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5 Business Models to Consider When Starting a Tech Company

Tech entrepreneurs discussing their startup's business model

  • 20 Jul 2023

What separates successful from unsuccessful startups? Is it their innovative ideas , the way their products fill a market need , or how they distribute their offerings and make money? Is it their founders and teams or the investors and partners backing them?

According to the online course Launching Tech Ventures , it’s all of the above—which also comprise a startup’s business model.

“As an entrepreneur, the onus is on you to construct each element of your startup business model through a process of search and discovery,” says Harvard Business School Senior Lecturer Jeffrey Bussgang, who teaches Launching Tech Ventures. “In parallel, you must evaluate those elements to ensure you’re building a sustainable, valuable company. To do so, each business model element must be aligned.”

To help launch your venture on the right track, here’s a breakdown of a business model’s eight components and five examples to consider.

Access your free e-book today.

The 8 Components of a Startup Business Model

A business model is a plan for how your business will succeed. You can define success in terms of finances, product-market fit , sustainable production and distribution, or reaching and converting customers.

In Launching Tech Ventures , Bussgang presents the eight components of a business model using the Diamond-Square framework, coined by HBS Professor Thomas Eisenmann.

The first four facets are internal and operational in nature, and the remaining four encompass the stakeholders involved:

  • Customer value proposition (CVP) : How will your venture deliver value?
  • Go-to-market (GTM) strategy : How will your venture reach customers?
  • Profit formula (PF): How will you make money?
  • Technology and operations management (T&O): How will you create and maintain your product?
  • Founders: Are they a strong fit for the opportunity and business model?
  • Team : Do they complement one another? Can you fill any gaps?
  • Investors : Who have you assembled to finance your business? Are you all aligned?
  • Partners: Who have you selected to aid in your execution? How will they help?

Determining your business model is critical to mapping your direction and goals before launch. All eight components work together to form yours, so it’s crucial to carefully craft each.

“Not all business models are created equal,” Bussgang says in Launching Tech Ventures . “Some business models yield companies that are valued dramatically differently than others.”

The term “business model” often refers to how you deliver your product and drive revenue, or your GTM strategy and PF from the Diamond-Square framework. To decide how to make money and reach end users, here are five business models to consider.

Related: 5 Skills Needed to Launch a Successful Tech Business

5 Examples of Tech Startup Business Models

1. freemium model.

The freemium model—a portmanteau of the words “free” and “premium”—is popular for directly distributing to your target audience. This model offers one tier of your product for free and charges users for the full or upgraded version.

One tech startup that uses a freemium model is the screen time regulation app One Sec . It pairs with other apps so that, upon opening a particular one, you’re prompted to take a deep breath and receive statistics on how many times you’ve attempted to open it that day, followed by the choice to continue or exit.

One Sec offers one free app pairing. If you’d like to use it for multiple apps, unlock more breathing exercises, and access additional features, you must pay for the premium version.

A freemium model can be effective because it gives users a taste of the product experience before purchase. If they love the free version, they may be inclined to upgrade to the premium one.

The downside is that, sometimes, users are content with the free version and never convert to paying customers. Ensure your premium version offers features your target audience is willing to pay for before committing to a freemium model.

2. Advertisement-Based Model

If you’d rather offer your product for free, an advertisement-based model may be the right fit. Like the freemium model, it delivers your product directly to your end user, but the profit formula differs. With an advertisement-based model, you sell ad space within your product to other businesses to bring in revenue.

This model is effective when your product creates enough value for users that they engage with it despite the presence of ads. Social media apps, such as Facebook and Instagram , are common examples. You can sign up and access all their features, knowing you’ll receive ads.

Another option is to combine the freemium and advertisement-based models—like some streaming platforms do—by offering your product’s free version with ads and the premium version without them.

Launching Tech Ventures | Build a viable, valuable tech venture that can profitably scale | Learn More

3. Employee Benefit Model

If your tech startup offers products focused on well-being, the most effective way to reach your end users may be through their employers or insurance providers. In the employee benefit model, your product is free to your end user and paid for by a corporation to offer as a benefit.

For example, caregiver support app ianacare partners with employee assistance programs and human resources teams. Together, they aggregate end users’ resources—including their employee benefits—into the ianacare app so they feel supported personally and professionally.

To sell to employers, ianacare cites several statistics on its website about working caregivers, including the 80 percent who report a loss of productivity at work and the 32 percent who’ve voluntarily left a job to care for a loved one. If an employee benefit model is right for your startup, ensure you communicate why your product will help boost companies’ employee productivity, retention rate, or satisfaction.

In addition to its employee benefit model, ianacare uses a direct distribution method by allowing individuals to download and sign up for the app. Certain features are “locked” and can only be accessed through a partnership with the user’s employer.

In Launching Tech Ventures , Bussgang recommends using a mix of direct and indirect methods to reach your target audience.

“Do you have the right mix of direct and indirect channels to educate, support, and distribute the product to customers in a repeatable and scalable fashion?” Bussgang prompts.

Ask yourself this question when crafting your business model.

4. Intermediation Model

Another business model to consider is intermediation, in which your business acts as the bridge between your product and end user.

For example, travel sites such as Booking.com and Expedia act as intermediaries between you and airlines, hotels, and vehicle rental agencies. You have the option to purchase tickets and book accommodations directly from each provider, but doing so through a site provides the ease of doing everything in one place. It also grants access to potentially greater deals and the convenience of comparing options.

If you can think of a way your venture would add value to the customer experience as an intermediary, consider using this model.

5. Disintermediation Model

The opposite can also make a strong business model. Disintermediation removes a step in the supply chain process to streamline product delivery.

A well-known example of disintermediation is e-commerce giant Amazon , which removes retailers’ transaction and delivery processes, simplifying the experience for the seller and end user.

A disintermediation model is a good fit for scenarios that seem cumbersome or complex. Could your product leverage innovative technology to remove one or more steps in a process? Doing so can create value for you and your end user while driving profit.

So You Want to Be an Entrepreneur: How to Get Started | Access Your Free E-Book | Download Now

Selecting the Right Business Model for Your Tech Company

Your tech startup’s business model is a critical decision that can impact whether it succeeds or fails. When thinking it through, consider how the eight elements impact each other.

“You can’t focus on individual pieces of the model in isolation,” Bussgang says in Launching Tech Ventures. “You need to think about each element—your value proposition, go-to-market strategy, profit formula, and tech and operations management—in a holistic fashion so that you can align them clearly.”

One way to gain the perspective needed to craft your business model is by learning from tech entrepreneurs who came before you.

Launching Tech Ventures features several founders, team members, and investors who offer first-hand insight into the challenges and processes of launching a tech business—from ideation to growth stage.

Are you interested in building the skills to launch a viable, valuable tech startup? Explore Launching Tech Ventures —one of our online entrepreneurship and innovation courses —and download our free guide on how to start your entrepreneurial journey.

business model from startup

About the Author

25 Proven Startup Business Models You Must Know

Startup business models.

I will cover 25  Startup Business Models which I think are very useful for any startup entrepreneur or founder that is currently thinking of starting a business or is currently looking for startup funding. Heck, even large corporate should know about these business models, as innovation should be core to future sustainability.

What is a Startup Business Model?

A startup business model is a way in which a startup generates revenue and makes a profit from company operations. Typically, Startups prioritise highly scalable business models that allow them to have minimal assets and minimal heavy capital expenditure requirements. Venture capital analysts use the metric gross profit as a way to compare the efficiency and effectiveness of a firm's business model.

List of Start-up Business Models

While we list all the possible Startup business models here, do note that each business is unique and typically has a mix of 1-3 of these business models over a period of time. Here we go!

1. Marketplace

Business Model Definition

A Marketplace  business model is defined as a business that charges a transaction fee via a platform for buyers and sellers.

Why Does This Business Model Work For Startups?

There isn't much cost to run a server these days, and the costs only get lower.

It's just connecting supply and demand rather than dealing with inventory (a lot less risk).

Example Companies Using This Business Model

2. Sponsorship

The sponsorship business model is defined as a business that makes money from sponsors, where the users do not have to pay. The term was coined right here at Nexea during one of our discussions.

Great products that are free tend to attract millions of users

People do not mind unobtrusive ads or logo placements.

Online Services - Youtube, Gmail, Wikipedia

Sports Industry - Football teams, Sports Associations

3. Franchise

Franchisees (the borrower) pay royalties (a percentage of revenue) to the Master Franchise to use the brand, and to get access to operations and know-how. Usually for location restricted businesses or capital restricted businesses.

Rapid growth can be achieved without much capital vs full ownership

By franchising, there will be a steady stream of income without the need for too much additional capital.

Local knowledge from each franchisee helps to adapt the business to different environments.

B2B SaaS Businesses: Talkwalker

Any retail business: Fast Food Chains, Fitness Centres

Source:  http://tech.co/online-franchising-key-business-growth-2015-09

4. Reseller

The Reseller Business Model is defined as a business that gets 'reselling agents' to sell products on their behalf.

Lower inventory risk, which is passed on to the reselling agent

Fewer salespeople needed, which reduces a lot of HR cost.

Website hosting companies: Godaddy, Bluehost

Multi-Level Marketing Companies: Avon, Amway

5. White Labelling/Private Labelling

The White Labelling/Private Labelling Business Model is defined as a business that allows 'agents' to use their own branding.

Lower risk of damaging your own brand

You can focus on product development or manufacturing

OEM manufacturers: Foxconn

SaaS companies: Godaddy, Talkwalker

6. Disintermediation

Also known as the C ut out the middleman business model .

The Disintermediation Business Model is defined as a business that cuts out the middleman.

Cutting out the middleman reduces a lot of cost for the end-user.

It creates a competitive advantage over more traditional businesses that had to rely on middlemen in the past due to reach constraints.

Manufacturers: Dell, Tesla, Xiaomi

Wholesalers: Walmart, Alibaba

Direct Sales: Amway, Avon

7. Subscription

The Subscription Business Model is defined as a business that sells a product on a subscription basis rather than a one-off basis

Stable, recurring cash flows for the lifetime of each customer can be achieved, creating a financially healthy business.

Certain segments of customers want to pay in many small chunks rather than one large chunk, in case they might want to cancel soon.

No need to re-order products regularly

SaaS companies: Salesforce, Google Apps

Media Companies: Spotify, Magazines, Online Content

The Leasing Business Model is defined as a business that rents out costly assets at high margins.

Not everyone can afford expensive assets such as homes, cars, or jets.

Car Leasing: GoCar (Malaysia)

Timeshare Companies: Jet Timeshares, Castle Timeshares, etc

9. Pre-order

The Preorder Business Model is defined as a business that sells products before it is made or delivered.

Getting cash up front is always good for cash flows in any business.

Businesses can order exact materials from suppliers since they can now know the demand ahead of time.

Businesses pre orders gave an advantage over those that don't since they would get the sales first.

Manufacturers: Tesla, Nintendo

Custom-Made Goods: Online Jewellery Businesses, Online Flower Businesses

10. Pay-Per-Use

Also known as the Pay as You Go Business Model.

The Pay-Per-Use Business Model is defined as a business that collects money up front for users to use over time.

Customers love it when they only pay when they use, so it is usually easier to get customers on board.

Businesses that use a credit based pay-per-use system benefit from upfront cash payments.

There is no need for upgrades as the users will just pay more for extra usage.

Telco's: Phone Credits

11. Freemium

The Freemium Business Model is defined as a business that offers a low-tier product for free (some businesses even lose money on this) and forces users to pay for higher-tier products or upgrades.

Free-tier products are the bait to get users to sign up, to self-learn about the product, and then to get 'stuck' with the product when all their hard work cannot be transferred to a competing service. Once users are stuck with you, they will hopefully upgrade once they hit the free tier limits.

Gmail for Businesses (Google Apps)

Adobe PDF Reader

12. Bait and Hook

Also known as the Hub and Spoke Business Model or the   Razor Blade Business Model.

The Bait and Hook Business Model is defined as a business that sells a highly needed service/product cheap (or if it is free, then this is known as the Freemium Business Model ) and then makes money with complimentary products or upsells that will be required in the future.

Baits work very well, with a very low entry point for customers to purchase the product/service.

The Hook works when the user has fully used up a complimentary product that has a lifetime, e.g. razors, or requires additional services

Unlike the Freemium Business Model (above), businesses have the option to break even on their initial sales rather than lose money.

Consumable Products: Razors & Blades, Printer & Ink

SaaS Companies: GoDaddy (Domains/Hosting), Apple (iPod/iTunes)

13. Reverse Auction

The Reverse Auction Business Model is defined as a business that takes a commission on trades where sellers competitively bid to offer services/products to buyers.

This marketplace business  is unique in that it attracts the buyers first in order to bring in sellers that are under pressure to make money.

Typically works in markets that have an oversupply of sellers (highly competitive) and an  under-supply of buyers.

Service Marketplaces: Freelancer.com, Elance.com


While this is barely a business model itself, I have included it to highlight that it makes more money using any business model above.

The Monopoly Business Model is defined as a business that makes more money over their existing business model, by cornering the entire market and raising prices.

By controlling the vast majority of the market, most customers have no choice but to purchase from a single company.

Prices can be set by the company as high as customers are willing to pay for their needs to be covered, for the maximum profitability of any specific market.

Luxottica - who owns Oakley, RayBan, and many others.

These Are Not Really Business Models But Can Be Great Business Strategies

I found these other business models all over the internet, but I doubt they can be fully classified as business models for the following reasons.

From the HBR table of business models:

15. Bundling

Bundling iPod and iTunes or Fast-food value meals are more of a value-add strategy to stimulate more sales. The activity of 'bundling' alone does not generate revenue. iTunes' revenue is more of a subscription business model , and McDonald's, for example, is more of a franchise business model (franchising in itself generates income for the company).

16. Cell Phone

Charging different rates for different levels of service seems to be a pricing strategy. Telcos are in general more of a subscription business model kind of business.

17. Crowdsourcing

Getting a group of people to contribute content to access other people's content is definitely not a way for businesses to make money. Wikipedia (which the HBR article referenced) does not make a cent and is actually sponsored, hence it is based on a Sponsorship Business Model .

18. Fractionalization

It is more of a business strategy to reduce the cost of ownership for things like private jets. Netjets or any other time-share businesses are really based on a leasing business model .

19. Low-touch

This is surely a pricing strategy and not a literal activity of making money. Selling something for cheap like Walmart is more of a wholesale  disintermediation business model .

20. Product to Service

Product as a service is really fractionalization strategy performed by Zipcar (short term car leasing), and therefore actually based on a  leasing business model .

21. Standardisation

Standardising a product or service does not make money in itself.

22. User Communities

Communities are not a business model, but more of a user acquisition strategy. Angie's list uses the sponsorship business model .

From the rest of the internet:

 23. On-Demand

I think it is a great business strategy to offer services on demand. However, I do not see it generating revenue in itself. Uber, for example, has really more of a marketplace business model where passengers and drivers meet.

24. SaaS (Software as a Service)

SaaS seems to be more of what they sell (software) and how they do it (regular updates at no additional cost, and usually web-based). A lot of SaaS companies make money via a subscription business model.

25. O2O (Online to Offline)

This is more of a strategy to reduce delivery costs for example. For the user, there could be less waiting time at the store or clinic. This "self-pick up" strategy is used by Dominos Pizza, at least in Australia.

Bonus: The Business Model Canvas

Startup Business Model - Canvas

Use this to help you plan out your entire business model. A good description of what it means can be found on Wikipedia . And, here is an example usage for the Business Model Canvas;

Any thoughts on the above? Let me know below. I will be glad to explain/discuss/edit the above further. If you have any more ideas on business models, feel free to let me know too. And, be sure to like us on Facebook for updates!

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Written by Ben Lim

I am the Founder & Managing Partner at NEXEA, a startup investment group in Southeast Asia. We have invested in the idea stage to pre-A Startup investments around the region. We fund the best Founders and provide them with an edge via mentoring & networks by the best investors.

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18 comments on “25 Proven Startup Business Models You Must Know”

Accurately depicting the models !

I am glad you liked it!

What is email address? I hv some questions

I am sorry, we do not give out email addresses on the website for spam reasons. If you want, you can contact us through here: https://www.nexea.co/contact/

Thanks Ben. The link is good enough. Will send through there

Hi Ben, I've been quietly reading up your articles here .... it's been helpful, thank you. However, while you give advise mainly on tech startups can I know what is your take on food manufacturing startups ? I've actually noticed that there are several local and international funders already starting to get into the action - a few are funding online chefs (food delivery) and i personally know one who is funding a specialized food manufacturing startup. What do you think of the industry?

It really depends on what kind of food manufacturing startup. If it is technology driven, then it has the potential to be valued higher, based on higher growth potential and perhaps market reach. For example, technology can be used to speed up the entire ordering and delivery process, allowing you to take on new business much faster. If you have satellite kitchens, you could multiply your market reach pretty fast too. Some even have very smart business models doing things like one delivery man sending food to an entire office building which cuts cost by a lot.

I think the industry is ripe for disruption. In Malaysia and the rest of SEA, the food industry is still largely untouched by technological innovation. What we see and hear today is only the beginning. The F&B industry in general right now is beginning to get into consolidation as well due to increased competition and tigher margins. Just watch any shopping mall for a year and try to notice how many F&B outlets close down and reopen. This can only push the F&B market to further adopt more innovations as the pain increases.

Yeah, I agree with you that F&B really have to adopt more innovations.

I also feel the thing with food going forward is to find a way to be flexible so that a certified food manufacturing plant is able to satisfy demand according to current trends / needs / wants and investors should look at it as a vehicle that generates revenue consistently over long term and well managed in terms of controlling expenses.

I think for a food manufacturing company working on a fast exit plan like tech startups may be mismatched - as i feel having technology is one thing, while the need to secure vital raw materials is another, which is really critical. Depending on the manufacturing process, I personally think investing in mid to large scale food manufacturing startups with a view to supply to a mass segment could be a very expensive exercise that may not end well for all parties. It is also outdated due to its high entry cost - technology, raw materials, skilled labour to a certain extent. What is your opinion?

Food may not have a long shelf life in terms of market trends and current taste buds. I don't think anyone is having wagyu for dinner everyday, even if they can afford to.

And while many tech startups disrupt the market with low pricing, the food industry may not be able to afford the same strategy. Plus the stress that comes with selling a different version of tomyam among many others makes food startups unable to scale fast if investors are looking for traction in the online food delivery segment. The industry may look impressive as a total but maybe not look the same after breaking it down.

What area would you be evaluating if you were to invest in a food manufacturing startup Ben? Business model? Asset creation in terms of the plant itself such as a creating a GMP and Halal certified plant in the early phase? And products? Potential revenue in the shortest time?

Interesting views and thoughts.

On the mass scale production, I do agree for certain segments. I think plane food is horrible - but still, some airlines do surprise me. Have you tried food made by Turkish Airlines? Amazing. Somehow, they've found a way to sustain the costs of great quality food and made it on a massive scale as well. They serve over 60m passengers a year. If you ask me, Airasia food is not too bad as well (compared to many others) although not as good as Turkish Airlines. So, it seems that there are ways to make mass-produced food great as well. It's just that nobody does it here yet.

I have to say that although the costs of meals from tech companies are low, many are still struggling with the delivery costs. Standard delivery by Pos Malaysia is RM7. I believe food delivery costs are not too far from that figure. To add RM7 to any meal is a huge portion (25% to 50% per person) of the price paid by end consumers of lets say RM14 to RM30. Still, I do see this segment taking off in the region.

We always go back to our fundamentals when evaluating a company. It's all in our pitch deck guide: https://www.nexea.co/example-pitch-deck-guide-startup-fundraising/ We look at the team, market size, product, etc. The full picture. We also have to put in a lot of work to help startups succeed in terms of mentoring, making connections, etc all in the name of creating more value.

As for our criteria for investment, a rule of thumb would be that if your startup or business cannot grow a minimum of 30X in 5-10 years, then it is not for angel investors. This is because each and every startup has to have the potential to cover the losses of all the other failed startups, as generally 90% will probably fail. Huge revenues in the shortest time we can consider a bonus - but it's all about profitability at the end. If your business cannot turn profitable one day, then we will not touch it. A great example is Uber - who even today cannot make a gross profit sustainably. You can read a little about it somewhere on this blog too.

