms are Craigslist, OLX, Airbnb etc.

Blockchain
The Blockchain is an immutable, decentralized, digital ledger. It is a digital database
that no one owns but anyone can contribute to. Many businesses are
taking this decentralised route to develop their business models. Models based on blockchain
are not owned or monitored by a single entity. Rather, they work on peer-to-peer
interactions and record everything on a digital decentralized ledger.

SAAS, IAAS, PAAS

Many companies have started offering their software, platform, and infrastructure as
a service. The ‘as a service’ business model works on the principle of pay as you go where
the customer pays for his usage of such software, platform, and infrastructure; he pays for
what and how many features he has used and not for what he hasn’t.

High Touch
The High Touch model is one which requires lots of human interaction. The relationship
between the salesperson and the customer has a huge impact on the overall revenues of the
company. The companies with this business model operate on trust and credibility. Examples
– Hair salons, consulting firms.

Low Touch
The opposite of the High Touch model, the low touch model requires minimal human
assistance or intervention in selling a product or service. Since as a company, you do not
have to maintain a huge sales force, your costs decrease, though such companies also
focus on improving technology to further reduce human intervention while making the
customer experience better at the same time. Examples – Ikea, SurveyMonkey.

Auction-Based
Mostly used for unique items that are not frequently traded and that don’t have a well-
established market value, like collectables, antiques, real estate, and even businesses.
This business model involves the listing of an offering by the seller and the buyers making
repeated bids to buy that offering while fully aware of other bids by other buyers. The offering
is sold to the highest buyer with the auction broker charging a listing fee and/or commission
based on the transaction value. eBay is one such auction platform.

Reverse-Auction-Based
A reverse auction is an auction where the roles of a buyer and seller are exchanged, i.e.
sellers bid prices instead of buyers.
The reverse-auction-based business model is often used when there are several
sellers selling a similar offering to a single buyer. These sellers lower their price with every bid
and generally the bidder with the lowest bid wins the auction. However, there are cases when
the bidder with a price higher than the lowest bid wins the auction as the buyer likes his offer
(offering with add-ons).
A platform which lets sellers bid for government contracts is an example of a reverse
auction based business model.

Razor And Blades

Razor and blade model is used by companies which deal in complementary or
companion products like razors and blades.
It involves selling the high-margin root product at a low price to increase the
 volume sales of the complementary or related low-margin product. By using this model,
businesses create a stream of recurring income over the life of the root product.
Companies dealing in razors, mosquito vaporizers, and other refillable products
employ this business model. The game industry also makes use of this model by providing
the gaming console at a very economical price and making good profits with the sale of
games.

Reverse Razor And Blades

A business employing a reverse razor and blades model offers the low margin item
at a very less price or below the cost to encourage the sale of the high margin product.
Amazon employs this business model to sell its Kindle e-reader. It provides Kindle
ebooks at a price lower than their actual cost so to make people consider Kindle as a one-time
investment to enjoy low-cost books throughout its life.

On-Demand
An on-demand model is a model where a customer’s demand is fulfilled by
delivering goods and services on demand (usually immediately).
This business model is driven by the use of the internet and mobile phones. It
works like this –
1. The customer order for products on services through a web-app.
2. The request is received by the company’s employee or a demand fulfilling partner.
3. The employee or a partner fulfils the demand by delivering the ordered product or service
either immediately or in the time promised.
Uber, Instacart, and Postmates are some examples of an on-demand business
model.

User Community
Driven by the network effect, this business model involves granting access to a
community or a network in return for a membership fee.
Glassdoor is a good example of such a user community.

Final Thoughts on Business Models

Of course, most companies do not operate on any one of these business models
but rather on a combination of some. Like it is perfectly possible for you to be a Bricks-and-
clicks Low Touch Retailer or a High Touch Subscription-Based Manufacturer. What business
model you choose depends on your business needs and what value you want to create for
your stakeholders. Next, we will see how to develop the perfect business model for your
startup, so that the chances of your success are amplified.

The Startup Process

We know how important your dream business is to you. Therefore, we’ve come up
with an all in one guide: The Startup Process to help you turn your vision into reality.

Ten Steps to Start a Business

1. Conduct market research

 Market research will tell you if there’s an opportunity to turn your idea into a successful
business. It’s a way to gather information about potential customers and businesses already
operating in your area. Use that information to find a competitive advantage for your business.

