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Which Business Model is the Right Option for My Startup?

Business models have evolved through the years and are no longer as company-oriented as they used to be. Moving forward into a customer-driven landscape, moguls, game-changers, and entrepreneurs strive to disrupt the scene by constantly innovating. But instead of focusing on making drastic changes, companies must transform by making smaller yet significant data-driven improvements to keep up with competitors and shifting market demands. 

Sustainability is the key to success, and larger-than-life brands prove it’s all about identifying core principles. With a solid vision and mission, entrepreneurs can start a new venture with a clearer direction. However, mapping out how to run a startup begins with defining what business model fits their purpose or product.

What is a Business Model? 

At its core, a business model is a framework built on a company’s long-term goals. It identifies customers, competitors, and monetization strategy so a business can build a foundation that solves real problems and fills industry gaps at an appropriate cost. This, along with the strength of the team, is one of the most important elements an investor considers when placing an investment.

Modern business models no longer follow traditional structures and offer fresh opportunities based on the market’s current needs. With that in mind, here are some incredible business models companies can use to propel them into success.

Different Business Models You Should Consider Today 


1. Marketplace Model 

One of the biggest industries taking over the digitally-oriented world, building a business based on the marketplace model provides many options to enrich a consumer base. With this model, a business acts as a bridge that connects sellers and buyers from related niches. 

What makes a marketplace business unique is its high demand. Instead of taking on the role of the creator versus consumer, the marketplace model provides an optimal space where other companies and customers can connect. This is popular because marketplace companies don’t have to worry about manufacturing products, stocking inventory, or paying for high overhead costs. 

Amazon is a great example of a successful marketplace business that is a household name in its own right. They don’t necessarily produce (all) their products; rather, they’re a world-renowned marketplace filled with things people need and vendors that have the supply. 

By taking a percentage of the transaction between the seller and buyer, the marketplace model sets companies up for a lucrative venture that scales revenues as more people buy on their platform. Naturally, to succeed, you need to offer a space that appeals to your target audience & provides feature-rich functionalities to both audiences.


Pros:

- Provides several options for customers

- Serves as a bridge between brands and buyers

- No manufacturing or inventory costs


Cons:

- Provides several options for customers

- Serves as a bridge between brands and buyers

- No manufacturing or inventory costs

- Product quality of the brands listed varies and that may result in a bad customer experience

- Difficult to scale as a founder due to two-sided sales efforts

2. On-Demand Model 

Your brand can win hearts by offering something truly extraordinary, but a unique offering is not always the way to go. Sometimes, meeting the common demands of the market can help businesses flourish and solidify their ground in the industry. Focusing on necessities that address people’s demands by providing a product or service without hassle is a great way to capture an industry effectively. 

Instant gratification is the secret behind the success of on-demand models. Take transportation giants like Uber, for instance. They offer a realistic solution to a pressing and persistent problem by offering conveyance for commuters. Just like Uber, businesses that add a “twist” to existing infrastructures maintain a competitive edge. 

Uber transformed the ride-sharing experience by taking it to new heights with a seamless and empowering user interface. The app aggregates local drivers, who are then incentivized via dynamic pricing for successful pick-ups around town — making traveling easy in any situation. What do these different stages have in common? Instant gratification!


Pros:

- It is easily scalable as per the consumer demands

- Instant gratification due to demand

Cons:

- More competition due to high-demand products/services

3. The Disintermediation Model

Disintermediation means cutting out the middlemen from the distribution channel to sell directly to customers. This is often applied by changing the perception of delivery. 

The supply chain is typically composed of producers, wholesalers, retailers, and consumers that add to the cost of the product as they take a chunk of revenue by making the supply chain longer. Disintermediation fractures the role between these middlemen by bypassing traditional distribution channels with intermediaries such as distributors, brokers, and agents. This is often called “Direct-to-Consumer” or “DTC”.

Businesses are always looking to cut operating costs, this is where the disintermediation model comes into play as a viable business model. By removing middlemen from the supply chain, DTC companies often benefit from better profit margins. DTC companies remain more competitive and can keep prices low so that they maintain an advantage in the marketplace. 

Tech giants like Dell deserve a shoutout as one of the best examples of the disintermediation model. This brand catapulted ahead of the fierce competition in Silicon Valley by being involved in the customer’s buying process and recognizing their needs. Another larger-than-life brand includes Apple, which has evolved into a globally recognized name that no longer needs to sell its products through traditional retail chains and has exclusive long-term agreements with its key suppliers. 