I personally do not look at licenses/certifications because I know some great F&B brands that do not have the Halal certification for example, but they do serve Muslim friendly food at the same time. So, it is not a reliable indicator of failure or success for me.

Yeah, I've read the Uber article here.

And yes, food delivery costs is around the amount you quoted. I've tried Airasia and MAS food and would think it's not bad, haven't tried Turkish airlines food though.

I see where your expectations are now and I appreciate your expert advise, thank you. Nowadays, F&B is very specialised and segmented, very few can scale to the levels you are referring to but it's possible. It's a perishable business that's why in-flight catering may be ideal as you know how many meals should be made on a daily basis with data, and I believe this way food wastage can be minimised and profits maximised.

And is exiting the business the end objective of all angel investors?

Yup. If it's not a scalable business, then it's probably the same old with lots of competitors around you. So that's why it's important to scale. In the next 10 years, F&B can only become more and more competitive. Looking at advanced economies, it means a lot of franchising or being stuck to one specialised restaurant. Behind that is the entire supply chain that is open to be disrupted today. If you ask me, there is a lot along the supply chain where technology can cut costs and improve efficiency by at least 50%.

Some investors do not mind staying for growth/dividends in the long term. Some want to cash out eventually to give other entrepreneurs a chance. Sometimes VCs prefer to see less shareholders involved. So, the answer is it depends. The general goal, however, is to exit within 5-10 years.

What about ads in freemium model. Some are really free all the way but instead earn from advertisement and data

Great question on this hybrid business model!

Do see #2 Sponsorship and #11 Freemium. First, Freemium is a combination of free + premium, meaning that they must charge customers a premium if they want more features. Second, Sponsorship or Advertising business models are always free, but you have to look at advertisements - no charges.

It definitely does happen. A good example is Google G Suite where Gmail shows advertisements even though the rest of G Suite like Google Drive is a freemium service. However, Gmail was always there before the rest of G Suite came about, so they never really got to remove ads from Gmail. So, that was probably how G Suite has a hybrid business model.

Many apps also show ads until you pay - so they do work. Just wondering, have you seen many high growth Startups using ads+freemium?

Most free app outside have ads in it but some require us to pay for an ads free version. But in the long term, when every user convert to paying customers then no more earning form ads so is better to remain free. Another option is free for user but charge the businesses.

Can you please help me to figure out the type of business model that i can use, Am a start up entreprenuer, small scale herbal soap manufacturere from Nigeria.

That is really up to you to decide. We have shared the above models, so you can pick the best one for your business. Nobody knows your business better than you!

very interesting , good job and thanks for sharing such a good information [email protected]

Awesome and comprehensive Thank you so much


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10 Proven Business Models for Startups To Try In 2023

Mar 7, 2022 8 min read

business model from startup

Robert Krajewski

Co-founder and CEO of Ideamotive. Entrepreneur, mentor and startup advisor.

Business Models To Try In 2023

The co-founder of 500Startups David McClure defined a ‘startup’ as a company that is confused about:

  • What its product is
  • Who its customers are
  • How to make money

No matter how great the idea is, any startup needs to develop a powerful development strategy for its long-term success. As we know, different types of startups have different needs, objectives, and approaches, and the specific business models should ideally meet these criteria, as well as the industry it’ll operate in, and help companies to make a profit.

In other words, a business model is an effective outline of how a business plans to make money with its products or services and the customer base in a specific market. Overall, it is focused on the company’s products or services, their expected performance on the market, the possible marketing expenses, and how the company expects to turn a profit. 

Unlike the revenue model, which explains the structure of how the revenue or income is generated, the business model makes a model-like, holistic description of the basic insights of how the company can generate value for its clients. Thus, it encompasses all the business aspects, including the revenue model and revenue streams, yet explains how they can effectively work together.

After all, Warren Buffet, the Berkshire Hathaway Chairman said: Price is what you pay. Value is what you get.

Creating effective business models for startups is essential not only for building up a powerful long-term development strategy, but also to prove to your potential investors that the specific startup will work, reasonably assess the risks and provide them with all the essential information regarding the project. With a wide range of approaches introduced so far, in this article, we’ll provide a detailed analysis of the different business models for startups, introduce the famous companies that succeed with each of the strategies, and finally, explain what benefits you will get once you implement the right business model in your business project. 

The Most Popular Business Models for Startups for 2023

At present, there are dozens of different business models for startups that are successfully used by small enterprises and large corporations. However, having more options does not necessarily help us make better choices. The selected development strategy can either result in great success or else end up with the project failure. 

That is why it’s essential to learn more about each of the startup business models types: the major advantages and outstanding case studies to be able to select the business model that meets your needs.

Let’s now find out the top 10 most popular yet efficient business models that have already been implemented by such businesses as Amazon, Walmart, Uber, Airbnb, and many others!

Short description, how it works, why it works, pros & cons, real-life examples of each model

#1 Marketplace Model

The marketplace model is a popular model that enables your business to work as an intermediary for sellers and buyers, operate the transactions and deliver a variety of add-on services that might be useful for your clients. One of the most famous startups which succeed using the marketplace business model implemented is Amazon – the leading online retailer, that accounted for 41% of the entire e-commerce retail market in the US. 

Advantages of the Marketplace model for startups include: 

  • More effective customer acquisition and easier enlarging of the customer base
  • No need to store the inventory – all the products are shipped by sellers
  • Doesn’t require any overhead costs, since the marketplaces will only take a small percentage of each transaction

However, what you should really pay attention to when choosing this business model is that you’ll need to find out the key reason why people should search for your marketplace specifically. The reputable business analysts warn that it’s no use creating a similar service to Amazon, as it’ll take years to gain competitiveness for your startup. Instead, you can focus on a smaller and more specific marketplace first, and reach out to the exact audience that’ll want to convert into your loyal clients. 

10 Proven Business Models for Startups To Try In 2022 - marketplace model

#2 On-Demand Model

The on-demand business model implies providing your customers with the specific services they can obtain anytime they need them. One of the most prominent examples of this model is a California-based Uber company, which generated $18.3 billion of revenue only in 2021 and so far has nearly 120 million users across the world.

Having analyzed the business models of successful companies, it becomes clear that this one works not for pickup services only: you can now order food, groceries, and other goods using your mobile app – that concept became extremely popular in 2020 and is now only in the first stages of evolving. 

Advantages of the On-Demand model for startups include:

  • The ability to provide different services within a single app (however, keep in mind that you’ll need to invest significant costs into the digital product development , hire top-notch UX/UI designers and app developers with prominent skills in working with Ruby on Rails and React frameworks)
  • Is mostly focused on younger generations
  • Allows using freelance labor

10 Proven Business Models for Startups To Try In 2022 - on-demand model

#3 Disintermediation Model

One of the most common yet successful business models that are actively used today is disintermediation – the strategy which is applied by hundreds of thousands of wholesalers, manufacturers, and businesses with direct sales processes. The most notable business model example you’ve surely been aware of is Apple, a giant mobile vendor with the world’s largest market share. For the last year, the company’s showing 29.49% of all the devices, according to GlobalStats data, which makes it one of the most outstanding examples of a successful business model performance, business strategists claimed. 

Taken from: https://gs.statcounter.com/vendor-market-share/mobile  

With this approach, the companies are able to reduce the intermediaries that impact the total product costs – an ideal solution for startups that are ready to produce and distribute their products. However, do consider hiring a well-qualified CTO for a startup to ensure your business model is producing first-class products that stand out from the competition from others within a certain field. For instance, if you’re planning to make a startup based on software product development, you’ll surely want to hire the best developers that use the latest development tools such as React Native or Ruby on Rails to design competitive apps for your business. 

Advantages of the Disintermediation model for startups include: 

  • The lower product or service prices for the end-users
  • Providing simpler, better access to the goods and services
  • The ability to test various manufacturing scenarios to gain better competitive advantages for a business
  • Increasing the profit margins for the company

10 Proven Business Models for Startups To Try In 2023 - Disintermediation model

#4 Subscription Model

If we start listing the businesses that are using a subscription model, we’re more than sure you’ll realize that you have been already involved in it as a consumer at least once in your life. Netflix, Spotify, YouTube Premium, or Apple TV – all these are companies based on a subscription principle: they’re selling a service via a subscription (usually, monthly or yearly) as opposed to one-off products. The core feature that makes it stand out from other business models for startups is that it obtains stable cash flows that are recurrent. 

Advantages of the Subscription model for startups include:

  • Targeting the large customer pools that are searching for the convenient services
  • Locking customers in for a long duration
  • Steady, recurring revenue stream
  • More opportunities for improving the quality of products and services (for example, you can hire the best specialists with the use of a nearshore software development strategy)

10 Proven Business Models for Startups To Try In 2023 - Subscription model

#5 Freemium Model

This approach is another great chance to succeed with a startup focused on service distribution, as it allows combining free and premium services within a single product. How does it work? Simply put, a business gives away specific services (for instance, music streaming) to a consumer for free to establish the foundation for future transactions. When the free list of services helps your business to reach large audiences, introduce the basic features of your services and why it’s better compared to others, the paid functions will open up complete access to the top-notch components and perks compared to a free service, offering much better user experience (as an example, offline music and ad-free listening to it).

It’s more than likely that you have at least some real-life examples in your mind, like Spotify – the free cross-platform music streaming service that features different subscription plans for nearly any type of persona, offering offline listening and lots of personalized music recommendations. 

Advantages of the Freemium model for startups include: 

  • The ability to access a large audience and different types of persona buyers
  • Balanced versions of free and premium plans
  • A compelling list of features to attract customer’s attention and appealing functions to encourage them to an upgrade

10 Proven Business Models for Startups To Try In 2022 - Freemium model

#6 Virtual Good Model

Originated over 15 years ago, this business model is now being reconsidered with a completely new meaning. Simply put, the virtual goods model is the approach that is commonly used for video game development and provides customers with the ability to purchase virtual goods that can only exist online (usually, within the app it’s purchased for). Today, this concept has a huge potential for being implemented in other businesses as well, such as for instance, NFT games and Metaverse development. 

By the way, the last one has already announced the first cases of purchasing virtual real estate using the largest third-party marketplaces like OpenSea and Non-Fungible.com. Due to the fact that this field has only started to develop, it’s never been a better chance to successfully launch a startup that goes viral. 

Advantages of the Virtual Good model for startups include:

  • Offering a first-class gaming experience with the in-app purchase options
  • Enhancing the user experience and engagement
  • Virtual goods are unique, context-bound items that feature individual ownership, which adds to their exclusivity

10 Proven Business Models for Startups To Try In 2023 - Virtual Good model

#7 Reseller (Magic) Model

Similar to a marketplace model, this approach enables startups to promote and sell the products which are produced and manufactured by another company or individual. If compared to the marketplace, the reseller model delegates all the marketing efforts to the startup, encouraging them to be more proactive in the market. This model commonly implies delivering the product by the company (or individual) that has listed the item for sale, which helps resellers to avoid the common inventory problems, and delivery chores as well. Finally, the “magic” model allows you to reduce the HR and labor expenses, which is another important advantage for startups with a limited budget. 

Advantages of the Reseller model for startups include:

  • No inventory issues reduced costs for HR
  • Product delivery is usually delivered by the enterprise that listed item for sale
  • The proven method of obtaining a profit

10 Proven Business Models for Startups To Try In 2022 - Reseller model

#8 Hook & Bait Model

Also known as “razor and blade”, “product and service” or the “tied products” model utilizes the approach, in which selling the basic products at a cheap price to make a profit by selling the complementary products or refills for a higher price or else increasing the sales of the profitable complementary products. This business approach is often associated with Gillette – the inventor of disposable razors, the company inspired competitors to develop the bait and hook idea based on this concept. 

Advantages of the Hook & Bait model for startups include:

  • Suitable for customers, profitable for companies: you can’t use one of the supplies only – the “blade” must be locked to the “razor” similar to the coffee capsules, that can’t be used without the coffee machine
  • Enhanced client loyalty – you’ll either need to create a loyal community or prevent other companies from entering your market field
  • Better adaptability to the market and target audience needs

10 Proven Business Models for Startups To Try In 2023 - Hook and Bait model

#9 Reverse Auction Model

Among the other business marketing strategies for startups used nowadays, you can also try a reverse auction approach – the strategy used in sourcing between buyers and suppliers, where they compete with one another to win the business of the buyer and sell one or more products/services he markets. After that, the buyer learns the bids and selects one or more suppliers for his business. 

Advantages of the Reverse Auction model for startups include:

  • Significant time savings and better ability to meet the deadlines
  • Lower purchase costs through increased competition
  • Enhanced compliance and data security provided by reverse auction providers

Companies that successfully use this model: Construction companies, real estate companies , and some public sector companies (in case they’re in search of a contract). 

#10 Modernized Direct Sales Model

The direct sales business model implies a business’ own employees demonstrate and sell their products or services directly to the end consumer. This model is opposite to the retail marketing approach, where a business sells products in large volumes to distributors and stores instead of the end buyers. The direct sales approach allows for cutting some middlemen and provides much higher margins from a more direct, more personal interaction with consumers. 

Advantages of the Modernized Direct Sales model for startups include:

  • Closer connection with a customer through a shorter distribution chain
  • More effective marketing strategies and enhanced marketing messages
  • Advanced control of the prices and better distribution supervision 

10 Proven Business Models for Startups To Try In 2023 - Modernized Direct Sales Model

These are the most effective business models you can easily use for nearly any startup regardless of its field. Now that you have all the essential insights about the best strategies to use for your company’s development, we hope that there are some really good options that can ideally fit your company’s needs and objectives. 

However, if you still need any help or want to get a second opinion before making your final choice – feel free to contact our team ! Our best funding consultants and qualified startup experts are 24/7 here to help you make the best decisions that empower your business from day one! 

Robert is a co-founder of Ideamotive. Entrepreneur, who with passion spreads digital revolution all around the internet. Mentor and advisor at startup accelerators. Loves to learn and discover new business models.

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Starting your own business can be exciting, but also terrifying. You might have a great idea, but not know how to turn it into a profitable venture. This is where a business model comes in.

Introduction: Getting Started with a Startup Idea & Why You Need a Business Model?

A business model can help you define your ideas regarding who will purchase your product, how they will pay for it, and what features they desire. Additionally, it can assist you in estimating the amount of money required for starting up and determining if the company is worth the investment. This section will provide you with all the necessary information about what a business model is and how to create one for your validated startup idea .

What is a Business Model?

A business model is a set of systematic ways to create, deliver, and capture value. It is a blueprint for how your company will make money. A startup business model describes how a company earns income and profits from its operations. Startups mostly go for highly scalable business models that allow them to operate with few assets, zero heavy investments, and cheap capital expenditures.

In the digital age, the number of businesses that have a clear and well-tested business model is on the decline. This may be because it seems like you don't need one as long as you have an idea that has gone viral, or because people think they can create anything without having to worry about making money.

Importance of a Business Model

According to statistics, 90% of startups fail , with 10% failing within the first year and only 50% of businesses making it to their fifth year . A properly designed business model can help avoid these issues. A business model aids in targeting a company's consumer base and helps in the development of marketing plans, as well as income and expense projections, taking into account the various business models and clienteles. In order to learn about the potential accessible targets in the market, a business model should be designed. Understanding and choosing the appropriate business model allows companies to better understand the financial contributions they can make in the initial stage of their business. By evaluating a company's business model, a person can learn more about its products, as well as the business tactics it can use to grow and sustain future prospects. The other benefits of business models include the following:

  • A good business model gives a company a competitive advantage and helps them understand their own operations better.
  • A powerful business model gives the company a good reputation in the market and enables the owner to carve out a space for the company.
  • Making a good business model from the outset leads to a well-established finance plan, which results in increased cash flows and rapid profit growth.
  • A pre-developed startup business plan enhances the organization's financial stability.

Infographic: Business Model: The Complete Guide to a Startup Business Model

Types of Business Models

In the market, startups are categorized into different types based on the business models they choose to pursue. However, not all of these models are necessarily profitable. Some of the most common business models used today are low-risk startup models.

Low Risk/High Reward Model

A low-risk model is one where there is minimal risk involved in starting up the company. These businesses require little capital to get started, have fewer obstacles to entry than other company models, and have high-profit potential, making them an excellent alternative for people who wish to start their own business without risking everything. For example, a company may sell its product with no upfront costs to them or their customers. This can include selling consultancy services, freelancing (selling skills), and much more. This type of model works great for people who want to sell products that they think will sell well in the market with very little investment on their part.

High Risk/High Reward Model

The most common business model is the high risk/high reward model, where the entrepreneur invests a lot of time and energy to build something that they hope will be successful. To achieve such a high degree of accomplishment, these people had to take significant risks. Successful entrepreneurship is inextricably linked to taking risks. Regardless of how strong your cash flow is or how much effort or time you put in, the end result might be positive or negative. You must be prepared for the physical, financial, and psychological stress that comes with establishing a business and keep believing in yourself and working hard to see the fruit of your efforts. This is what you typically see with startups like Facebook or Microsoft. These tech giants undertook high risks and invested their time and resources in creating exceptionally unique and highly demanded platforms. Taking risks surely leads to miraculous evolutions in the history of the business world.

Infographic: Types of Business Models

Best Startup Models

There are two different types of best startup models:

  • Bootstrapping is when an entrepreneur starts a business with their own time, skills, and resources. This self-funded business does not rely on the support of common financing methods, such as crowdfunding, investment, or loans from banks.
  • Scaling up is when an entrepreneur starts with a small business and then invests in making it bigger. To scale a business means opening the door to more work duties and creating opportunities while remaining cost-effective and meeting your company's demands without suffering or overstretching. It's all about adjusting to the increasing workload, clients, or users, and then delivering.

Perks of Choosing Bootstrap Business Model

  • Retaining Full Ownership: This business model allows the owner to fully own their business with zero shares in equity. When anyone starts a business based on investors' funding, they often ask for a huge share in equity and have a say in decision making. This is why Bootstrap is ideal in the longer run. You have control, and you get to do whatever you want.
  • Gets Rid of Unnecessary Burden: When you start a business through a loan or investment, there is a burden on your shoulders to return it. Instead of designing a complete and long-term lasting business model, you focus on earning revenue even if that disturbs the essence of your business. However, with the bootstrap business model, you feel a sense of freedom. You focus on maintaining the essence of your business and strategically develop ways to increase cash flows.
  • Empowers Business Owner: Starting a business on your own empowers a person. Building it from scratch highly motivates a person to keep going and gain success. We recommend following our checklist for starting a business .

Perks of Using a Scaling Business Model

  • Creates Efficiency: When a business is ready to expand at the right time, it efficiently brings in more profit for the corporation. They are able to deal with different circumstances while still remaining rigorous.
  • Creates Growth Consistency: When the business has grown into a stable state, the owner makes sure to scale it to keep the growth factor consistent. Though it seems like staying in the same state is safe, businesses don't last long if they aren't growing. Scaling a business ensures that growth is gradually increasing with time. The owner makes sure never to stop at some level; they keep taking new steps on the ladder while ensuring they don't trip at any step.
  • Adaptable to Tough Situations: Creating flexibility ensures that the business is able to adapt to tough situations and thrive nonetheless. Businesses not only scale for growth but also to create new opportunities for income generation. The market is ever-changing, and one cannot entirely depend on a single business to maintain sustainability. Scaling your business to another aspect makes your corporation more adaptable to unplanned events. If a part of your business is disturbed by a change in the market, you can smoothly earn from another domain of your business.

Infographic: Best Startup Models

Sizes of Companies and Their Typical Business Models

Different types of companies operate at varying scales in different industries. Some start-ups operate in the early stages of their life cycle, for example, operating small brick-and-mortar shops but not yet an online store. Others begin with an online store and later expand to include physical stores, while some might take the opposite approach. There are also companies that do not have either brick-and-mortar or online stores, and instead focus on other channels like social media. A start-up can be of various types, but the most common categories are:

  • Technology-based
  • Business-to-business or B2B
  • Business-to-consumer or B2C

Technology-Based Start-ups

Technology start-ups focus on developing a new product or service with the aim of disrupting an existing market. Since technology is in popular demand nowadays, tech start-ups are now focusing more on innovativeness, scalability, and growth.