2. Write your business plan

Your business plan is the foundation of your business. It’s a roadmap for how to
structure, run, and grow your new business. You’ll use it to convince people that working with
you — or investing in your company — is a smart choice.

3. Fund your business

Your business plan will help you figure out how much money you’ll need to start your
business. If you don’t have that amount on hand, you’ll need to either raise or borrow the
capital. Fortunately, there are more ways than ever to find the
capital you need .
4. Pick your business location
Your business location is one of the most important decisions you’ll make.
Whether you’re setting up a brick-and-mortar business or launching an online store, the
choices you make could affect your taxes, legal requirements, and revenue.

5. Choose a business structure

The legal structure you choose for your business will impact your business registration
requirements, how much you pay in taxes, and your personal liability.

6. Choose your business name

It’s not easy to pick the perfect name. You’ll want one that reflects your brand and
captures your spirit. You’ll also want to make sure your business name isn’t already being
used by someone else.

7. Register your business

Once you’ve picked the perfect business name, it’s time to make it legal and protect
your brand. If you’re doing business under a name different than your own, you’ll need to
register with the federal government, and maybe your state government, too.

8. Get federal and state tax IDs

You’ll use your employer identification number (EIN) for important steps to start and
grow your business, like opening a bank account and paying taxes. It’s like a social security
number for your business. Some — but not all — states require you to get a tax ID as well.

9. Apply for licenses and permits

Keep your business running smoothly by staying legally compliant. The licenses and
permits you need for your business will vary by industry, state, location, and other factors.
10. Open a business bank account
A small business checking account can help you handle legal, tax, and day- to-day
issues. The good news is it’s easy to set one up if you have the right
registrations and paperwork ready .
Intellectual Property Rights

The Different Types of IP Protection and Why They Are Important

Basically speaking, intellectual property rights are a common type of legal IP protection
for those who create. These rights, however, have actually contributed enormously to the
world, in particular economically.
Many companies in a variety of industries rely on the enforcement of their
patents, trademarks, and copyrights, while consumers can also be assured of quality
when they purchasing IP-backed products. Now, let’s gain a better understanding of the
benefits IP delivers and how we should value the protection different types of intellectual
property rights provide.

The Importance of Intellectual Property Rights

The purpose of intellectual property rights is to encourage new creations, including
technology, artwork, and inventions, that might increase economic growth. Intellectual
property rights increase the incentives for individuals to continue to produce things that
further create job opportunities and new technologies, while enabling our world to
improve and evolve even faster.

Types of Intellectual Property Rights Patent

A patent is used to prevent an invention from being created, sold, or used by another
party without permission. Patents are the most common type of intellectual property rights
that come to people’s minds when they think of intellectual property rights protection. A
Patent Owner has every right to commercialize his/her/its patent, including buying and
selling the patent or granting a license to the invention to any third party under mutually
agreed terms.
There are three different categories that patents can fall under:
Utility:
A utility patent protects the creation of a new or improved product, process,
composition of matter, or machine that is useful.
Design:
A design patent protects the ornamental design on a useful item.
Trademark
Trademarks are another familiar type of intellectual property rights protection. A
trademark is a distinctive sign which allows consumers to easily identify the particular
goods or services that a company provides. Some examples include McDonald’s golden
arch, the Facebook logo, and so on. A trademark can come in the form of text, a phrase,
symbol, sound, smell, and/or color scheme. Unlike patents, a trademark can protect a set or
class of products or services, instead of just one product or process.
Copyright
Copyright does not protect ideas. Rather, it only covers “tangible” forms of
creations and original work–for example, art, music, architectural
drawings, or even software codes. The copyright owner has the exclusive
right to sell, publish, and/or reproduce any literary, musical, dramatic,
artistic, or architectural work created by the author.

Trade Secret
Trade secrets are the secrets of a business. They are proprietary
systems, formulas, strategies, or other information that is confidential
and is not meant for unauthorized commercial use by others. This is a
critical form of protection that can help businesses to gain a
competitive advantage.

Although intellectual property rights protection may seem to provide a minimum

amount of protection, when they are utilized wisely, they can maximize the benefit
and value of a creation and enable world-changing technology to be