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What exactly are business models in startups? How exactly can you make money with business models in startups? What are the different types of business models? How do startups come up with these models? It’s hard to answer these questions without understanding what business models are.
What are business models?
Business models determine how a company makes money, and they vary significantly across industries, regions of the world, and even time periods. For example, some ideas for new businesses include dog walking or cat sitting services or renting bicycles.
How can you make money with business models in startups?
When you start your own business it’s important to think about what your target customers want to buy from you – not just what you would like to sell them. Your product is often more than just something that solves a customer’s problem – it also needs to be something that they perceive as being valuable or helpful in some way. By employing specific business models, you have a way of making money and having a defined way of increasing your revenue stream.
What’s the cost of starting a new business?
One important consideration is the scale of your business, and the amount of capital you will need to raise to get started. This can be particularly relevant for organisations that want to start up within their own regions. Considering expenses from the outset is important, as this will help you to avoid problems later on – not being able to afford adequate wages for your staff may mean that you decide not to employ them at all, or have them working in another capacity. This can also have an effect on your ability to make sales if you are unable or unwilling to pay now in return for a share of future revenues.
Types of business models available for startups
1) Agency business model
Most freelancers fall under this type of business model. Basically, the startup business is paid for the time it spends doing a clients work. This time is paid on a fixed price, or on an hourly rate.
2) Commodity business model
Commodity businesses are businesses that sell products that can be sold by other businesses in other countries, for cheaper than their own products. All too often this is what business models turn into when small companies aren’t given the opportunity to grow and become profitable. The reality is that there are some types of commodities that will never be able to match the value added in their own country, and these are usually those which require significant amounts of human labor to produce (as opposed to factories where labor is just an expense).
3) Subscription business model
Subscription services are businesses where the customer pays a monthly fee for access to a service. It can be unstable because customers may fail to pay their dues and stop using the service, but it can also be very profitable if executed properly.
4) Licensing business model
Licensing refers to when you grant other people rights over your product or intellectual property . This is particularly effective when you have valuable IP, and it is your goal not just to sell your own product but also make sure that other people make money from it through royalties and license fees. However, licensing can be a risky business. There is always the risk that you will fail to make this theory work in practice, and that other companies will infringe on your IP in the process of making their own version of your product.
5) Advertising business model
Advertising is a common strategy that most startups consider, but it is also one of the most difficult to successfully execute. There are many factors to consider in creating an effective advertising campaign, and all of them need to be thought through carefully. This is one of the reasons why new advertising agencies are so expensive to start. The cost may be more than your company can manage, and it also doesn’t take into account that a startup might need more than one ad campaign to sustain itself.
6) Gaming
Startups that charge their customers to use services can be very successful, and gaming startups are no exception. In fact, there are many types of businesses that use gaming principles to charge customers. These include online education (where the student pays tuition to play a game and learn), online travel (where the consumer pays for access to a video game which is used as a travel planning tool), and social media (where users pay for likes or followers).
7) Consulting and co-working
Startups that have a consulting business model or provide co-working opportunities for freelancers have found great success in today’s business world. The reason for this is that there is a real demand for these types of services, and the startup only needs a single product or service to provide it.
Conclusion
The ability to think entrepreneurially is very important in the modern world. How well you are able to think that way is going to determine how successful your business will be and whether it can stand on its own two feet.
And how you are going to make money from your startup is very important . Since there are so many different business models available to entrepreneurs, you should think about what your customers want and how much money they are willing to spend before you choose the one that will work best for your startup.
Startups that are not going to be able to make money from it may be better served by selling a product or service at a lower price or using a donation-based model instead.
If you do decide on a subscription model, think about what is going to make it both valuable and sustainable. Is it something that your customers can’t access without paying? Or is it something with the potential for growth?
You also have to have some sort of long-term plan in mind.
Read more on tips to make a successful startup pitch here.