Business-to-Business (B2B)

Market research for startups is crucial in identifying potential customers and understanding their needs. A business-to-business start-up offers a product or service for sale to other businesses. Some B2B firms produce a component of a final product and sell it to distributors, who then sell it to their own customers. Moreover, a business-to-business deal can also occur when a company produces a product used as a component in another company's product. For example, Intel sells Apple processors for use in the Macbook Pro.

Business-to-Consumer (B2C)

Business-to-consumer (B2C) refers to the process of selling products and services directly to customers who are the end-users of the company's products or services. Consumer start-ups sell products and services directly to consumers. Some early-stage start-ups will have an initial product or service that they offer for free. They do this to acquire customers and improve the product before taking it live. They may also offer their customers other products and services in addition to their core offerings in order to generate revenue while they build up their main offering.

How to Choose the Perfect Business Model for Your Start-up?

Choosing the right business model is not easy. That is why there are tools available to help you with this choice. One such tool is the Business Model Canvas, which is a diagram used to create a visual representation of a start-up's business model. A blank canvas can be found online and needs to be filled in with five important components: value proposition, customer segments, key activities, channels, and revenue streams. Another tool is the St. Gallen Business Model Navigator, which can help you select the best model for your business needs and provide templates for all models you might need when starting your own company. If you want to start raising money, you should know how to make the most out of your pre-seed funding round.

Infographic: Sizes of Companies and Their Typical Business Models

Common Mistakes to Avoid When Developing a Business Model

Developing a business model can be tricky, especially for first-time entrepreneurs. Here are some common mistakes to avoid when developing a business model:

1. Failing to Understand Your Target Market

One of the biggest mistakes entrepreneurs make when developing a business model is failing to understand their target market. It's important to conduct market research and gather data about your target audience's needs and preferences before developing your business model. Without this information, you risk developing a product or service that no one wants or needs.

2. Focusing Too Much on Features and Not Enough on Benefits

Another common mistake entrepreneurs make is focusing too much on the features of their product or service and not enough on the benefits. Features describe the characteristics of your product or service, while benefits describe how those characteristics will help your target audience. By focusing on benefits, you can create a more compelling value proposition and increase the chances of success for your business. It is important to consider these benefits when conducting startup financial modelling and projecting your revenue streams.

3. Not Validating Your Business Model

Many entrepreneurs make the mistake of assuming that their business model will work without testing it first. It's important to validate your business model by conducting market research and getting feedback from potential customers. This can help you identify any flaws in your business model and make adjustments before launching your business.

4. Failing to Plan for the Future

Another common mistake entrepreneurs make is failing to plan for the future. It's important to consider how your business model will evolve over time and make plans for growth and expansion. This can help you stay ahead of the competition and ensure the long-term success of your business.

5. Ignoring Financial Projections

Financial projections are an important part of developing a business model. They help you estimate how much money you will need to start and grow your business, as well as how much revenue you can expect to generate. Failing to consider financial projections can lead to a lack of funding or an inability to sustain your business over time.

By avoiding these common mistakes, you can develop a strong and effective business model that will help you achieve your goals and succeed in the market.

Infographic: Common Mistakes to Avoid When Developing a Business Model

How to Test and Validate Your Business Model

Before launching your business, it is important to ensure that your business model is viable and will be successful in the market. Here are some steps to test and validate your business model:

1. Conduct Market Research

Market research is crucial in validating your business model. It involves gathering and analyzing data about the market, potential customers, and competitors. By conducting market research, you can gain valuable insights into the needs and preferences of your target audience, as well as identify gaps in the market that your business can fill.

2. Build a Prototype

Building a prototype allows you to test your product or service in the market and get feedback from potential customers. This can help you identify any issues or areas for improvement before launching your business.

3. Conduct User Testing

User testing involves getting feedback from potential customers on your product or service. This can be done through surveys, focus groups, or other forms of market research. By understanding what your customers want and need, you can develop a product or service that will meet their needs and stand out in the market.

4. Analyze Your Financial Projections

Analyzing your financial projections is crucial in validating your business model. This involves creating a financial plan that outlines your expected revenue and expenses, and then comparing it to industry benchmarks and competitors. By doing so, you can identify any potential issues and adjust your business model accordingly.

5. Seek Feedback

Seeking feedback from mentors, investors, and other business owners can be invaluable in validating your business model. They can provide valuable insights and advice based on their own experiences, which can help you identify potential issues and adjust your business model accordingly.

By following these steps, you can test and validate your business model to ensure that it is viable and will be successful in the market.

Infographic: How to Test and Validate Your Business Model

Tips for Creating a Successful Business Model Canvas

The Business Model Canvas is a popular tool for creating a visual representation of a start-up's business model. Here are some tips for creating a successful Business Model Canvas:

1. Start with a Value Proposition

The first component of the Business Model Canvas is the value proposition. This describes the unique value that your product or service provides to your customers. It's important to start with a clear and concise value proposition that communicates your product or service's benefits in a compelling way.

2. Identify Your Customer Segments

The next step is to identify your customer segments. This involves understanding who your target customers are and what their needs and preferences are. By doing so, you can tailor your product or service to meet their specific needs and develop targeted marketing strategies to reach them.

3. Define Your Key Activities

The key activities component of the Business Model Canvas describes the activities that are necessary to deliver your product or service to your customers. This includes everything from product design and development to marketing and sales. It's important to identify the key activities that are essential to your business and focus on optimizing them for maximum efficiency.

4. Choose Your Channels

The channels component of the Business Model Canvas describes how you will reach your customers. This includes everything from traditional marketing channels like advertising and public relations to digital channels like social media and email marketing. It's important to choose the channels that are most effective for reaching your target customers and focus on optimizing them for maximum effectiveness.

5. Determine Your Revenue Streams

The revenue streams component of the Business Model Canvas describes how your business will make money. This includes everything from product sales to advertising revenue. It's important to identify the revenue streams that are most important to your business and focus on optimizing them for maximum profitability.

6. Consider Your Cost Structure

The cost structure component of the Business Model Canvas describes the costs associated with running your business. This includes everything from product development and marketing to overhead costs like rent and salaries. It's important to identify the costs that are most important to your business and focus on optimizing them for maximum efficiency.

7. Keep it Simple and Clear

Finally, it's important to keep your Business Model Canvas simple and clear. Avoid using jargon or technical language that may confuse your audience. Instead, focus on communicating your business model in a way that is easy to understand and compelling to your target customers.

By following these tips, you can create a successful Business Model Canvas that effectively communicates your business model and helps you achieve your goals.

Infographic: Tips for Creating a Successful Business Model Canvas

The Role of Market Research in Developing a Business Model

Market research is a crucial step in developing a successful business model. It involves gathering and analyzing data about the market, potential customers, and competitors. By conducting market research, you can gain valuable insights into the needs and preferences of your target audience, as well as identify gaps in the market that your business can fill.

Market Analysis

The first step in market research is to conduct a market analysis. This involves gathering data about the overall market size, growth trends, and key players in the industry. By understanding the broader market landscape, you can identify opportunities and potential challenges for your business.

Customer Research

Once you have a good understanding of the market, the next step is to conduct customer research. This can involve surveys, focus groups, or other forms of market research to gather information about the needs and preferences of your target audience. By understanding what your customers want and need, you can develop a product or service that will meet their needs and stand out in the market.

Competitive Analysis

In addition to understanding the broader market landscape and the needs of your target audience, it's also important to conduct a competitive analysis. This involves gathering data about your competitors, including their strengths and weaknesses, pricing strategies, and marketing tactics. By understanding your competitors, you can identify ways to differentiate your business and develop a unique value proposition.

Iterative Process

Market research is an iterative process, meaning it requires ongoing analysis and adaptation. As your business grows and evolves, it's important to continue gathering data and refining your business model. By staying up-to-date with market trends and customer needs, you can ensure that your business remains competitive and successful.

In conclusion, market research is a critical step in developing a successful business model. By conducting a market analysis, customer research, and competitive analysis, you can gain valuable insights into the needs and preferences of your target audience, as well as identify opportunities and potential challenges for your business. By making market research an ongoing process, you can ensure that your business remains competitive and successful in the long run.

Infographic: The Role of Market Research in Developing a Business Model

How to Pivot Your Business Model When Things Aren't Working Out

Sometimes, even the best-laid business plans don't work out as expected. In these situations, it may be necessary to pivot your business model in order to adapt to changing market conditions or customer needs. Here's how to do it:

1. Identify the Problem

The first step in pivoting your business model is to identify the problem. What is not working in your current business model? Is it a lack of demand for your product or service? Are you not generating enough revenue to sustain your business? Are there new competitors in the market that are taking away your customers?

2. Brainstorm Solutions

Once you've identified the problem, it's time to brainstorm solutions. What changes can you make to your business model to address the issue? Can you change your target market or customer segments? Can you offer new products or services that better meet customer needs? Can you change your pricing model to better reflect the value of your offerings?

3. Test Your Ideas

Before making any major changes to your business model, it's important to test your ideas. This can be done through surveys, focus groups, or other forms of market research. Determine what your customers want and need, and test different ideas to see what works best.

4. Implement the Changes

Once you've tested your ideas and determined what works best, it's time to implement the changes. This may involve rebranding your company, changing your product offerings, or targeting a new customer segment. It's important to communicate these changes to your customers and stakeholders so that they understand why you are making them.

5. Monitor the Results

After implementing the changes, it's important to monitor the results. Are you generating more revenue? Are you attracting new customers? Are you meeting your business goals? If not, it may be necessary to pivot again or make further adjustments to your business model.

Remember, pivoting your business model is not a sign of failure. It's a necessary step in adapting to changing market conditions and customer needs. By identifying problems, brainstorming solutions, testing your ideas, implementing changes, and monitoring the results, you can successfully pivot your business model and ensure the long-term success of your company.

Infographic: How to Pivot Your Business Model When Things Aren't Working Out

The Importance of Flexibility in Your Business Model

Flexibility is an essential aspect of any successful business model. In today's ever-changing market, it is crucial to be able to adapt quickly to new technologies, customer needs, and market trends. A flexible business model will allow you to pivot your strategy when needed and take advantage of new opportunities as they arise.

One of the most significant benefits of a flexible business model is the ability to respond to customer feedback. By listening to your customers and their needs, you can adjust your product or service offerings to better meet their demands. This can lead to increased customer satisfaction and loyalty.

A flexible business model can also help you stay ahead of the competition. By continually innovating and adapting to new technologies and trends, you can differentiate yourself from other businesses in your industry. This can give you a competitive edge and help you attract new customers.

In addition to responding to customer needs, a flexible business model can also help you navigate economic downturns and other unexpected events. By being able to pivot your strategy and adjust your offerings, you can better position your business for success even in challenging times.

Overall, building flexibility into your business model is essential for long-term success. By being willing to adapt and change as needed, you can stay ahead of the competition and better meet the needs of your customers.

Examples of Successful Business Models in Different Industries

The following are some examples of successful business models in different industries that have been able to grow and sustain in today's competitive market.

Subscription Box Model

Subscription boxes are becoming increasingly popular in the e-commerce industry. This business model involves sending customers a box of products on a regular basis, such as monthly or quarterly, for a set price. The products in the box are curated according to the customer's preferences. Birchbox, a beauty subscription box, and Dollar Shave Club, a grooming subscription box, are two examples of companies that have successfully implemented this business model.

Freemium Model

The freemium business model offers customers a basic version of the product or service for free, with the option to upgrade to a premium version for a fee. This model is commonly used in the digital industry, particularly with mobile apps and online tools. Dropbox, a cloud storage service, and Spotify, a music streaming platform, are two examples of companies that have successfully used this business model.

Direct-to-Consumer (DTC) Model

The DTC business model involves companies selling their products or services directly to consumers, bypassing traditional retail channels. This model has become increasingly popular in the fashion industry, with companies like Warby Parker, an eyewear company, and Everlane, a clothing company, successfully implementing this approach.

Platform Model

The platform business model involves creating a platform that connects buyers and sellers, earning revenue through transaction fees or advertising. Airbnb, a home-sharing platform, and Uber, a ride-sharing platform, are two examples of companies that have successfully implemented this business model.

Membership Model

The membership business model involves charging customers a fee to gain access to exclusive content, products, or services. Amazon Prime, a membership program that offers free shipping and access to streaming services, and LinkedIn Premium, a subscription service that offers additional features for job seekers, are two examples of companies that have successfully implemented this business model.

Razor-Blade Model

The razor-blade business model involves selling a product at a low cost, then making a profit on the consumable products required to use the product. This model is commonly used in the printer and shaving industries. Gillette, a shaving company, and HP, a printer company, are two examples of companies that have successfully used this business model.

Crowdfunding Model

The crowdfunding business model involves raising funds from a large number of people, typically through an online platform, to finance a project or product. Kickstarter, an online crowdfunding platform, and Indiegogo, a similar platform, are two examples of companies that have successfully implemented this business model.

Pay-What-You-Can Model

The pay-what-you-can business model allows customers to pay what they can afford for a product or service. This model is commonly used in the restaurant industry, with some restaurants allowing customers to pay what they can for a meal. Panera Bread, a bakery-cafe chain, has implemented this model through its Panera Cares program.

These are just a few examples of successful business models in different industries. By understanding these models and how they have been implemented, entrepreneurs can learn how to create a sustainable and profitable business model for their own venture.

How to Choose the Right Pricing Model for Your Business

Choosing the right pricing model for your business depends on several factors, including your target audience, industry, and business goals. Here are some tips to help you choose the best pricing model for your product or service:

  • Know your target audience : Understand your target audience's willingness to pay and what they value in your product or service.
  • Research the competition : Analyze your competitors' pricing strategies and determine how you can differentiate yourself in the market.
  • Consider your business goals : Determine what your revenue targets are and which pricing model will help you achieve them.
  • Test and iterate : Don't be afraid to experiment with different pricing models and adjust as necessary based on customer feedback and market conditions.

Different Pricing Models

There are several pricing models that you can use to monetize your product or service, including:

  • Cost-plus pricing : This model involves adding a markup to the cost of producing your product or service to determine the selling price. It is a straightforward approach that ensures you cover your costs and make a profit.
  • Value-based pricing : This model involves setting a price based on the perceived value of your product or service to the customer. It requires a deep understanding of your target audience and their willingness to pay.
  • Subscription pricing : This model involves charging customers a recurring fee for access to your product or service. It is a popular model for software-as-a-service (SaaS) companies and other businesses that offer ongoing services.
  • Freemium pricing : This model involves offering a basic version of your product or service for free while charging for premium features or services. It is a common model for mobile apps and online tools.
  • Dynamic pricing : This model involves setting prices based on current market conditions, demand, and other factors. It is commonly used in the airline and hotel industries.

Infographic: How to Choose the Right Pricing Model for Your Business

How to Monetize Your Product or Service with Your Business Model

Creating a successful business model requires not only defining your value proposition and target customer segments but also determining how you will generate revenue. In this section, we will explore various ways of monetizing your product or service and how to choose the right pricing model for your business.

Once you have chosen the right pricing model for your business, it's time to start monetizing your product or service. Here are some ways to generate revenue:

  • Direct sales : Sell your product or service directly to customers through a website, online marketplace, or physical store.
  • Affiliate marketing : Partner with other businesses and earn a commission for promoting their products or services to your audience.
  • Licensing : License your product or service to other businesses for a fee.
  • Advertising : Sell advertising space on your website, mobile app, or other digital platform.
  • Sponsorship : Partner with other businesses to sponsor your product or service in exchange for exposure to your audience.

Monetizing your product or service is a crucial aspect of creating a successful business model. By understanding your target audience, researching the competition, and choosing the right pricing model, you can generate revenue and build a sustainable business.

The Role of Customer Feedback in Developing a Business Model

Customer feedback is a critical component of any successful business model. It provides valuable insights into how customers perceive your product or service, what they like and dislike, and what changes they would like to see. Incorporating customer feedback into the development of your business model can help ensure that you are meeting the needs of your target audience and delivering a product or service that they truly value.

One effective way to gather customer feedback is through surveys. Surveys can be conducted online or in-person and can provide valuable information about customer preferences, pain points, and satisfaction levels. Another method is to engage with customers through social media or email and encourage them to share their thoughts and opinions.

Once you have gathered customer feedback, it is important to analyze and interpret the data. Look for patterns and trends in the feedback to identify common themes and areas for improvement. Use this information to make informed decisions about how to adjust your business model to better meet the needs of your customers.

It is also important to continue gathering feedback and making adjustments over time. The needs and preferences of your customers may change, and your business model should be adaptable to these changes. By staying attuned to customer feedback and making adjustments as needed, you can ensure that your business remains relevant and successful in the long term.

Infographic: The Role of Customer Feedback in Developing a Business Model

Developing a successful business model requires careful consideration of several key factors. Conducting market research, understanding your target audience, choosing the right pricing model, and incorporating customer feedback are all essential components of creating a sustainable and profitable business. By following the tips and examples outlined in this guide, entrepreneurs can develop a strong and effective business model that will help them achieve their goals and succeed in the market.


Key Takeaways

A successful business model starts with a clear and concise value proposition that communicates your product or service's benefits in a compelling way.

Identifying your target audience and tailoring your product or service to meet their specific needs is crucial for success.

It's important to choose the channels that are most effective for reaching your target customers and focus on optimizing them for maximum effectiveness.

Choosing the right pricing model for your business depends on several factors, including your target audience, industry, and business goals.

Customer feedback is a critical component of any successful business model. It provides valuable insights into how customers perceive your product or service, what they like and dislike, and what changes they would like to see.

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21 Different Types of Business Models With Examples

Different Types of Business Models

Having a solid, well-thought-out business model is essential for both new and established companies. These models work to attract new customers and anticipate any upcoming trends or unseen challenges. It also can allow the company to differentiate itself from competitors. Potential investors use business models to quickly and effectively analyze a company’s plans and flesh out information such as how they plan to generate income. Even if you are a small business with no plans of taking on investment, knowing and understanding your business model is crucial to your success.

There are many different types of business models to choose from. It can become overwhelming to decide which model would work best for a company’s individual needs and preferences. This article will analyze and define 21 of the top business models currently used to better understand what each type offers your company.

What is a Business Model?

Through the years, the term business model has had several different definitions. But essentially, a business model is simply an outline of how a company plans to make money with its product or service . Peter Drucker defined the term as “assumptions about what a company gets paid for”. A t their core, they all work to identify revenue sources, the customer base for their products and services, and the expenses the company anticipates to allocate to marketing these products and services.

Understanding your business model is important for many reasons. One of those reasons is that when you understand your business model, you are also closer to answering many other important questions about your business. When your business model is clear you get a better idea of who your customers are. And once you understand that, you also can answer the question “how does our business model add value to our customer”.

Not knowing, understanding, and choosing the right business model can be detrimental to your business. Later in the article, we explain how choosing the wrong business model is costing one company hundreds of millions of dollars. But for now, all you need to know that if your business model does not match up well with your product and what the market demands, you may soon see your profits dwindle as competition increases.

 If you are not sure if you have the right business model for your business, or if your current business model is running out of gas, read our list of 21 business models to see if there is another, better, solution for you.

21 Types of Business Models

1. freemium business model.

Freemium is a combination of the words free and premium. Companies following the freemium business model offer the most basic version of their product or service for free to entice consumers to purchase the more advanced features, capabilities, or add-ons of the product or service in the future. The freemium business model works for new companies by cultivating strong relationships with customers. It also works best for internet-based service companies.

Freemium business model examples:

2. subscription-based model.

business model from startup

Image by mjimages from Pixabay

The subscription-based model allows companies to charge consumers monthly or yearly subscription fees to access their product or service. This model depends on these consumers continuing to love and utilize the service. To keep consumers satisfied and paying monthly subscription fees, companies need to continually improve their products or services to keep up with changing trends or competitors. The subscription-based model is popular with streaming services like Hulu, Netflix, and Spotify. It is also popular among monthly subscription boxes for beauty and fashion such as Ipsy or FabFitFun. The ideal profit margin varies depending on the type of subscription.

Physical subscription based businesses should aim for 30%-40% profit margins. Streaming services do not directly report profit margins but the figures can somewhat be figured out by the average revenue per user. Although it may be hard to find those numbers for all services, most services only make between $4-$10 revenue per user.