If you’re a startup with the right resources to manufacture and distribute your goods, then adopting the disintermediation model may be right up your alley.

Pros:

- Cost-effective

- An advantage over competitors due to low prices

- Great for bulk orders as well


Cons:

- Increases internal workload

- Distribution channels are reduced

4. Subscription Model 

The age of subscription services is here as consumers demand easier access to products; that’s why popular subscription-based companies like Netflix and Spotify dominate the marketplace. 

Subscription business models provide a new form of revenue for both the company and customer by encouraging continuity throughout an extended period. The model prioritizes customer retention in addition to new customer acquisition, using monthly or yearly recurring payments to make money off customers continually buying from them instead of making an up-front profit with each transaction like in other types of businesses.

The events following the pandemic only strengthened the need for subscription services as people started seeking home-bound solutions for their needs. So it’s no surprise how newer competitors like Disney Plus, Hulu, Instacart, DoorDash, and Amazon with their Prime Video subscription along with the marketplace model, are picking popularity amongst the masses.

Beyond streaming services, other sectors like food services can also use the subscription model to offer customers meal kits catered to specialized diets. These meals are available at a set price that is delivered regularly, such as weekly or monthly, and include everything from ingredients for breakfast or lunch through desserts.

The subscription model is based on a consistent demand-supply system and creates a prolonged customer base that ultimately results in long-term revenues.

Pros:

- Generates continuous revenue

- Budget-friendly due to recurring monthly/yearly payment

Cons:

- Potentially high cancellation rate

- Uncertain revenue in the startup phase

5. Freemium Model


One of the most attention-grabbing business models for startups, the freemium model focuses on boosting brand awareness by offering free and premium services rolled into one multi-layered set-up. The free aspect entices customers from different demographics and encourages them to utilize basic services.

By offering basic-level services for free, companies can build relationships with customers and then move them up the ladder to more advanced, paid features. A company that offers a service at no cost is not always looking to make a profit off of it right away but instead wants people hooked on and integrated into their product so they can eventually offer premium subscriptions or add-ons. 

The idea is to subtly prompt users to purchase the premium offering by making just enough features available for free that they find value in the upgrade. This becomes indispensable to the customer's choice when your company’s service or product is pitted against a competitor. The better the free services are, the more likely the customers are to stick to your brand.

However, a drawback to this type of business model is that if done poorly, the free users never convert, which can ultimately lead to a company making no money. Therefore, it becomes imperative to integrate the sales system smartly throughout the process and provide value with the upgrades that users can’t refuse.

Think of companies like Dropbox, which offers a free, cloud-based platform for storing and sharing data. Users can enjoy greater storage capacity when upgrading to the premium version, a dedicated accident protection policy, Dropbox smart sync technology, and other compelling features.

Pros:

- Easiest and most attractive to get users

- Great to build relationships with customers

- Usually superior to competitors based on free features

Cons:

- Users may never convert if the sales system is not properly integrated

The Bottom Line: The Importance of Adopting the Ideal Business Model For You 


By identifying the right business model for a startup, entrepreneurs can gain valuable insight into the key activities, partners, resources, channels, and customer relationships that suit their goals. At its core, the right business model will empower a company in the following ways: 

- Explore the best ways a startup can create something of value — from design, raw materials, manufacturing, labor, and more. 

- Explore the best ways a startup can show and sell your value — from marketing, distribution, and sales processing. 

- Explore the best ways customers should pay for your products or services — from pricing strategy, payment methods, and more. 

It clarifies the blueprint of a business, creating a roadmap that directs future decisions down the road. 

Are You Looking for Investors to Fund Your Vision? 


Building a business is an intense and exciting experience. The challenges faced are never-ending but once you get the ball rolling, it is all worthwhile. No matter what business model a company picks, being prepared financially to avoid funding concerns is imperative when scaling a business! 

In just six weeks, Beanie & Blazer’s Test The Waters program can help you prepare and launch a trial investment crowdfunding campaign. We leverage the best practices from dozens of successful investment crowdfunding efforts and hundreds of investor discovery calls to help creators build investable companies.

Consider subscribing to our newsletter to stay up-to-date on investment crowdfunding, creator mindset and cooperative capitalism.

Beanie & Blazer does not provide investment advice and is not a registered investment advisor or broker-dealer. Investing in startups is risky, never invest more than you’re willing to lose.

To read the full disclaimer, click here (https://beanieandblazer.com/disclaimer/)

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