Subscription-based model examples

  • Streaming services
  • Dollar Shave Club
  • XBox Game Pass

3. Peer-to-Peer Business Model

Peer-to-peer business mode

Image by postcardtrip

In a peer-to-peer business model, a company acts as the go-between businesses and the customers interested in purchasing their products or services. The companies using this model provide the platforms, navigate the regulations, and set pricing for the products or services. A well-known example of this business model would be ride-sharing services such as Lyft and Uber. These platforms allow people to receive rides to and from requested destinations by those who apply to be drivers for the service.

Peer-to-peer business model examples

4. franchise model.

business model from startup

Sometimes the franchise model is referred to as a hybrid model. It provides a sense of working for oneself with the added security of having a company’s backing with familiar trademarks and products. There is a legal and commercial relationship between the franchisor, the parent company owner (usually a corporation), and the franchisee. The franchisee (or business owner) is allowed to sell the franchisor’s products or services in exchange for paying a royalty fee. Both parties sign contracts to clarify the specifics, spelling out each side’s role in the business relationship.

Franchise model examples

  • Merry Maids Residential Cleaning

5. Direct Sales Business Model

In the direct sales model, a company’s employees will be the ones who demonstrate and sell the products or services being offered directly to the intended consumers. This effectively eliminates steps within the distribution process, such as wholesalers and the regional distribution centers. Direct sales is a great way to build strong, lasting customer relationships. One common direct selling types is single-level marketing (SLM). This is when a salesperson is compensated for their sales. Another second type is called multilevel marketing (MLM). This model is when a person is compensated for sales made by salespersons recruited by them and under their authority.

Direct sales business model examples:

  • Stella & Dot

6. Affiliate Marketing Business Model

People using the affiliate marketing business model promote and sell products from other companies online to get paid a percentage of the sales they make. This business model is common with “influencers” on Instagram or other leading social media apps. They will post about a company’s product to entice their followers to buy it through them. Many of their followers will buy the product through the supplied link. It is a win-win situation for both the influencer marketing the product and the company selling it. Affiliate business models are also popular among bloggers and online publishers.

There are 4 primary ways an affiliate can earn money from an affiliate program.

  • Pay Per Sale (PPS) – Affiliate earns a commission when a sale is made.
  • Pay Per Click (PPC) – Affiliate earns a commission whenever an affiliate link is clicked.
  • Pay Per Impression (PPI) – Affiliate earns a commission when a visitor lands on the merchant’s site.
  • Pay Per Lead (PPL) – Affiliate earns a commission when someone clicks on affiliate link and then takes an action such signing up for a free trial or completing a form.

Affiliate marketing business model examples:

  • Amazon Affiliates
  • Commission Junction (CJ Affiliate)

7. E-Commerce Business Model


Photo by PhotoMIX Company

Electronic commerce, or “e-commerce,” is a business model in which companies and individuals buy and sell products and services online. Because the business is entirely online, the products and services offered are nearly limitless. An e-commerce business offers companies the extra convenience of not needing a physical store. This increases the selection of products available to consumers. A business might combine the e-commerce model with the drop-shipping model.

Types of E-commerce business models

  • B2B: Business to Business Ecommerce- The B2B model focuses on providing products from one business to another.
  • B2c: Business to Consumer Ecommerce- B2C model focuses on businesses providing products to the consumer base
  • C2C: Consumer to Consumer Ecommerce- C2C model focuses on consumers selling directly to other consumers. Sites like eBay and Craigslist are examples of C2C companies.
  • C2B: Consumer to Business Ecommerce- This model is when a consumer sells products or services to businesses. Those in this line of work will often times be freelancers and sole proprietors.

8. Drop-Shipping Business Model

Companies using the drop-shipping business model sell various products on their websites, but supplying and shipping these products is done by a third-party wholesaler. The significant upside to this business model is that you do not need to pay for or maintain inventory for any of the products you sell. It can be costly to store, package, and mail out orders. In the drop-shipping model, a third party (which is typically the wholesaler) will handle the logistics of shipping and making sure the customers receive the products they ordered. The individual who marketed the products gets a percentage of the sales.

9. Vertically Integrated Business Model

The vertically integrated supply chain business model is when the company controls both supply and distribution.   The company controls all costs of production, inventory stocked, marketing, and pricing. Because the company has complete control of the product from start to finish, it can decrease transportation costs and improve sales and profitability.

Vertically integrated business model examples

10. consulting business model.

business model from startup

There are two parts to the consulting business model. First, hiring experts or developing a list of freelancing consultants, and second, charging a fee to provide access to these experts by your clients. Typically, your experts will provide a service that speaks to the consumer’s needs. Hopefully, the customer will return to you as further needs arise. Common examples of this could be online tutoring, mentoring, and freelance work in several different fields.

11. Ad-Supported Business Model

Advertising is a significant component in why some companies are incredibly profitable and why some will financially fail. Failure to advertise a product or service can lead to people not even knowing a company exists. The ad-supported business model emphasizes the importance of advertising and the sales generated from it. Popular platforms to advertise products or services include print media, online media, and television.

Ad-supported business model examples

12. enterprise business model.

In the enterprise business model, specific aspects of a business are modeled, such as infrastructures and asset groups. The company leaders will see what needs to be altered within the business to maximize profits. The enterprise model is more about evaluating how the business is functioning than it is about the overall structure of the business.

13. Lock-In Business Model or Lock-In Strategy

The lock-in business model takes customer loyalty and kicks it up a notch. This is done by essentially locking customers into a company’s product or service by making it difficult to abandon the company without dealing with negative consequences. Some of these consequences include increased costs or making it difficult to switch. For example, Apple compels customers to stick with them by making it extremely simple to sync every Apple product. But, also make it challenging to use their products alongside competitors. For example, the Apple watch is nearly impossible to use with an Android phone. A lock-in business model ideally leads to customers sticking with one company for the long haul.

Lock-in examples:

  • Apple utilizes this strategy
  • Some major banks utilize this strategy as well
  • Microsoft Office Suite

14. Multi-Brand Business Mod el

business model from startup

Old Spice has done a brilliant job marketing their multi-brand business with clever and hilarious advertisements.

With the multi-brand business model, a parent company will offer similar products with different brand names to increase their market share. By doing this, the company effectively reduces any potential competition. A company with many similar products at different price points will appeal to a significant number of customers.

Multi-brand companies examples:

  • Procter & Gamble

15. Razor and Blade Model

The razor and blade model works by selling products or services to consumers at a lower price. Then later selling a related product or service to the consumer for increased profits. The name razor and blade comes from King Gillette. Gillette effectively worked to overtake the men’s razor market by offering a sturdy and reliable razor that required the use of blades only sold by Gillette. As a result, the company cornered the market on razors for a time and is still dominate today.

Examples of razor and blade business model:

  • Playstation
  • Computer printer manufactures

16. Distribution Based Business Model

The distribution-based business model facilitates the distribution of products or services offered from the manufacturers to the consumers. With this model, the business ensures that the mode of distribution chosen to get the product or service to the consumer is the most direct, and more importantly, the most cost-efficient manner possible. No one distribution method is universal for all companies. The chosen methods depend on such factors as your product’s perishability, target market, and geographic area covered by your company.

17. Direct-to-Consumers Business Model

business model from startup

With the direct-to-consumer business model, consumers buy products or services directly from a company’s website, eliminating the middle-man. The model not only saves the company money but can be convenient for the customer as well. Consumers would have to physically visit a store to purchase the product they desire but know they can order the product directly from the company or manufacturer. There is no longer a need for a brick-and-mortar store, saving the company money. The company tends to have greater control over their branding and stronger relationships with their customers with this model, leading them to buy from the company again.

In recent years, however, the DTC model has struggled to scale on its own for many larger companies. One of the pioneer companies in this type of business model was the DTC mattress company Casper. This company was once seen as a unicorn startup a decade ago but has seen its market share and valuation plummet. The company’s IPO attempt in 2020 was nothing short of a disaster. At one point, Casper was valued at more than $1 billion. But, at the time of its regulatory filing, it had cut its IPO target share price to $12 to $13 from $17 to $19. That valued the company at around $500 million. A lawsuit was even filed accusing Casper of misleading investors into pouring $100 million into its IPO, knowing its financial prospects were far dimmer than it promised.

Examples of direct-to-customers business model:

  • Apple Store
  • Warby Parker
  • Casper Mattresses

18. Low-Touch Business Model

Some customers want the least amount of interaction with the company possible. Businesses that want to meet that need should adopt a low-touch business model. Products sold using this model can be consumed or used with little interference from salespersons or customer service. Due to the pandemic of 2020, many businesses learned to adapt to the threat. These businesses adopted low-touch strategies to help keep their doors open. For example, more take out restaurants began using kiosks for ordering instead of placing an order with a human team member. 

Other sectors such as hotels began using virtual check-ins through apps. This limited contact with other guests in the hotel lobby as well as employees of the hotel. As we return to normal, it is believed that many of these businesses will retain their low-touch option and many other businesses will begin using this practice also.

Low-touch business model examples:

  • Wal-mart Online
  • e-commerce sites

19. Fractionalization Business Model

In this model, companies will sell partial usage of their product or service to consumers, such as offering a timeshare deal for a condominium in a desirable location. Consumers will receive full benefits of the timeshare when they are there, but they can only be there for a pre-determined time each year.

20. Pay-As-You-Go Model

business model from startup

Photo credit: Mike Motzart

As the name suggests, consumers will pay for the service or product as they use it.  Meaning there is no recurring bill or subscription necessary. This model should entice those who do not like to be tied down. If the product or service is of high quality and worth the price paid, they will continue using it.

Pay-as-you-go model examples:

  •  Cell phone carriers
  • Power companies
  • Internet service providers

21.User-Generated Content Business Model

User-generated content business is a type of content distribution platform where the users create the content. Social media platforms and sites like Youtube and Quora are successful due to the content that is nearly 100% user-generated. This model eliminates the need to create content as a primary way to engage visitors. This is another type of business model that is often combined with the advertising model. But unlike traditional content distribution platforms like CNN and Fox News, UGC sites typically adopt the personality of their users.

User-generated content business model:

  • Online forums

In conclusion, the different types of business models mentioned will appeal to a wide range of companies’ needs and preferences, including highly niched marketed ones. When picking a company’s business model, it is vital to consider what would be appropriate for the company as a whole and the intended consumer. Which model will entice the target market to buy (and continue to buy) from the company? Using the right business model will maximize profits and provide clear, practical ideas to sustain profitability for years to come. 

Additional photo credits: Under CC

Thomas Martin

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Tom is a member of the Editorial Team at StartUp Mindset. He has over 6 years of experience with writing on business, entrepreneurship, and other topics. He mainly focuses on online businesses, digital publishing, marketing and eCommerce startups.

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How to Choose a Business Model for a Startup?

Updated 18 Aug 2023


A startup without a business model is no more than a hobby. That's because a business model, among many things, explains how the business works, what products or services it provides, and how it'll make a profit.

So after you’ve been struck with a powerful idea of a software startup, the first thing to do is start looking for the startup business model.

In this guide, we’re going to discuss different business models for startups and how to choose the right one for a software company.

How to Choose a Business Model for a Software Startup

A startup business model is a company's plan for making money. It contains information about the company's products or services, target markets, and any expenses that may occur.

The business model answers questions like:

  • What value do we create?
  • How we deliver the value?
  • How will we bring in revenue?
  • How can we earn money?

There’s also a revenue model, which is a part of the startup business model. It describes how the company generates income.

For example, Facebook gives people a platform to communicate and works with advertisers. It’s their business model . Selling ads is their revenue model .

UberEats transfers the order from a customer to a restaurant and arranges the delivery. Users pay Uber for the food; Uber collects a fee and transfers the rest to the restaurant. It's their business model .

UberEats doesn’t give all the money it collects. It charges a fee from the eatery (and users) for delivering the food. It's their revenue model .

There’s no universal business model that’ll work just for any startup. Even the largely popular ‘ Uber for X ’ model (where X means any deliverable service) won't work for each company.

Learn more about Uber for X business model and how to start Uber-like business : how it works, how it makes a profit, and which successful startups use it.

Before choosing the business model for a software startup, consider these things:

  • Target market
  • Potential customers
  • Competitors
  • Revenue sources

Let’s go over them one by one.

#1. Target Market

Before you launch a startup, ask yourself: is there anyone who needs your service/product?

When Uber was launching, taxi markets in many countries could only offer high prices and poor customer focus. There was a need for a cheap and good-quality taxi service. That allowed Uber to compete for customers and gain a market share.

Besides, moving from point A to point B is a recurring need. Customers loved the service and kept coming.

And the more users Uber got, the better it became. For example, the company collects data from both riders and drivers to facilitate payments for drivers, monitor for fraudulent activity, and troubleshoot user bugs.

#2. Potential Customers

Who exactly is going to use your product or service?

If the startup solves unexisting problems or sets sky-high prices that their target audience can’t afford, maybe it'd be better to not launch at all.

Same if the people are satisfied with another product they already use and you bring nothing new to it.

Before food delivery services like Uber Eats or GrubHub , people had to cook food at home or eat out. Both activities are time-consuming, and not all restaurants could afford to hire couriers.

So food marketplaces focus on three categories of users:

  • Time-pressured people
  • People with kids
  • Tech-savvy millennials

Target audience of food marketplaces

Food delivery startup business model focuses on three categories

All these people are too busy to deal with food preparation or don’t have enough time to eat out. So it’s more convenient for them to order food delivery from restaurants and pay for its delivery.

#3. Competitors

Most likely, there are already people doing what you’re planning to do. Your job is to understand who they are and how you can do their job better.

Let’s take a look at Uber Eats, Just Eat, and Glovo . All three are food marketplaces but with slightly different approaches:

  • Just Eat uses the 'order-only' business model: people choose food from their catalog, and restaurants themselves take care of the delivery.
  • Uber Eats works with the 'order & delivery' model: people order food in the app, and Uber's couriers deliver it.
  • Glovo offers delivery from restaurants as well. But their couriers can also bring you carrots or other groceries from nearby stores, deliver alcohol, and pharmacy.

We have a separate guide explaining the process required to build app like Uber Eats . Check it out for more details.

The best way to prevent a competitor from copying your service is to grow the quality. The more customers you get, the better service or product you should provide. Your competitors would eventually fall behind.

#4. Revenue Streams

Your big idea already implies the main source of revenue. If it’s a social network, you sell ads. If it’s a marketplace, you charge commission from sellers.

Some of the best business models for startups include several revenue streams. Amazon is a good example of such a company.

Amazon's core business model is based on its platform, which is now a blend of an e-commerce site and a marketplace. The company sells its own products and allows individual sellers to list on Amazon, too.

Amazon charges $39.99 + 10-15% of transaction from professional sellers (those with 40+ sold items/month) and $0.99 + referral fees and variable closing fees from individual sellers (those having fewer than 40 items/month).

The company also has physical stores, subscription service (Amazon Prime), AWS cloud hosting, and an advertising business competing with Google.

Amazon revenue streams

Amazon’s revenue streams in 2019 (Source: Statista )

The easiest way to determine a revenue source for a startup is to look at competitors and analyze their value for money.

Why Use Business Model Canvas?

To understand which tech startup business model will work for your startup, try filling in the Business Model Canvas (BMC) developed by Alexander Osterwalder. BMC is a visual template that'll help you identify and organize different elements of your business model.

Osterwalder divides the canvas into nine sections:

  • Customer Segments
  • Key Partnerships
  • Key Activities
  • Revenue Streams
  • Value Propositions
  • Key Resources
  • Customer Relationships
  • Cost Structure

Startup business model canvas

Business model startup canvas template by Alexander Osterwalder

To give you an example, we’ve filled in the Business Model Canvas for the Uber app.

Business Model Canvas for a startup

Business Model Canvas for the Uber taxi app

The canvas has lots of modifications, including the Lean Startup Canvas designed specifically for startup launching. It's simpler than BMC and takes less time to fill in.

5 In-Demand Business Models for Startups

There are 55+ time-proven business model patterns, which is quite enough to choose from. We're going to focus only on modern-day business models for startup companies that create software.

Freemium Model

Freemium model offers a basic service for free, while additional premium functions or services are only available for a fee.

Phil Libin CEO of Evernote The easiest way to get one million people paying is to get one billion people using.

Freemium is a very common business model for a startup in social gaming. The games are designed to have limited playtime or tough levels that require upgrades. Each upgrade is $1.99 or less.

May not sound like too much money, but games like Candy Crush Saga made over $600,000 per day using this approach.

Services like Evernote, Skype, LinkedIn, Dropbox, Spotify, MailChimp , and others have adopted the freemium model.

Don’t mix up freemium with the subscription model. You can use YouTube for free if you’re fine with ads, no background mode, and no downloads. Same for Dropbox or Spotify.

But if you miss a monthly subscription payment on Netflix, you can’t watch anything there.

Subscription Model

The subscription-based model works great if you're selling software or your customers want to keep the flexibility of choice.

Rather than offering a product as a one-time purchase, companies like Netflix, Amazon Prime, Adobe, New York Times offer users monthly payments.

It's more convenient for users to pay Netflix $8.99 or $15.99/month (depending on the plan) instead of $108 or $192 collected in one payment. And the lower Netflix prices are, the more people can use the services.

And for businesses, it’s easier to predict the next months or annual revenues, seeing the number of subscribed customers and their plans.

Companies choose this model not only because they want to make their service more convenient for users. For Adobe and similar software-based companies, subscriptions are a way to pay off long-term development costs (adding new features, maintenance, etc.). For Netflix, it's a way to pay off the production of TV series and purchase rights to them.

Besides, subscription-based companies simply earn more money in the long run.

If the people like the service Netflix provides, they won't need much convincing to renew their subscription (or hit the auto-renew button). Still, to get enough revenue monthly or annually, you need to have an extremely large customer base.

Reseller Model

Here you don't manufacture any of the products you offer to customers. You're representing a partner company and gain money by promoting their offers to your target audience.

That's the way Amazon and eBay work. Their platform offers different companies a partnership, then promotes and sells their products.

For sellers, the revenue comes from the difference in the selling price and the price they acquire the stuff for. For Amazon, it's $39.99 seller fee + transaction fees.

Advertising Model

Free product or service is at the core of this model. You gather an audience by creating content or attracting interaction and engagement, then sell access to advertisers.

The more people you can reach, the higher your profits will be.

The best examples are Facebook and Google . Their products are free for users, but these two companies make money on advertising. In 2019, they took up 59% of U.S. digital ad revenue.

  • Sharing Economy Model

Among the most popular examples of the on-demand model are Uber, BlaBlaCar, and Airbnb .

The on-demand model works by 'access is better than ownership' principle. It's when owners (drivers or landlords) provide services to seekers (people looking for a taxi or a flat to spend a night in), and the platform serves as an intermediary.

The platform itself does not possess any of the assets it offers. Airbnb doesn't own a single room; Uber works with people who own cars. They only match users.

On-demand platforms earn money by charging a fee, often from both users and service providers:

  • Uber charges 25% on all fares
  • Lyft takes 20% on fares + service fees
  • Airbnb charges 3% from owner + 6-12% from guests
  • Instacart takes $3.99 for 2-hour deliveries + up to 15% product markup

Explaining on demand app development , what features it requires, and how to build an on-demand service app.

Each of the startup business model examples we've mentioned is good in its own way. Still, the best idea may be to combine a few models—or create your own. Tech giants like Google, Facebook, Uber, Amazon may have started with a simpler business model, but now they get revenue from quite a few sources.

And don't forget about the tech component of your business model. Uber wouldn’t be that popular if its app could not process a taxi request, crashed, or had an awful UI/UX design .

Need help with the tech part?

We’re offering a free of charge tech consultation. Describe your idea and any questions you have.

A startup business model is a company's plan for making money . It contains information about its products or services, target markets, and any expenses that may occur.

Because a business model is the startup's foundation. It explains how the business works, what products or services it provides, how it'll make a profit, lists the target markets, and lists any expenses that may occur.

A startup without a business model is no more than a hobby.

A business model's choice doesn't guarantee the company will be a successful one, but it matters a lot.

Most billion-worth companies combine a few business models to get revenue from a few sources. For example, Amazon uses the reseller model as well as provides subscription services and hold physical stores.

Start with looking at your competitors: which business models they use, how they make a profit, and what value provides.

Next, check what business models are there. Business model navigator lists 55 patterns , including the popular ones like direct selling, subscription, e-commerce, two-sided market, etc.

Or maybe you'd want to combine a few business models or create a unique one.

Startup business models generally include information about products/services the business plans to sell, its target markets, and any expenses that may occur.

In general, there are 55+ business model patterns. The most popular for software startups are:

  • Subscription
  • Advertising

Author avatar...

Evgeniy Altynpara is a CTO and member of the Forbes Councils’ community of tech professionals. He is an expert in software development and technological entrepreneurship and has 10+years of experience in digital transformation consulting in Healthcare, FinTech, Supply Chain and Logistics

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How to Design a Business Model for a Startup

  • Jan 21, 2022

Elena S.

Oleksandra I.

Head of Product Management Office

  • Tech Navigator

business model from startup

When starting a new business, you may be filled with uncertainty as to whether your product will fit the market or how to deliver value to customers that they’re willing to pay for. For most startups, their answers to these questions define the company’s viability and attractiveness in the eyes of investors.

Before starting to develop a new product, it’s crucial to figure out how to make money with it. That means deciding on the startup’s business model. In this article, you’ll learn how to design a business model based on the specifics of your startup.

What is a business model?

At its basic level, a business model describes how your business will make money. It is a set of strategic decisions on how to deliver value to your customers in exchange for money. A deep understanding of your customers’ needs and your company’s value proposition, value chain, and cost structure will help you determine how to design a winning business model to make your business profitable in the long run.

Core dimensions of the business model by Gassmann

Four main dimensions define a business model:

  • WHO: Who is your target customer, and what needs do they have?
  • WHAT: What is your core offering (value proposition)?
  • HOW: How will your company deliver value through its resources?
  • VALUE: How will you capture value through your revenue model?

We will apply a classic business model canvas adapted for startups to answer these questions.

Business model canvas

The business model canvas was first described by Alexander Osterwalder , a Swiss entrepreneur and business theorist, and Dr. Yves Pigneur , a Belgian computer scientist, in their Business Model Generation handbook. While designing a startup business model is tricky, creating a business model canvas makes the model easier to understand and implement.

A business model canvas allows a company to take a helicopter view of their market position and get insights to build a strategic vision for development. It helps startups understand how their product needs to be implemented and promoted to reach the desired business goals and deliver maximum value to customers.

When should you design a business model canvas?

  • You need to visually focus on the most important elements of your business . For instance, when you need to design a winning business model for a digital startup.
  • You need to understand your competition . You can sketch your competitor’s business model using a business model canvas.
  • You need to improve your existing business by detecting changes in customer needs and finding opportunities to win from them.

Why does the business model canvas matter?

Here are some benefits of creating a business model design for a startup using a business model canvas:

  • Identify resources. Analyze and list all resources required to create your product.
  • Find gaps. A business model canvas helps you detect opportunity gaps and find new ways to fill them.
  • Analyze competitors. Map your competitors’ business models to understand how they work and reveal their potential weaknesses.
  • Pitch investors. A business model canvas helps investors easily understand any business idea and evaluate its potential.
  • Drive innovation. Working on a business model canvas helps you refine specific uncovered opportunities in the market and generate innovative ideas for meeting them.
  • Map out potential changes. Uncover previously missed opportunities and get a better vision of your solution.
  • Test new business models. Visualizing each model helps you define which one fits best.
  • Align your team’s goals with actions. A business model canvas helps you see what should be done to reach your goals and what resources are required.
  • Analyze your startup idea from a customer perspective. A business model canvas is built around customer needs and helps building business around them to maximally fit the market.

Business model canvas structure

Building blocks of a business model canvas

There are nine blocks in the canvas, grouped in three categories:

  • The right side of the canvas focuses on the market and customers .
  • The left side reflects internal business factors .
  • The bottom portion contains value propositions — the value your product provides to customers.

The business model canvas allows you to capture your entire business model on a single page. For a startup, it helps you build your initial business model before product development and further can be used to map changes and improve the existing business model accordingly. It is an agile, laconic alternative to a traditional business plan.

How to design a winning business model using a canvas

Step 1: define your customer segments.

Filling out a business model canvas starts by listing your customer segments. Their characteristics and needs affect all the decisions you have to make for creating a profitable business. First, you need to understand what market you’re developing your product for. There are different types of customer segments:

  • Mass market. A company serves many customers with similar needs and problems without segmenting the target audience.
  • Niche market. A business serves particular customer segments. Each requires its own value propositions, customer relationships, and distribution channels (mostly in supplier–buyer relationships, like those between auto parts manufacturers and automakers).
  • Segmented. A business serves 2+ market segments with slightly different needs yet related problems (i.e. bank clients with varying asset levels).
  • Diversified. A business serves 2+ completely unrelated customer segments (i.e. Amazon is a retail company that provides goods to consumers but also provides cloud computing services for web companies).
  • Multi-sided markets. A business serves 2+ interdependent customer segments (i.e. a credit card company serves cardholders and merchants who accept those credit cards).

After you define the market type, define your target customer categories. In the case of a startup product, segment your customers based on similarities in behaviors, interests, problems, demographics, and other criteria that matter for your product. Developing an ideal customer profile (ICP) for each selected segment is critical. An ICP describes the perfect potential customer that would get maximum value from purchasing your product.

For each ICP, you should then identify the buyer persona — a portrait of who exactly will buy from you. Based on ICPs and buyer personas, you will be able to build customer-centered communication throughout the entire business model canvas and make correct decisions regarding the rest of its components. Here is an example of forming ICPs and buyer personas.

Ideal customer profile and buyer persona

Based on ICP descriptions, you’ll be able to elaborate your product’s value proposition to address the most significant customer goals and challenges.

Step 2: Outline your value proposition

A value proposition describes why customers choose your product among others — in other words, it describes the unique value customers cannot find in alternative solutions. Therefore, you should define the right value proposition for each customer segment.

Values can be quantitative (price, service speed, delivery terms) or qualitative (usability, design). Here are some of the potential elements that form the value for a customer:

  • Performance
  • Convenience
  • Personalization
  • Getting the job done
  • Risk reduction
  • Cost reduction

To ensure a fit between the product and target customers, use a value proposition canvas based on information about customer segments:

Value proposition canvas

Outline three customer profile components:

  • Gains: The benefits that customers want to get
  • Pains: Negative experiences, emotions, and risks the customer wants to avoid
  • Customer jobs: Problems customers are trying to solve, tasks they are trying to do, and needs they’d like to satisfy with your product

Then fill in the value map that contains:

  • Gain creators: How your product creates customer gains
  • Pain relievers: How the product eases customer pains
  • Products and services: The products and services (or their particular features) that help customers get their jobs done, relieve their pains, and bring the desired gains

After listing all the above elements, try to rank them in terms of value for your customers. You can say that your product fits the target market when the offered products and services address the most significant customer pains and gains.

A value proposition document has no strict format, yet it should be short and precise. For example, here are the value propositions of Airbnb:

Airbnb value proposition summary

Step 3: Identify channels

Channels describe how you communicate with and reach your customer segments to deliver a value proposition. On the other side, these are paths by which customers find your product on the market and enter your sales cycle.

You can choose between direct channels (your own website or in-house sales force), indirect channels (retail stores owned by your company), and partner channels (wholesale distributors, third-party retailers, partner websites).

Channel types

Partner channels allow expanded product reach yet entail lower margins. On the other hand, channels you own bring higher margins but are more costly to arrange and operate.

Partner channels help raise awareness of your brand and product, which is crucial for a startup after the initial launch. Word of mouth, social media, and app stores are the most popular distribution channels for new apps.

Step 4: Map customer relationships

Define customer relationships for each customer segment according to customers’ expectations, the nature of your product, and your own goals. Evaluate how costly it is for your business to maintain relationships with customers in order to choose the optimum ones for each category of users. The major types of relationships include:

  • Personal assistant. A customer interacts with a human representative during and after the sales process through call centers, email, or other means (iTunes).
  • Dedicated personal assistant. Each client gets a dedicated representative (bank services).
  • Self-service. Customers are provided with all required means to use your product on their own. 
  • Automated services. A mix of self-service and automated processes deliver personalized content and services (Pandora).
  • Communities. Developing a community of customers and company reps to exchange knowledge and help solve problems; community relationships also help you get an in-depth understanding of a product’s audience. (Glaxo SmithKline).
  • Co-creation. Involving customers in product design and development (YouTube).
  • Transactional. There is no actual relationship between the customer and the company (a kiosk at a bus stop).

For some digital products, it makes sense to offer a customer options to choose from. For instance, a bank application can operate fully as a self-service product. However, if a customer requires human assistance or a consultation, they can contact a bank representative.

Also, remember to define the type of relationship for each customer segment.

Step 5: Choose revenue streams

At this stage, define how you will generate revenue from each customer segment. Three factors to consider include:

  • What are your customers willing to pay?
  • How do they prefer to pay?
  • What part of overall business revenue does each revenue stream bring?

Types of revenue streams

Besides choosing a revenue stream, you should consider the pricing mechanism that best fits your product. There are two types of pricing mechanisms: fixed and dynamic. Here are their main differences:

  • Fixed pricing is always the same for a particular service or product. At the same time, in the dynamic scheme, pricing may change depending on WHOSE negotiation power and skills.
  • Dynamic pricing depends on inventory and purchase time (airline seats or hotel rooms), while fixed pricing depends on the quality and quantity and customer segment characteristics.

The best revenue stream to choose is one that adds the least complexity to your existing business structure. To determine the right revenue stream for your startup, you should analyze how you can generate maximum revenue at minimum cost and effort. Then, to make your business more resilient to changes, diversify your revenue streams.

Step 6: Set key resources

Key resources are assets required to make your business model work. These are resources needed to produce a product, launch it on the market, promote it, maintain relationships with customers, deliver value to them, and earn revenue. There are four primary types of resources:

  • Physical (manufacturing facilities, machines, point-of-sale systems)
  • Intellectual (brand, knowledge, patents, copyrights, partnerships)
  • Human (the team behind the product)
  • Financial (cash balances, lines of credit, stock option pools, etc.)

Step 7: Plan key activities

Key activities are the most important actions a company needs to take to operate successfully. They can include:

  • Production. The design, development, and delivery of products in required quantities and of a sufficient quality
  • Problem-solving. Coming up with solutions to specific customer problems
  • Platform/network. When a business operates as a platform, its main activities may include platform management, maintenance, promotion, etc.

For instance, the key activities for Microsoft include software development, while Dell is focused on supply chain management. McKinsey’s consultancy business revolves around problem-solving.

Step 8: Identify key partnerships

If your startup relies on suppliers and partners to make it work, you should define all these connections in key partnerships:

  • Strategic non-competitor partnerships
  • Cooperations (partnerships between competitors)
  • Joint ventures
  • Buyer–supplier relationships

To design a business model for a startup, you should consider partnerships to optimize profitability and create economies of scale, reduce risk and uncertainty, and acquire particular resources and activities. For example, Tesla’s key partners are battery manufacturers and component suppliers. Facebook’s key partners are content providers (creators and distributors of movies, music, TV shows, news, etc.). Spotify itself is a music platform that doesn’t produce music. Therefore, the key partners for Spotify are record labels and publishing houses.

Step 9: Build the cost structure

Here, you need to understand your startup’s fixed and variable costs to define financial tradeoffs and business decisions. There are two main cost structure categories: value-driven and cost-driven. The value-driven cost structure is focused on maximizing the product’s value, even if that means not charging the lowest possible price. The cost-driven cost structure focuses on minimizing product costs.

Consider all fixed and variable costs important to your startup and create hypotheses of the future cost structure. Fixed costs are those that remain the same despite production volumes. For instance, these include expenses for salaries, rent, and manufacturing facilities. On the other hand, variable costs change in proportion to the production volume.

Start with a high-level outline for the cost structure, including the main expense categories. For instance, Airbnb’s cost structure includes platform development and maintenance and marketing costs at a high level. Then you can itemize the cost structure by listing all significant expenses under high-level categories. Finally, to design a winning business model, you should adjust the cost structure so that the estimated revenue exceeds the estimated overall startup cost.

How to use a business model canvas?

Tesla’s business model canvas

The business model canvas with all blocks filled in is a tool that helps you choose a suitable business model for your startup. It gives you an understanding of your niche, values, resources, and activities required for reaching your commercial goals. Additionally, the canvas helps you design a winning business model by transforming assumptions into meaningful, proven insights.

  • Map out your business at a very high level.
  • Link the canvas blocks: every value proposition should be related to a particular customer segment and revenue stream.
  • Run tests to validate your assumptions.
  • Modify the canvas and add new choices based on test results.

“Like seeing the doctor for an annual exam, regularly assessing a business model is an important management activity that allows an organization to evaluate the health of its market position and adapt accordingly.” 

― Alexander Osterwalder, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers

Creating a business model canvas is an iterative process that requires analysis and research within every new cycle until you clarify all significant aspects of your business model. The great thing about the business model canvas is that you can use it further after your startup is launched and needs improvement. Any time the market changes or you need to improve your product, you can quickly map a new business model reflecting all required modifications.

Final thoughts

A business model canvas is a powerful and effective tool for startups. It enables teams to see all interrelations between the building blocks of their business and how they can be modified to increase its effectiveness. If you’re currently looking at how to design a business model for your startup, begin with mapping a business model canvas with your team. It significantly reduces the effort for further product design and development as well as for elaborating a winning market strategy. RubyGarage business analysts and product managers are ready to assist your team with generating your initial business model and creating your roadmap for further product development.

What's the difference between a business plan and a business model?

A business plan is a document that describes how a business might become profitable. A business model is a framework that depicts how a business might create and capture value.

Can I use a business model canvas to research competitors?

Yes. Similar to designing your own business model, you can use the business model canvas to depict the competitors' businesses and understand their strengths and weaknesses.

Are there any software tools I can use to design a business model canvas?

Yes, there are numerous online canvas templates, both free and paid. For example, you may use Canvanizer, Vizzlo, or Miro templates.

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Business Models for Startups: Choose the Best One

business model from startup

Building startups is about crazy ideas becoming true. Well, not quite so. Enthralled by their know-how ideas, some cofounders sometimes forget that startups are businesses, which should be profitable to exist. And without proper business modeling, a startup is doomed for failure.

So at some point in startup development ,  you should answer the focal question – how to develop a business model? Well, this questions entails a row of others:

  • What are the revenue model types?
  • How to develop a business model, which brings profit?
  • Who can help me with business modeling?

In this article, I will highlight the most popular business models for startups and tell how to choose the model that will bring success to your business. Let’s start!

help with business models

What is a Business Model After All?

So is the business only about what your users will pay for? Well, that too. But in reality, the business model or a revenue model covers numerous elements and requires answering several questions:

  • Who buys your products? And why?
  • Where do customers buy your products?
  • How much does the customer pay for the product/service?

In other words, any revenue model type explains the connections between all elements of your business: your product/services and your clients.

One shouldn’t underestimate the meaning of a business model. In fact, many business giants, which we think are great products, are nothing more than well-functioning business models.

For example, Amazon has become the biggest online retailer worldwide with no brick-and-mortar shop. Samely, Starbucks sells ordinary coffee for prices above average.

4 Questions, that will help to choose startup business model

As mentioned before, a business model is not only about “how much my product/service will cost”? The suitable startup business model helps find answers to the questions about your startups that explain why your business should exist. Before choosing the model, ask yourself: 

  • Who is my customer? 
  • What’s the domain of my business? 
  • How is my business different from the competitors? 
  • What value do I bring to my customers? 

before choosing business model

Well, these are the questions you should answer before plunging into the development and seeking funds. 

Can startup business models iterate?

Do not be afraid to change something that does not work for you anymore – that’s the main rule of startup development that applies to business models too. Your startup business model is not a sentence (though they also change), and it can iterate throughout the business cycle.

Sometimes you can substitute the model as a whole. But more often, the change can be partial. For example, you can cancel annual or 6-month subscription options if you see that users rarely use them.

Expert Tip: While a change in the startup business model is ok, these should not be radically different changes. For example, if you used the ads business model for your startup, it would be risky to skip to the annual payment format. 

choosing business startup model

What’s Your Startup Business Model? 4 Steps to Choose

As a Product Manager, I always help startups to find their business models. For that, I always follow the algorithm of these 4 steps. 

Step 1. Whose problem are you solving?

Firstly, identify who the final customer of your product/service is: 

  • B2B (Business to Business) – an entrepreneur, not a private person. In this case, you work for the same company as you are. Classic examples of B2B models are software development companies, or web design agencies, outsourcing companies. 

Examples: Microsoft Teams , Slack , Plai . 

  • B2C (Business to Customer) – promoting the product and services to individual customers. Vivid examples of such models are online shops, where people buy products, mobile apps, and games for daily life usage.  

Examples: Netflix , Hulu , Dollar Shave Club .

  • C2C (Customer-to-customer) – such platforms work as a connecting space for customers to provide products or services to each other. On such platforms, the peers are equal, interacting for economic benefits. This model is also called the “sharing economy”. Examples: EBay , Uber , Horizon . 

Step 2. Analyze your competitors

You cannot make a statement on the market niche unless you know your competition. So take time to look at the leading game setters in the niche: 

  • Whom are they targeting? 
  • Which monetization model do they use? 
  • What’s the added value?  

Step 3. Make a Lean Canvas

Business Model Canvas is an instrument that helps gather all your business elements in one scheme. The template usually includes nine blocks, each one dedicated to a specific direction of business processes: 

  • Problem – what’s the problem of each segment of users that you will be working with? 
  • Consumers’ Segment: to whom are you bringing value? Who’s your most important client? 
  • Value Proposition: what’s the consumer’s problem are you solving? What value are you bringing to the client? 
  • Channels of communication. How do you communicate with the consumers? How do you communicate your value proposition to them? 
  • Customer relations. How do you interact with a consumer? Directly or via a personal manager? Or via self-service?  
  • Revenue Streams. For which value will the customer pay? How are you going to monetize your project? 
  • Key resources. What do you need to bring your product to market? Or communicate the product’s value to the consumer? These are resources, and they can be financial, material, intellectual, etc.  
  • Key action steps. What does it take to make the business work? It can be production, distribution, solution search for an individual client, etc. 
  • Key partners – are those stakeholders who make your business possible: suppliers integrated services. 
  • Expenses – which expenses are necessary to make your business work. 
  • Unfair advantage – think about what the value is that you can have and others cannot buy. 

The Lean Canvas comes especially handy in business modeling for startups with a lot of uncertainty. This artifact will give you a clearer vision of your business’s different aspects.

lean canvas when choosing business model

Step 4. Choose your business model

Finally, we have arrived at the main point of this algorithm – the choice of the business model. What your business model will be depends on a variety of factors that we have discussed before. Depending on your Business Model Canvas and the answers you will give to the questions above, you should choose the type of monetization model that suits your business best.

steps to choose business model

7 Types of Business Models for Your Business

These days, there are a lot of types of operating models. Here are the most popular ones that will be especially useful for startups.

Freemium model

The Freemium revenue business model is a popular format of monetization among subscription-based services. Within this model, a client can access an app's basic functionality for free and get access to the full version for payment.

The Freemium model aims to demonstrate the product's features to the client. Besides that, it attracts the maximum number of users, the majority of which buy a premium version.

Examples: Spotify, and Netflix.

Learn more about the freemium model in our article How Do Free Apps Make Money?  

One-Time Payment (Pay-per-Use)

This is the simplest model that one can imagine. According to this one, you simply buy a product or a service and pay for it on a one-time basis. This type of business model is relevant for services or products that, by its nature, need not to be used more often than once in a year or half a year—for example, legal services, psychological help, car rent.  

case business model for startups

Example: STUDENTEN – a job-seeking platform for students in the Netherlands. 

SaaS-Based Model

Slack, Zoho, Microsoft Office – all these are examples of Saas-based revenue business models. If you have ever worked in an office, you might know this one. According to this model, a company can buy software from another company for long-term usage. Besides the product or service itself, the consumer also receives technical support and customized services if needed. SaaS (software as a service) is a business model relevant to the B2B market.

case business model for startups

Subscription Model

When was the last time you paid for your Netflix subscription? Well, I bet you will have a hard time remembering that. The thing is, we do not even pay attention to these monthly payments from our bank accounts. Yet, this is precisely how Netflix makes money – via subscriptions. 

Such services usually give their customers different subscription options – annual, half-annual, or monthly. Unlike the SaaS model, the subscription format is more typical for the B2C sector. 

case business model for startups


The transactional model is typical for products and services integrated with payment systems. This one is relevant for businesses that serve as a chain between sellers and buyers. They take fees for the transaction either with the buyer, seller, or both. 

Examples: real estate agencies, PR agencies, event companies, recruiting agencies, financial/banking products. 


Marketplaces allow retailers to sell their products and provide the clients with simple instruments for communication with retailers. In addition, this business model offers monetization from different channels, including purchase fees or extra services. 

Examples: iHerb , Amazon , Ebay . 

Ads business models have existed for many years but have become more and more unique as the world becomes more digital. You should create content that people want to read and watch to use this model while showing ads to your readers and viewers. 

In this model, you can provide users with free content while monetizing your business on ads. Sometimes this model goes in hand with the crowdsourcing model, where users create the content themselves.  

Examples: The New York Times , YouTube

types of business models

Famous Apps and Their Business Models

Let’s look at some famous examples of revenue business models used by popular apps today.

Airbnb – Marketplace Business Model

Today Airbnb is one of the most popular marketplaces worldwide. Airbnb is a platform that connects accommodation givers with those who seek accommodation in any corner of the world. The main idea behind Airbnb’s business model is that it does not own any accommodation itself while staying the biggest accommodation provider in the world. However, it provides the instrument for people to find each other and earns from the users’ fees.  

Netflix – Subscription Business Model

Netflix is the biggest entertainment platform with 193 million members (as of July 2020) from over 190 countries and annual revenue of $20.16 billion. Netflix’s key partners are prominent filmmakers, script-writers, animators, and production companies that generate quality content to stream on the platform. Users can enjoy this content 24/7 with no ads interruptions, paying a monthly, six-month, or annual subscription. 

Amazon Web Services – Pay-Per-Use Business Model

Amazon Web Services (AWS) is Amazon’s subsidiary that provides cloud computing services to individual users, companies, and governments. Using AWS, users have 24/7 access to a virtual cluster of computers. 

Once the users sign in to the AWS platform, they get free credits at the beginning. So partially, this resembles a freemium model. However, once the users need more cloud space and server capacity, they can purchase them and pay accordingly. This is how the pay-per-use business model works in practice.  

consultation regarding business models


Choosing the best type of revenue business model for your startup defines the success of your business. However, suitable business modeling answers specific questions about your business. Lean Canvas is a great instrument that helps to answer these questions and systemize all elements of your business in a simple scheme.

Uptech has broad experience in business modeling for startups  based on Lean Canvas and detailed information.

Tell us about your idea. We will reach you out.

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Business Models: Types, Examples and How to Design One

Randa Kriss

Randa Kriss

Writer | Small business, business banking, business loans

Rosalie Murphy

Rosalie Murphy

Ryan Lane

Assigning Editor | student loans, student loan repayment plans, and education financing

business model from startup

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⏰ Estimated read time: 9 minutes

Smart money moves for your business

Grow your small business with tailored insights, recommendations, and expert content.

What is a business model?

  • What product or service a company will sell.
  • How it intends to market that product or service.
  • What kind of expenses the company will face.
  • How the company expects to turn a profit.

Types of business models and examples

1. retailer model, 2. manufacturer model, 3. fee-for-service model, 4. subscription model, how much do you need.

with Fundera by NerdWallet

We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

5. Bundling model

6. product-as-a-service model, 7. leasing model, 8. franchise model, 9. distribution model, 10. freemium model, 11. advertising or affiliate marketing model, 12. razor blades model.


Start Your Dream Business

How to design a business model

  • How will you make money? Outline one or several revenue streams, which are the different ways your company plans to generate earnings.
  • What are your key metrics? Having a profitable business is great, but it usually doesn’t happen right away. You’ll want to identify other ways your company will measure its success, like how much it costs to acquire a customer or how many repeat customers you'll have.
  • Who’s your target customer? Your product or service should solve a specific problem for a specific group of consumers. Your business model should consider how big your potential customer base is.
  • How will your product or service benefit those customers? Your business model should have a clear value proposition, which is what makes it uniquely attractive to customers. Ideally, your value proposition should be specialized enough that competitors can’t easily copy it.
  • What expenses will you have? Make a list of the fixed and variable expenses your business requires to function, and then figure out what prices you need to charge so your revenue will exceed those costs. Keep in mind the costs associated with the physical, financial, and intellectual assets of your company.
  • The best business checking accounts .
  • The best business credit cards .
  • The best accounting software .

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Business models for a startup: an overview

business model from startup

Once you come up with a great idea and decide to realize it in a startup. You gather the team, think about the realization, look for… no, not for money - you look for a business model. Until you have it, not a single investor (okay, almost not a single one) will give you a penny. A business model is how your product will make money. If you don’t have a specific vision you won’t make it further. Let’s figure out what the types of business models are and how each of them makes money. And of course, we will show you some examples.

business model from startup

Startup Jedi

We talk to startups and investors, you get the value.

Instead of an introduction

Choosing a nonviable business model is one of the reasons why many startups fail. A business model is a simplified vision of the business, the source of income, profit creation for users. The business model describes how the organisation creates, delivers to the clients and gains value (economical, social and other).

The term “business model” is used in a wide defining spectre to characterize the main business aspects, including business aim, product range, strategy, infrastructure, organisational set-up, sales methods, operational processes.

Business model for a startup

How to choose a business model for your startup

In order to understand which business model will become a working option for a startup and with which models it should (and must) be combined, you have to work with Lean Canvas Template, which was masterminded by Alex Osterwalder and Yves Pigneur. The template contains a table with 9 blocks, each of them is devoted to a specific business process direction of the future project:

1.   Customer segment  — for whom you are creating value and who is your most valuable client.

2.   Value proposition  — what client’s problem you are solving, what value you provide the client with, what the product and/or service packages that you provide to each customer segment are.

3.   Interaction channels —  how do you interact with customers and how you provide them with your value proposition.

4.   Relationships with customers —  how you interact with the client: directly by appointing a personal manager to each client or through the community, or a joint product creation, and so on.

5. Income flows —  for what value the client is ready to pay, what are the ways to monetize your product.

6. Key resources  — what you need for product creation and its launch on the market so that the value of the product is conveyed to the consumer and the business makes a profit. For example, resources can be financial, material, intellectual or human.

7. Key types of activity —  what needs to be done so the business will work. It can be industrial management, distribution, a search of a solution to a problem for a specific client, work process management for platforms/networks.

8. Key partners  — everyone who favours the business: suppliers, dealers, additional services.

9. Expenses   —  how much you have to spend so the business works properly.

Have you planned your project? Now, you have a list of the main startup metrics, which will help you to understand what business model you need to choose as a key one and which needs to be an additional one/ones.

Business model

Business models: considering client type - classic business model

Classic business models.

Your business model directly hinges on who your consumer is. Let’s have a look at client types and businesses, which are built on its foundation.

B2B (Business to Business)  a model, which implies that both the Merchant and the Buyer are entities or self-employed entrepreneurs. In plain English, it is when companies don’t work for an ordinary consumer but for similar companies.

The classic example of a B2B model in IT is software developers for organisations, web-design studios, companies that provide outsourcing services.

The successful example of a B2B model in actual practice is a German company SAP SE — a software developer for organisations. They develop automatized systems for managing internal work processes, services are adapted to the legal boundaries of different countries. Besides the supplying software, the company also provides adoption services using their methodologies. In the list of company products, there is SAP Ariba Discovery — an open platform for search of suppliers and customers; Remote Work Pulse by Qualtrics — a product which helps organisations to understand how do their employees work and whether they need any assistance during the remote work; Ruum by SAP — a project management tool, which is also used for establishing cooperation and process optimisation. The company has 200 000 clients and the majority of them are medium and large enterprises.

B2C (Business to Customer)  — a business type which specializes in sales for physical entities.

The example of this model in IT is internet shops, where people buy goods for personal use, mobile applications and games, user-specific services.

For example, the SeedSheet project (USA) has developed a software, so any user is now able to create a design of his or her dream garden and plant their plants, which will grow and crop in the client’s climate zone. The service analyzes the geolocation, chooses and offers a list of crop cultures, which clients can order along with all required equipment for garden creation.

“Dzen money” application (Russia) analyzes the user’s budget and helps him to save money and preserve money for a costly purchase as well as to optimize expenditures.

B2G (Business to Government)  — a model orientated to supply the government with products, services, business solutions.

The model offers a complicated multilevel decision-making system, competitive bidding, difficult financial conditions, supplies and utilities procurement schemes, and the great influence of administrative resources.

In real cases, this model can be connected with governmental procurement contracts for products/services (state procurements), equipment leasing, private-public partnerships and if it is an IT company, for the governmental customer they usually develop services for work automatisation in different work areas.

For example, IBM Group has developed a number of solutions for logistics in Belarus, among them — contactless fee payment in a subway with the help of credit cards, electronic ticket-punches in surface public transport of Minsk, electronic timetable boards on bus stops, self-service terminals for replenishing e-traffic documents with the help of credit cards.

C2C (Consumer To Consumer) or P2P (peer-to-peer)  — the model, which implies that the participants are equal. Usually, it is an interaction between physical entities to save money, receive income, communication or assembling in communities. This model is also called “a sharing economy” — when expenses are equally divided.

The distinctive feature of this model is the participation of the third party. It can be the platform owner, where people communicate/place their goods and services.

A bright example is BlaBlaCar that helps drivers to find road-companions and in such a way compensate expenditures on fuel, and road-companions to find drivers who can take them to the required destination point.

There is another example — Couchsurfing platform. Thanks to it people can travel and not spend money on accommodation but to stay in places of other community participants. Besides, with the help of this service, you can communicate with locals so you can discover the city and see more city attractions.

C2C platforms are usually communities united by interests: travelling, pets, etc.

With the advent of the Internet, the problem of piracy has appeared: people can watch a film or download it for free, download a music album or a book. On the other side, with years, the number of conscious users is rising — and this is how a  C2B model (Consumer to Business )  appeared .  That has changed the usual ways of product promotion. The concept is that users are ready to pay for the content but they need to value it by themselves. The consumer creates the value and business absorbs it.

Custdev is closely related to this model, as you explore your consumer, his unsatisfied needs, you learn to think from the user’s experience point of view, and only then, taking into account all of the mentioned above, you create the product.

One of the company examples which is working using the C2B model is Priceline.com (USA). The user sets his price for the product he needs, then the company finds a supplier who is ready to sell the product for the price offered by the user. In such a way, Priceline.come acts here as a mediator.

C2G and G2C

C2G (Consumer to Government)  — a model designed to convey the request of civil society to the government to provide people with access to government documents as well as the opportunity to contact government officials.

On the other hand, thanks to the G2C (Government to Consumer) model, the government can notify citizens of fines, administrative violations and changes in legislation.

For instance, in Belarus, you can find out about the unpaid fines of the traffic police, check the restrictions on leaving the country, and also find out other information by registering on the website of the Ministry of the Interior. The  www.gosuslugi.ru  portal operates in Russia, through which you can find out information about violations and the cost of necessary services.

money generation model

Choosing a money generation model

Now, a little bit of magic: how to create a unique working business model if everything seems to be invented so far?

You know who your customer is and can already imagine how you will conduct your business. It is the high-time to choose the money-making model: there are plenty of those, there are some with centuries-long stories, and some are pretty young, which are born by the rampant innovative development. The magic is in the fact that you can, and quite possibly, will definitely combine a few models. So this will make your startup a unique project with its business model. Below, there is a list of the most popular ways of making money in business.

Renting instead of buying

It is a business model where the client doesn’t buy the product itself but takes it for rent. Company’s advantage is in the revenue from each product, and the client’s advantage is in saving resources (you don’t need to buy or think how to store, etc.).

It is one of the most ancient business models: in ancient times, Romans used to take cattle for rent. Considering its modern realisation, it evolved in carsharing, bicycles, scooters, exercise machines rents.

It is a business model where buyers influence the final cost of the product. The product is sold to the buyer who has offered the highest bid-price. It is also an ancient business model: on the auctions B.C., people were selling cattle or slaves.

Nowadays the auction model is used by eBay. The service provides merchants with a possibility to sell any products. Payment for merchandise, its transportation happens without eBay participation. The merchant pays the fee for using the service which consists of the fee for setting a lot and a percentage of the sale price, buyers can use the site for free.

Another example is WineBid auction house specialized in selling wine (California, USA). Private entities and dealers put up lots — wines for sale for connoisseurs from all over the world. To ensure that wine is not sold below its real value, sellers set a minimum acceptable price.


The company concludes a contract with the client, which stipulates the frequency and terms of service.

In the 17th century, German booksellers started to actively use this model — they supplied multi-volume encyclopedias and reference books by subscription. Most publishers of newspapers and magazines still work using this model.

Nowadays many mobile applications and web services work on a subscription basis: for example, Netflix, Spotify.

Netflix is an American company that provides films and series. The company’s source of income is subscriptions. Netflix now has 60.6 million subscribers in the United States and 97.7 million in other countries. Users are offered three types of subscription depending on the quality of streaming content: basic (standard resolution), standard (high resolution), premium (ultra-high-resolution, content is available on several devices at once).

F2P (Free to play)  — a business model for monetizing computer/mobile games. The client can install the product for free and use it but you have to pay to get the gaming advantage or level up the hero.

Often, for in-game purchases, the developer interposes in-game currencies — diamonds, coins, bonuses that you can get by transferring a specific sum of money to a specific account (then it converts into in-game money and charges to the gamer’s account.), or by watching the partner’s ad or completing some sort of in-game quest.

This model is used by developers of Massively multiplayer online role-playing game (MMORPG) to avoid pirate copying. The bright example is World of Tanks.

Freemium (Free + Premium)  — an innovative business model, where the client can get a free basic product package, and if you want to get an extended (premium) package — you have to pay.

The basic package is designed to show products advantages. Besides, it attracts the maximum possible number of users, part of them buys the premium package, and that’s how the business receives income.

Examples — Spotify, Yandex.Music. Clients, who use free packages, have to interrupt using the services for advertising. What is more, basic version platforms have limited functionality.

The SaaS model (Software as a Service)  is a system of selling program products, when the client uses it via the Internet. The user doesn’t need to install the software or download the application as well as he doesn’t need to check the updates and worry about the program compatibility. The client pays and receives access to the application like taking it for rent.

SaaS-project examples are a service for business management “Bitrix24” and office toolset Zoho.

PaaS (Platform as a Service)  — a business model for cloud services when users receive access to using the information-technological platform: operational systems, database management systems, middleware software, developing and testing tools, given by a cloud provider.

The provider of the cloud platform can charge a fee from users, regarding the consumption level: tariffing is possible according to the time of operation of consumer applications, the amount of processed data and the number of transactions over them, or the network traffic.

In practice, the PaaS model is a web-server or a database: the client controls the applications while the provider controls the operating system.

Long Tail  — a business model which supposes selling a wide range of products. This business model negates Pareto’s law, where selling 20% of products brings 80% of income. The long Tail business model gives a possibility to receive up to 60% of income from realising poor demand projects.

The most famous example of this model works in practice — Amazon.

Lock-In (“Razor and blade”)  — the model which implies selling the basic product for a low price and additional products for a high price.

Buying the main product for a low price or even for free, the merchant gets the buyer’s trust and gets hooked on some kind of addiction. Usually, it is almost impossible to use a basic product without buying sources.

The brightest example of this model is Gilette shaving sticks and blades for it.


Franchise or franchising  is a business model where one of the parties (franchiser) gives to another (franchisee) a right for some kind of business for a charge, to use the made-up model to do the business under the franchiser’s trademark.

Well-known examples are McDonald’s and Burger King.

Low/high touch

A business model tied to contacts (high touch) or their practical absence (low touch) between the seller / other company representatives and the client.

If we are talking about high touch, the company representatives have a key influence on sales and customer retention. The business won’t work without interaction.

Examples: money management, financial services, accounting firms; personal services — beauty salons.

Low touch implies minimal interaction between company employees and customers. Ikea example.


This business model offers financing the project by a great number of private entities. This model helps to:

Launch the business from scratch if you don’t have your funds for it;

Check consumer demand — if a potential customer is not ready to give even $ 1, then the product is not interesting to the target audience;

Launch the sales — those who invested in your project may become your potential customers in the future;

Do not attract professional investors to the project.

Crowdfunding implies that in exchange for financial support, the donor receives a reward, which relates to the project — a finished product, advantages for its acquisition/use.

Financing is built using the “all or nothing” principle: the project is realized only if the sum required for its realisation is raised in a fixed period of time. At the same time, crowdfunding platforms can earn by taking a percent from the fees. For example, the most famous crowdfunding platform in the world — Kickstarter — takes 5% of the funds raised for the project.


A model where the creation of value is partially transferred to the client and in exchange, he receives a lower price for the goods.

This model is traditionally used by supermarkets, grocery stores, clothing stores.

However, it can be used in the service sector. Accorhotels, the French hotel chain, has implemented this model in their hotels. The guests are offered inexpensive rooms with the possibility of self-service: people pay for the room through the terminal, and in return — they receive the keys and independently put their belongings in the room.

This model is used by self-service car washes, gas stations, and some cafes.

Either-way market (Mediator)

The business helps to organise effective interaction of two groups which complement one another groups. Recruitment agencies and search engines (give advertisers an audience) are working by using this model.

For this business model, the so-called indirect network effect is extremely important — the more people from one group use a certain platform, the more attractive it becomes for another group of customers. The effect works in both directions. If you correctly guide user groups, the indirect network effect will increase, and customers will be firmly attached to the company.

For example, in this case, Google is a tripartite market that brings together ordinary Internet users, website owners and advertisers.


Pay-per-use  — is one of the new-made models, its concept lies in the fact that the client chooses the set of services/goods and at the specific time that he needs and, thus, does not spend extra money. For example, when you use a mobile phone, you choose the package of services that is most beneficial and convenient for you: an unlimited number of minutes of conversation within the network, 300 minutes for calls to other networks and 2 GB of Internet traffic (because you have Wi-Fi at home and work). You do not pay extra money for unlimited mobile Internet and do not overpay the operator for calls to other networks.

Another example — a company develops software and provides several packages for customers with different functionalities — this is Pay-per-use.


The model got its name from Japanese martial art, the essence of which is to merge with the attacking enemy and redirect his energy. Using this model, the company seeks to take a position opposite to that of competitors in order to avoid confrontation. The bet is on the innovativeness of the product, which provides avoiding competition in the industry.

A well-known example of this model is Cirque Du Soleil, which refused tricks with animals and staked on an element mix of opera, ballet, theatre, performance with classical circus art.

Choosing a business model has a key influence on the startup’s success. To decide which business model template you need, you have to work with Lean Canvas: “workout” your future project through the nine points, devoted to different business processes. The received detailed information will help to choose the main and additional startup business models.

Business models can be classified by the type of the client and the monetization model. In business models of the first type participate three subject categories: business, a client (consumer) and government. There can be a countless number of monetization models, by combining the most popular classic elements, which have proven their reliability: rent instead of purchase, auction, subscription, SaaS, PaaS, Long Tail, Lock-In, franchising, low/high touch, self-service, either-way market, Pay-per-use, “aikido”. Don’t be afraid to risk, and good luck with exploring your own, inimitable business model for your startup!

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15 Different Business Model Ideas for Your Startup

Learn how to choose a business model to generate revenue and convert your startup idea into a profitable business.

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Do you think a great idea is all it takes to launch a startup?

You could be right. But, if you want to launch a successful startup , you’ll need more than an idea up your sleeve.

You hear stories of great startups taking the marketplace by storm.

Startups led by visionaries, who employ innovative methods to delight their end-users. Startups that overcome all adversities to succeed in niche markets. Startups who are recognised with laurels from well-wishers and envy from competitors. The list goes on.

But, have you given a thought to the startups that don’t make it? It’s unlikely that you will read about the startups that start out with amazing ideas and yet end up with nothing to show for it.

Statistically, there are millions of new startups hitting the market every single year. But, if you look at how many of those startups make it to see another New Year’s Eve party, well, the numbers don’t look so good.

In 2019, the reported success rate of startups was around 10%. This means 90% of these millions of startups quietly pack up and leave the scene once the going gets tough. The reasons for their failure to make it in a competitive market can vary.

From bad product ideas and poor management to lack of funds and bad marketing, the reasons could be pretty much everything in between.

Sounds scary? It shouldn’t. Not if you’re well prepared before you go into battle to secure your spot in your marketplace.

Also Read: 35 Best Profitable Tech Startup Ideas for Beginners [With Examples]

Why Do You Need a Business Model?

If you’re still planning to wing it, scroll up and read the failure statistics of startups once more.

The above statistic is why you need a business plan to steer your startup in the right direction and keep it relevant in the marketplace in the years to come. And to have a business plan, you need to decide on the business model you wish to implement for your startup.

Your business model will be the star of the show, as your business plan will revolve around it. So, you need to carefully evaluate the different types of business models available and choose the one that would work best for your business.

Now, this can get a little tricky, given a large number of business models out there. But, having an idea about the different types will give you an idea about which one would work best for your specific business needs. You can even mix and match a little and combine the best parts of different business models to develop a unique model for your business.

Stick with us from the starting till the end, and we’ll give you an idea about how to customise your business model. First, let’s explore the best and most widely seen business models in today’s market.

1. Marketplace Model

Marketplace Model

The marketplace business model is one where the business owner facilitates transactions between buyers and sellers. Think of an old-timey souk , which is a great example of the marketplace model. It’s an interactive commercial space where merchants set up stalls to display their goods and consumers walk around and see what they like before making a purchase.

The merchants will have to pay a fixed amount to the owner of the souk in exchange for the opportunity to showcase and ultimately sell their wares on the owner’s land. One of the main advantages of having a marketplace model for your startup is that you won’t have to worry about the inventory aspects of your offerings.

These days, the marketplace model is one of the most commonly seen business models in e-commerce . E-commerce is the online transfer of goods and services in exchange for money. Consider Amazon, which follows the marketplace model. Basically, Amazon provides the space for sellers and buyers to interact.

Now, in this case, the sellers can be manufacturers, distributors, or resellers. Sellers list their products on the website for potential buyers to purchase. They pay a subscription fee to Amazon for letting them put up their products on Amazon’s website. And Amazon handles the advertising of products as well as the last mile of the product delivery.

Also Read: 15 Easy Steps to Build a Successful E-Commerce Mobile App

2. Reseller Model

The reseller model is a type of business model that has striking similarities to the marketplace business model. There are, however, a few key points that set it apart from a marketplace model.

For one, the inventory and logistics of the products sold through this model are handled solely by the reseller or distributor who has listed the products for sale. eBay is a popular example of a reseller business model.

While a marketplace model gives resellers the chance to utilise their local information, in a reseller business model, the distributors are expected to fend for themselves. They handle their own promotions, prices, and customer service, as opposed to a marketplace model.

If you have firsthand information about the products you wish to sell, and are ready to handle the entire marketing and logistics of your offers, then the reseller model would be more your speed. You can also build your client base faster with a reseller model.

If you opt to list your product in a marketplace, your customers are more likely to be loyal towards the marketplace you utilise rather than direct interaction with your brand. The type of product and your interest in connecting with your end-user are usually the main deciding factors when you’re trying to choose between a reseller business model and a marketplace business model.

3. Franchise Model

Franchise Model

The franchise model is perhaps the business model that you are most familiar with. We grew up hearing about famous fast-food chains opening new franchises all over the world. And it’s not just fast-food chains- most businesses you come across in your daily life are franchise models.

McDonald’s is a famous example of the franchise model. You’ll notice that the business blueprints of McDonald’s around the world are similar. It doesn’t matter whether you are walking into a McD in the United Arab Emirates or one in California. Your senses will be assaulted with the ubiquitous red and yellow of Ronald McDonald and the delicious smell of french fries.

And that’s exactly how a franchise model works. A franchise is a tried and tested business model blueprint that can be purchased by anyone who wishes to start their own business .

The buyer, or the franchisee , then replicates the intellectual property he purchased to set up his own chain. The original owner, also called the franchisor , will get a share of the profits made by the franchisee. In return, he will help the new buyer with the business operations, such as marketing and financing to ensure that the franchise runs smoothly.

4. Freemium Model

Now, this is an extremely smart business model that plays on human psychology. Consumers generally want the best of everything, don’t they? Better products, better services, better prices. The freemium model lets your end user get a taste of what’s to come, and gets them hooked. And then makes them pay for the whole meal! Let us explain.

As a startup, you can use a tiered approach to get your customers to subscribe to your products or services. You can do this by offering certain services without any hidden charges to your end users. Once they are comfortable with your services, you can put together a premium package that offers more exclusive services and additional features which will be beneficial to your users.

Think of LinkedIn . It’s free of cost, and it basically works as your online resume. You use it for networking and job-hunting and it has become an integral part of your professional career. While the free services LinkedIn offers are common to all, you can utilise exclusive courses, certifications, and features like the LinkedIn Sales Navigator only if you pay an access fee. This model combines free-features with pre-mium features to become the freemium model.

5. Subscription Model

Subscription Model

Subscription models are gaining popularity worldwide across different businesses, but they’ve existed since the times of newspapers and magazines. Remember those days when your postman dropped off a daily paper or a monthly magazine you subscribed to?

If you want your end-users to engage with your startup frequently instead of facilitating one-time sales, then this is the business model that you need to look into. In a subscription model, you can see that the end-user is always focused on convenience.

Let us look at a few examples!

Think of Netflix, which is a hard-to-miss example of the subscription model. Netflix stores huge databases of visual content that you can access and binge-watch if you pay a monthly subscription fee. They have countless movies, documentaries, and TV shows that you can stream at any point of time without going to the trouble of purchasing them. All you need is a smart device and enough internet data.

Subscription business models are also commonly seen in e-commerce. There are many business-to-consumer stores that offer subscription e-commerce, which means consumers won’t have to place the same order over and over again.

For example, if you’re planning a startup to deliver fresh groceries to your end consumers directly, it would be a good idea to give them the option of opting for a subscription model so that they won’t have to bother with recurring orders.

The recurring sales also help you analyse and predict your annual turnover. Knowing your potential sales targets can help you streamline your business strategies and even aid with investor pitches for your startup.

Also Read: How Much Does it Cost to Create an App Like Netflix

6. On-Demand Model

The on-demand model is also known as the product-to-service model, and is all around us. In an on-demand business model, users purchase the end result that comes from an equipment instead of the equipment itself. You get to utilise a service as and when you need it, instead of investing in the actual equipment that delivers the service.

For example, let’s say you want to go shopping at your nearest supermarket and there’s no one to give you a ride. What do you do? Hail an Uber, of course. You don’t buy a car just to make a grocery run!

Uber uses the on-demand business model to cater to its end users. The Uber driver shows up, drops you off at your location, you pay your cab fare, and that’s it! You have no more obligations to the car or the service provided by the Uber driver.

The on-demand business model is not limited to taxi services alone. The same model is applied in businesses that help you order food, groceries, medicines, and more online. A delivery person will pick up your order when you make a demand and have it safely delivered to your doorstep. The on-demand business model is cost-effective and utilises freelance labour to deliver results.

Also Read: A Step by Step Guide to Build an On-Demand Courier Delivery App

7. Disintermediation Model

Disintermediation Model

The disintermediation type of business model, also known as the direct sales business model, is popular because it eliminates the need for middlemen. Direct sale not only reduces the cost for everyone involved, but also removes the hassles of having a middleman.

And, if there are no middlemen in the picture, the transactional share that would otherwise be earmarked for them can be distributed between the seller and buyer. This is feasible for both manufacturers and buyers in the long run.

Think about it. If you sell a product directly to your customer, then you won’t need to spend money on stocking your wares in stores and displaying them to potential buyers. This means that you can offer much cheaper prices to your user users, which will get your brand more customer loyalty.

A direct sales business model is feasible for your startup if you have the necessary resources to manufacture goods and handle the logistics without involving a third-party distributor. Dell is a great example of the disintermediation model, as they distribute their products directly to their end users without engaging in traditional retail cycles.

8. One-for-One Model

The one-for-one business model, also known as the buy-one-give-one model, is an ingenious business model that inspires customer loyalty through altruism. It was popularised in 2006 by Blake Mycoskie , the founder of TOMS shoes, when he offered to donate a pair of shoes every time a customer made a purchase.

Consumers were happy that they got the product they needed and were also able to help needy children around the world. Although this model has faced some backlash over the years, it ensures that everyone involved is satisfied.

TOMS gained publicity and devised its marketing strategy around its business model, buyers were happy with their good-deed-for-the-day, and tens of thousands of children worldwide got free footwear.

There are many startups that follow the buy-one-give-one business model, with some even giving back with products or services that aren’t necessarily labour-intensive to produce.

For example, you could plant a tree for every product your consumers buy from you, or donate to a charitable cause with a percentage of each sale that you make. The one-for-one business model is good for your startup if you are ready to take up the responsibility of being in the public eye as a company that gives back to society.

9. Leasing Model

Leasing Model

A leasing business model is ideal for your startup if you can identify a demand for leased goods in your marketplace. In this type of business model, the company first purchases a product from a manufacturer or seller and then leases it out to another entity for a periodic amount.

The leasing model is popular in cases where the end consumer needs a product for a short period of time only, making it practical for them to rent it instead of purchasing it themselves.

These products can be high-end products like electronic equipment, furniture, or even apartments. If you want to adopt a leasing business model for your startup, then you need to have sufficient capital to invest in procuring the products that you will ultimately lease to your end users. Take a look at different sources of funding for your startup.

Think of people living in leased apartments who would be looking to furnish the place temporarily for the duration of their stay. They would not want to invest in expensive furniture that they will have to lug around every time they move.

The simplest solution for them would be to rent furniture from reliable service providers and pay a monthly fee in exchange for the leased furniture. You may be familiar with Rent-a-Center, a business offering the leasing business model, which allows its customers to rent furniture and electronics for periodic dues.

10. Virtual Goods Model

Virtual goods are intangible commodities that are purchased online. They are commonly seen in gaming platforms. As such, the virtual goods business model is mostly utilised by game developers. When game developers offer bonus packs and extra lives, players spend real money to buy these virtual goods that serve a purpose in their online gaming interactions.

A great advantage of this business model is that you don’t need to worry about inventory storage, as you will store the goods you sell, in the world wide web. All you need is a good team of developers and some creative thinking to guide you.

Consider PUBG, one of the biggest multiplayer online games to have hit the market. In 2020, PUBG exceeded 3.5 billion dollars in microtransactions of virtual goods, after offering players exclusive virtual goods such as rare attire for the players’ avatars.

Facebook is another business that utilises a virtual goods model to attract and engage its users. There are various virtual gifts that you can purchase on Facebook for your online friends in exchange for money. Many businesses that operate on this business model set up virtual goods stores within the games they develop to make the purchase cycle easier for users.

11. Bundling Model

Bundling Model

The bundling model is as simple as it sounds – you bundle up goods and services together and then sell them at a price that is lower than if the items were sold separately. The bundling business model will result in larger sales, but may also result in lower profit margins if the goods are not priced just right.

Let’s take Burger King as an example to understand this model better. Burger King employs the bundling business model when it creates value meals for its customers.

For example, you could get a cheeseburger, fries, and coke bundled together at a lower price than if you bought each item separately. If you use this business model, customers will tend to buy more due to the attractive prices, and you can even bundle hard-to-sell items with quick-moving products to accelerate their sales.

12. Razor and Blades Model

Razor and blades is a smart business model that you won’t have to search far to find. Just step out to your nearest pharmacy to find a great example of this model – razors and blades!

You’ll notice that while the razors are modestly priced, it costs a lot more to get a set of fresh blades. The pricing is also tailored such that you won’t be tempted to just buy a new razor instead of a new set of blades.

Companies that utilise the razor and blade business model produce goods or services that are cheap in comparison to the accessories that accompany them. It’s interesting to note that there is also a reverse razor and blades model. Businesses first launch an expensive product and supplement it with cheaper accessories that are must-haves.

A classic example of this is Apple. Apple produces costly products like the Apple Mac and attracts more custom from its users with necessary accessories such as chargers.

13. Hidden Revenue Model

Hidden Revenue Model

The hidden revenue business model lives up to its name. As an end-user, you won’t have to pay any money to partake in the services offered by businesses that utilise the hidden revenue business model.

Google is perhaps one of the most popular examples of the hidden revenue business model. We use Google daily to find information ranging from healthy recipes to job openings, and everything in between, yet we don’t pay a penny for our search results.

So, how does a business that uses the hidden revenue business model make any money to stay in business? Simple. You can make a lot of money with advertisements and marketing campaigns. Google basically acts as a giant and infinitely big virtual billboard for millions of people around the world.

Businesses can run paid promotions to get their products more visibility and better rankings on Google’s search engine. And every time someone clicks on a pay-per-view campaign, Google gets paid by the advertiser.

14. Crowdsourcing Model

Let’s use a simple example to understand how a crowdsourcing business model works. How does Wikipedia work? You can get information on pretty much any subject under the sun on Wikipedia, yet they do not have a dedicated team of experts putting together those millions of pages of information.

Wikipedia lets its users write and update information on its pages, except in rare cases to prevent vandalism or the propagation of false information. This gives Wikipedia access to an almost infinite talent pool with different ideas and knowledge about diverse subjects.

The company using a crowdsourcing business model can engage with its users and take feedback and opinions to perfect its offerings in the long run.

15. Unique Model

Unique Model

You might have noticed that many businesses use business models that are a combination, rather than a rigid definition.

Amazon, for example, can be classified under a marketplace business model or a reseller business model. YouTube can come under the hidden revenue business model or the crowdsourcing business model. Another well-known example of a unique business model is Decathlon, a sporting goods store that is on a mission to make sports affordable for all.

Decathlon cannot be classified under any conventional business model type, because they developed a model that serves the unique goals of the organisation. Decathlon manufactures and distributes their own goods, and eliminates the middlemen.

This helps them offer their goods and services at much lower retail prices to their customers. This means they are following a combination of the distribution business model and the disintermediation business model.

You alone know what’s best for your startup business. Once you establish a working business model for your startup that is curated to meet your organisational goals, you could come under the unique business model classification too!

You can also take a look at 50+ most successful small business ideas for 2022.

No two business models are quite the same, much like no two startups are the same. Every business has a distinctive vision, which translates to specific business needs. You cannot rely on the business decisions made by the startups before you if you want to charter your own course to success. What worked for someone need not work for you.

As such, the business model you adopt for your startup should be exclusive to your business. Your business model can also be one that has never been documented before! Go through your requirements, and get an idea of how you wish to cater to your audience. This will help you find a business model that is tailored for the unique services your startup has to offer.

At NeoITO , we make it our mission to help you with product development services that align perfectly with your chosen business model. And it doesn’t matter what type of business model you opt for, we have you covered!


How to manage risks in software development, 17 factors venture capitalists evaluate before investing in your startup.

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Aleesha is a Content Consultant working with NeoITO. Although writing has always been her first passion, she loves travelling and MMA and is a firm believer of continuous learning.

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What is a Business Model? Types of Business Models

Gorish Dua

Ever wonder how businesses work? What goes on behind-the-scenes? How Google makes money? Or how there's a McDonald's a stone's throw from wherever you are! Every business follows a certain style of working. And that style is its business model.

A business model is a framework that defines how you generate long-term value in terms of revenue by providing value (products/services) to your customers. Here, comes an exhaustive but hopefully not exhausting list of business models that various companies have adopted and modified according to their needs. I bet my non-existent Cadillac that you have heard of them.

Types of Business Models

1. Hidden Revenue Business Model 2. Advertising Business Model 3. Razor Blade and Reverse Razor Blade Model 4. Franchise Business Model 5. Direct Sales Business Model 6. Peer-to-Peer Business Model 7. Subscription Business Model 8. Freemium Business Model 9. Customization Business Model 10. User-Generated Content Business Model 11. Multibrand Business Model 12. Attention Merchant Business Model

How to Write A Business Model? FAQ's

The Ancient Three

These are the oldest and most basic business model types . They were popular before the time of computers and spreadsheets. All subsequent models evolved from:

  • Manufacturer : Conversion of raw materials or assembly of pre-made parts into finished goods is the job description here. The sales can be taken care of by the parent company or outsourced. Say, cement manufacturers.
  • Distributor : This person acts as the in-between for manufacturers and retailers/customers. For example, auto dealerships.
  • Retailer : Through a physical or online location, the retailer purchases products from the manufacturer/distributor and sells them to the public.

1. Hidden Revenue Business Model

" Google , Facebook " I'm sure you wonder how the owners of Google and Facebook are oh-so-rich when you have probably never paid a cent to use their services. Consider google. It charges its users not in money but in data. The keywords searched are sold to the highest bidder who then sends you ads relevant to your searches.

Also, the ads you see on many webpages are 'spaces' rented out to advertisers. Every click or action pays the website owner a commission. Google has adopted an advertising business model within a hidden revenue model. Facebook works similarly using targeted ads.

business model from startup

2. Advertising Business Model

"Buzzfeed, Medium , Google" This model is used by firms/companies that have a wide user base or user traffic. They sell digital space to advertisers. The revenue is generated by three modes- cost per click (CPC), cost per thousand (CPT), or cost per action (CPA). This model works only if the content generated engages and retains the audience. There is a tradeoff between user experience and the need to generate revenue. There is also the issue of trust. The important thing is to never sacrifice quality chasing clicks.

3. Razor Blade and Reverse Razor Blade Model

"Gillette, X-box" The strategy here is to pair a dependent good with a consumable good. The former is sold at a very low cost and the latter at a high price.

Let's take a look at these business model examples .

Gillette                                                                                                                                   Its inexpensive razor and expensive blades. A periodic income is generated for the owner. The company revolutionized this business model and is aptly named. Apple Apple's products such as MacBook, iPhones, etc., are priced way higher than their manufacturing and any additional production costs but the additional features such as iTunes and the play store come at a nominal cost.

What Is A Business Model

4. Franchise Business Model

" McDonald's , Starbucks " A franchise is an agreement between a franchisor and a franchisee. The latter buys the right to use the established name, trademark, operational strategy, and sell products under their name. The fee paid is known as the licensing fee and apart from that, the parent company charges royalties which is a percentage of gross sales.  The former takes care of the overall and affiliate operation strategy such as products and advertising. A franchise is a much safer operation as compared to starting a business from scratch.

business model from startup

5. Direct Sales Business Model

"Avon, Amway, Herbalife" There are no retail stores. An army of salespeople connected with the company act as links between the company and the retailer or customer. The product demonstration takes place in the customer's home or any business setting of the salesperson's choosing. He/she takes a cut of the sale made, while the parent company retains the rest.

6. Peer-to-Peer Business Model

" Airbnb , Uber " This is the buyers-meet-sellers model. The company provides a platform for that. There is no physical inventory for which the company takes responsibility. Their only duty is to assure the users of their credibility. Therefore, this is a model of minimum responsibility and risk. Revenue can be generated in a variety of ways:

  • Charging a fee from sellers for using the platform
  • Charging a fee for advertising
  • Getting a cut of buyers' successful transactions

7. Subscription Business Model

" Netflix , Digit, Dollar Shave"                                                                                         One of the more popular and successful business models. Periodically- say every month or year, an amount is charged. A subscription model implies a continued relationship with the customer. In order to retain your customer base, new and updated content must be provided regularly. A subscription is much more beneficial than pay-per-product or lifetime access as it generates steady revenue at manageable content updation costs.

Subscription Business Model

8. Freemium Business Model

" LinkedIn , Skillshare" Companies implementing this model offer a basic set of features for free to establish how their product works. It is one of the successful business models in India . This builds a relationship with the customer. If the user is satisfied, he/she may pay an amount to access the premium features of the product, have an ad-free experience, or utilize any such service the company chooses to provide.

Companies utilizing this model are often those which offer personal or business services. LinkedIn for example services HR as well as job-seeking professionals. The platform, for a fee, makes it more sophisticated for the users to meet their requirements.

9. Customization Business Model

" Nike , Tailoring industry" Customization took the industry by storm. There was no better way to make customers feel as if the product was made for them unless you actually made it for them. With the advent of 3D printing, customization has become all the easier with the availability of build-on-demand services. Every transaction is unique to the customer. Nike's custom shoes are an example of customization on a large scale.

10. User-Generated Content Business Model

" Quora , Youtube , Reddit " Content is generated by the users. But the users get paid neither do they pay. Their reward is recognition for their content. An advertising business model is used within the model. The revenue is generated as per the same. A system of ranking based on 'likes' or popularity attracts the user base.

What Is A Business Model?

11. Multibrand Business Model

" Unilever , Kering Group" One corporation owns many brands none of which are marketed in relation to each other or the parent company. Take Unilever for example. It owns over four hundred brands. You might have heard of Dove, Lipton, Magnum, and Pepsodent. See how diverse their product portfolio is ?

The supply chain, marketing & branding strategy, and other key operations are centralized while product research & development, and other product-specific operations are decentralized to ensure creativity. The independent nature of this model allows the corporation to enter any market from ( economical to luxury ) without affecting its existing product range and sales. Unilever is the fourth largest advertiser in the world.

12. Attention Merchant Business Model

"Snapchat" This business model aims to capture human attention for extended periods. This again has an advertising business model hidden within. Snapchat with its face recognition and corresponding 'filters' managed to keep its users clicking 'selfies'' nonstop. They also gather the geographic data of the user after obtaining their permission. The data is theirs to use. This is a risky business model and is dependent on the number of consumers.

Business models are not mutually exclusive. More than once you have seen how one model is hidden in another. The aim is to find the model best suited for your business. The list does not stop here. Since every company has given it's model a unique twist, it is safe to say there are as many business models as there are companies. However, I have covered the most well-known companies or list of business models and I hope you have a better understanding of how they work.

How to Write A Business Model?

Simple steps to writing a business model:

  • Identify your specific audience.
  • Establish business processes.
  • Record key business resources.
  • Develop a strong value proposition.
  • Determine key business partners.
  • Create a demand generation strategy.
  • Leave room for innovation.

business model from startup

1. What is a Business Model?

Business model meaning : A business model is a framework that defines how you generate long-term value in terms of revenue by providing value (products/services) to your customers.

2. What are examples of business models?

Business models example: direct sales, franchising, advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA.

3. What is a startup business model?

A business model explains which consumer pain your startup chooses to relieve, why your solution works better than competing ones and how big a wedge a company can drive between what customers are willing to pay and the costs.

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The 9-Step Business Model Canvas Explained (2023 Update)

business model from startup

Written by Raquel Alberdi

Business | entrepreneurship, 16 comments(s).

Business Model Canvas

Blog » The 9-Step Business Model Canvas Explained (2023 Update)

business model from startup

“A major mistake made by many start-ups around the world is focusing on the technology, the software, the product, and the design, but neglecting to ever figure out the business . And by “business” we simply mean how the company makes money by acquiring and serving its customers”.

-Reid Hoffman

After meeting with hundreds of entrepreneurs and business owners over the years I believe the LinkedIn co-founder and Blitzscaling author Reid Hoffman’s got it spot on.

People tend to focus on specific parts of their business, such as which software packages are being used, which is the cheapest supplier, how to optimize internal processes…?

They get so bogged down in the details of the day-to-day running that they lose the overall vision of their business.

Without this vision they are unable to scale, they make marginal profits, miss opportunities, struggle to innovate, and end up running “just another” business.

Another handy metaphor in understanding this common mistake is the soldier in the trenches .

Every meter of ground gained comes at a heavy cost, mistakes are made, and progress is hard-fought and slow…a day-to-day experience for 99% of entrepreneurs and businessmen.

But when you do have that 360 vision you see the entire battlefield. Decisions are much clearer, fewer mistakes are made, and progress is fast and methodical.

Fortunately, a business model framework exists that gives you both vision and clarity .

The Business Model Canvas provides entrepreneurs, business owners, and strategists with a tool to analyze, structure, and evolve a business while always keeping the bigger picture front of mind.

So let’s take a closer look at how it works.

Table of Content

What is the Business Model Canvas?

Created by Swiss entrepreneur and Strategyzer co-founder, Alexander Osterwalder, the Business Model Canvas is a visual representation of the 9 key building blocks that form the foundations of every successful business. It’s a blueprint to help entrepreneurs invent, design, and build models with a more systematic approach.

Why is it so popular within the business community?

Its simplicity. The business model canvas allows us to carry out a high-level analysis without drilling down and getting lost in the details. You just draw out the 9 building blocks on a blank canvas, fill them in as each concept relates to your business, and hang it somewhere everybody can see.

It’s a visual overview of your entire business on a single canvas.

While the Business Model Canvas is an extremely fluid concept and hyper-specific to individual companies, each canvas is still broken down into these 9 key building blocks:

Customer Segments

Value propositions, customer relationships, revenue streams, key resources, key activities, key partners.

When laid out on the canvas the model will look something like this:

 Scheme of business model in which 9 important fields are developed for its execution.

While you’ve probably come across each of the 9 building blocks before, the attractiveness of the Business Model Canvas is that it confines them to a single page , not a traditional 42-page document.

This makes it a lot easier to digest, as well as assess existing business models or map out new ideas.

How do I fill out the Business Model Canvas?

To start your Business Model Canvas you will need to breakdown and analyze each of the 9 building blocks.

A good way to approach this is to gather the heads from marketing, sales, operations, finance, and manufacturing (if product-based) and pencil-in a morning where you can all meet together.

Then, after drawing a mock canvas onto a whiteboard, proceed to dissect and discuss each of the 9 building blocks as they relate to your business. You can use sticky notes to better organize your thoughts around the canvas.

If you are an entrepreneur or new business owner working alone and don’t have a team to bounce your ideas off, not to worry. You can still carry out your analysis before sharing it with a like-minded entrepreneurial community or forum, like those found on ThePowerMBA , to get useful, insightful feedback.

Whichever way you decide to approach it, I recommend you complete each block in the following order:

  • Cost structure

For continuity, I’m going to use the fashion retail giant Zara when analyzing each of the 9 key building blocks.

If you’d like to skip to another case study similar to your own business, navigate to the table of contents at the top of the page and select one of the other business model canvas examples.

Customer segment business model canvas for Zara company

The first block of the Business Canvas Model is about understanding who is the most important customer(s) you’re delivering value to. Or, in other words, who are they? What do they do? And why would they buy your product or service?

Not a single company exists without its clients, making customer segments the best block to start with while drawing out your business model canvas.

A great exercise to define your customer segments is to brainstorm and create your company’s buyer persona (s) .

Buyer personas are fictional depictions of an ideal or hypothetical client. Typically when brainstorming a buyer persona you’d want to define certain characteristics (age, demographic, gender, income, industry, pain points, goals, etc.)

However, remember at this stage we want a snapshot of our customer segment. There’s no need to jump into great detail just yet.

In the case of Zara, there are three distinct customer segments to whom they offer different products.

The products created for each of these customer segments (clothing, shoes, and accessories) are not trans-consumable. That is to say, a woman’s dress is highly unlikely to be worn by a 7-year-old child.

Once we know exactly who it is we are targeting, it’s time to look at what we as a company have to offer.

Zara Customer Segments business model canvas template showing the development of the 9 fields

The second phase is about figuring out your company’s value propositions , and importantly, your UVP (unique value proposition). The “what” that makes customers turn to you, over your competitors? Which of their problems are you best at solving?

Each value proposition consists of a bundle of products or services that fulfill the needs of a buyer persona from your customer segment. It’s the intersection between what your company offers, and the reason or impulse customers have for purchasing.

Some popular questions to ask while determining your UVP are:

  • Which specific customer pain point are you trying to solve?
  • What job are you helping customers get done?
  • How does your UVP eliminate customer pain points?
  • What products or services do you provide that answer this specific pain point?

So let’s try and apply this to Zara. Why do people choose to purchase from them, over their competitors?

Zara’s principal value propositions are fairly clear. They offer various ranges of stylish men’s, women’s, and children’s clothing and accessories at an affordable price.

But there’s more to it than that.

If we dive a little deeper we see Zara’s value propositions are more complex, which are behind the success of the brand:

Fast fashion

Zara adds new clothes and designs to its collections every 2-3 weeks, both in its stores and online. It keeps the brand updated, fresh, and modern while maintaining its all-important medium price point

Great eCommerce experience

Once you enter Zara’s online store you’re presented with a clean, easy-to-navigate, and high-end feel. The customer segments are visible on the left navigation bar with a search tab to further aid customers with their online experience.

Zara's Canvas business model where you can see the innovative presentation of its image

Localized stores

You can find a store in nearly all major retail locations (shopping malls, retail outlets, airports, etc.) meaning accessibility is not an issue for the majority of consumers.

Flagship stores

Zara demonstrates its aesthetic evolution to customers through its flagship stores. The recent opening of their Hudson Yards , New York City flagship is a great example of this. Customers shop around its vivid, minimalist layout offering them an experience aligned with the brand’s deeper, eco-friendly values.

Zara's Canvas business model where you can see the innovative presentation of the image of its stores

Zara Hudson Yards, New York

Business Model Canvas Template Zara - Value Propositions

The next step is to ask yourself how you are reaching your customers, and through which channels ?

This includes both the channels that customers want to communicate with you as well as how they’ll receive your products or services.

Is it going to be a physical channel? (store, field sales representatives, etc.) Or is it a digital channel? (mobile, web, cloud, etc.).

Zara has 3 primary channels in which they communicate and deliver products to its customers:

  • Direct sales through their stores
  • Online (both app and website)
  • Social media

Customers can go to a traditional “bricks and mortar” store to browse, model, and purchase different items of clothing at one of their retail stores.

Alternatively, they can shop online or through their mobile application and have the product delivered straight to their door or nearest store. The choice is completely up to them!

So that covers Zara’s commercial channels, but what about how they communicate with customers?

While they do communicate through their mobile app, their predominant channel is social media.

What’s more, they’re really, really good at it.

For example, did you know that Zara invests less than 0.3% of its sales revenue into advertising?

This is only possible due to an A-rated social media presence . Customer queries are not only dealt with quickly, but recommended re-works are sent back to HQ, forwarded onto in-house designers who then apply the feedback to future collections.

This customer-first approach through fluid communication channels has saved them thousands of dollars in marketing, strengthened their brand, and created a loyal customer base.

You should only step away from this building block once you’ve decided how each of your customer segments want to be reached.

Zara Channels business model canvas template where its components are developed

Once you have acquired customers, you will need to think about how you can build , nurture, and grow those relationships.

Now, this can be automated and transactional like large eCommerce brands Amazon or Alibaba. Or, it could be at the complete opposite end of the scale and require a more personal relationship you’d typically have with a bank or your local bike shop.

Zara’s relationship with its customers is threefold, and lies somewhere in the middle of transactional and personal:

  • Salesperson at store
  • Brand through social media
  • Sentimental attachment to a product

Yes, you have the initial transactional touchpoint at the store or online, something relatively impersonal and for many the only interaction they’ll have with the brand.

However, customers (especially in the fashion industry) are encouraged to continue to interact with a brand through social media platforms.

As we mentioned before when discussing channels, Zara has a very effective communication system in place. Not only can people instantly get in touch with the brand, but also engage with new posts, images, and collections uploaded to social media.

This personal approach to customer relationship building can, in some cases, lead to the natural growth of brand ambassadors and communities .

An attachment can also develop between customers and particular garments or accessories from one of their collections. The sentimental attachment to these products also creates another potential form of brand loyalty.

The relations with Zara's clients to give a Business Model Canvas where the 9 points to be developed are seen

Now that you’ve described how you are going to create real value for your customers, it’s time to look at how you plan to capture that value.

What are your revenue streams? Is it going to be a transactional, direct sales strategy ? Are you going to consider a freemium mode l, where you give a portion of your product or service away for free with the idea of converting later on down the line?

If you’re a SaaS company such as SalesForce or Strava , then it’s likely that a licensing or subscription revenue model will be more appropriate.

At Zara, it’s extremely simple. They make their money by selling clothes and accessories either at a store or online.

Zara business model canvas template for the development of Revenue streams within the 9 points to work

As you can see, we’ve filled in the entire right-hand side of our business model canvas. We touched upon:

Customer segments

  • Value propositions
  • Revenue streams
  • Distribution channels

Now it’s time to move over to the left side of the business canvas model and look at what we need, internally , to deliver our value propositions.

Key resources of the Zara Business Model Canvas

To start with, let’s take a look at key resources.

The key resources are all things you need to have, or the assets required to create that value for customers.

This could be anything from intellectual property (patents, trademarks, copyrights, etc.) to physical holdings (factories, offices, delivery vans, etc.) right down to finances (the initial cash flow perhaps needed to start your brand).

Another key resource every company needs to consider is its human capital . Are you going to need highly specialized software engineers? Or field-based sales teams?

They are relatively capital-heavy resources that need to be factored into your business model.

In the case of Zara, they are going to need a number of key resources if they hope to deliver their propositions:

  • Stock management
  • A large, interconnected network of physical stores
  • A strong brand
  • Logistics and supply chain infrastructure

Stock is vital for both online and offline customers.

If they are unable to supply their range of products and meet customer demands, satisfaction levels fall and they have a serious problem on their hands.

A large distribution network of brick and mortar stores combined with a strong brand name help mitigate these factors, as well as reinforce any ongoing marketing activities and communication efforts.

Finally, an efficient logistics process within Zara is critical, especially when you consider the complexities involved with such a large-scale operation.

They will require the necessary technology to analyze data on inventory, storage, materials, production, and packaging, with the staff to execute each of these stages and manage the delivery of the final products.

Zara business model canvas template where the Key Resources are developed

The next step is to define the key activities – the areas you need to be good at to create value for your customers.

To mix it up a little let’s take a look at a slightly different business in Uber .

Their key activities can be broken down into:

  • Web and mobile app development
  • Driver recruitment
  • Marketing: customer acquisition
  • Customer service activities : drivers’ ratings, incidents, etc.

They need a fast, clean UX for their customers using the app, drivers to carry out their service, and the ability to both market the product and deal with any customer queries.

Zara’s key activities will differ to those of Uber. Some of the things they need to consider would be:

  • Manufacturing
  • Retail process (point of sale and 3rd party management)
  • Distribution channel / logistics

Design is a key activity as Zara’s value proposition is to provide stylish garments at an affordable price. Their collections need to be constantly updated to follow the latest fashion trends at the time.

To produce their collections Zara will also require manufacturing capabilities. Now Zara doesn’t own their own factories (we will get to that in the Key Partners section) but they still need to be involved in the garment manufacturing process.

Everything from fabric selection to pattern making, to detailing and dyeing affects the outcome of the final product which of course they have to then go on and sell.

The effective management of the retail and distribution channels (online, offline, shipping, and communication with providers) is also key. A breakdown in either of these activities, such as a poor relationship with an important provider will have serious consequences for the business.

Zara business model canvas template showing the key activities for its development

Most modern business models now require brands to build out and work with various key partners to fully leverage their business model.

This includes partnerships such as joint ventures and non-equity strategic alliances as well as typical relationships with buyers, suppliers, and producers.

A great example of a strategic partnership would be between ThePowerMBA and Forbes . In exchange for exposure of our brand to the magazine’s global audience, we provide expertise and content on high-level business education programs.

As we touched upon when discussing key activities , Zara requires strategic partnerships with many different providers if they are to design and produce their collections.

Another key partner is their major holding company, Inditex .

Inditex has several subsidiaries including Massimo Dutti , Pull & Bear , and Oysho . Being a subsidiary of Inditex means they share a consolidated balance sheet, stakeholders, management and control, and various legal responsibilities.

While as a subsidiary Zara is afforded certain freedoms when it comes to design, delivery, and the general running of the company, the overall strategy will need to be aligned with Inditex and its other subsidiaries.

Zara Key Partners business model canvas template where the eighth point is developed

The final step of the Business Model Canvas is to ask yourself, how much is it going to cost to run this model?

This includes some of the more obvious needs such as manufacturing costs, physical space, rent, payroll, but also areas such as marketing activities.

If you are unsure of exactly what to include in your cost structure take a look at a Profit and Loss statement ( P&L ) from a competitor or company in a similar industry to yours. You’ll find many items overlap such as research and development ( R&D ), cost of goods sold, admin expenses, operating costs, etc.

Once that’s done you should prioritize your key activities and resources and find out if they are fixed or variable costs .

As Zara is such a large, corporate business they are going to have both fixed costs (rent, payroll, point of sales personnel) and variables, such as costs associated with the fluctuating sale of goods, purchase of materials and, manufacturing costs.

Once you’ve completed these 9 steps, your Business Canvas Model should look something like this:

Business Model Canvas Examples

Hopefully, you were able to get a good feel for the effectiveness of the business model canvas with our run-through of Zara.

However, if you found it difficult to follow due to the stark difference between your industries, I’m going to quickly go through 3 more companies to demonstrate the tool’s flexibility:

  • Netflix (Media service/production)
  • Vintae (Vineyard)

Even if these business model canvas examples don’t align exactly with your industry, I honestly believe that studying different models gives you a competitive advantage in your professional career regardless.

If you’re currently employed by a company, you’ll better understand how your specific role helps the company achieve some of its “long-term” goals.

Alternatively, if you are a business owner yourself (or perhaps thinking of starting your own business) you’ll have a better understanding of your business and where potential opportunities lay.

I’m sure you’re familiar with our next business model canvas example candidate, Netflix .

The global media company offers an online streaming service of various movies, documentaries, and TV programs produced in-house or licensed 3rd-party content. Their success sparked a revolution in the online media world with the likes of Amazon, Apple, Disney, HBO, and Hulu all rushing to launch their own online video streaming platforms.

Netflix started life as an online DVD rental company, basically a web version of the more popular (at least at that time) “bricks and mortar” Blockbuster.

Co-founder Reed Hastings predicted as far back as 1999 that the future of media was in online streaming, saying “postage rates were going to keep going up and the internet was going to get twice as fast at half the price every 18 months.”

It wouldn’t be until 2007 that Hasting’s prediction would become true when Netflix, as we now know it, was born.

So let’s take a current look at their business model canvas:

Netflix business model in which the 9 topics are taken into consideration

As you probably know, there are very few people out there who haven’t subscribed, watched, or at least heard of Netflix. There is content for everybody: wildlife documentaries, sci-fi movies, rom coms, action-thrillers, you name it – it’s there.

That’s why their customer segment can be classified as a “ mass market ” as the base is just so diverse.

All people require is a computer, TV, internet, and/or smartphone and they’re good to go. For most developed markets, that covers just about everybody.

Value Proposition

Whether on the train to work, sitting in the car (if you’re not driving!), or relaxing at home in front of the TV, you can consume their online, on-demand video streaming service.

They also have a huge library of content for consumers to choose from, ensuring that people keep coming back, as well as increasing their mass-market appeal.

They also produce high-quality, original content to differentiate themselves from their competitors.

Most people access Netflix either through their website or mobile/TV App . Another popular channel that you may have picked up on is their affiliate partners .

You’ve perhaps signed up for a mobile, TV, and internet package where the provider offers Netflix as an extra to sweeten the deal, so to speak.

That would be an example of an affiliate partnership between Netflix and mobile service providers.

I doubt many consumers have had direct contact with Netflix unless it’s to resolve a subscription issue or general query. It’s very much a self-automated service – you download the app, select the program you wish to watch, and hit play.

Very simple, very effective.

Again, this doesn’t need much embellishment. Netflix generates money from the different tiers and packages put together in their subscription services.

This varies depending on the region to account for local markets, but on the whole, it’s sold at a low price point.

Originally, Netflix’s Key Resources would have been their unrivaled DVD collection combined with a cost-effective mail-order system.

Nowadays it’s undoubtedly the rights to stream online video content. Netflix has brokered deals with some of the biggest production studios worldwide.

Combined with their huge library of in-house productions , it’s more than enough to encourage customers to renew their subscriptions.

To help sustain interest in their product, Netflix understands they need to serve-up relevant content for each sub-sector of their mass audience. Therefore their machine learning algorithm selects content for consumers based on streaming habits (what they watched, at what time, etc,.) to personalize the customer experience.

This explains why over 80% of all content streamed on Netflix was cherry-picked by this algorithm, making it a Key Resource for their business model.

Also, Netflix accounts for a whopping 12.6% of global bandwidth usage . The literal capacity to stream their services must be met meaning bandwidth must also be included here.

Content procurement is arguably their biggest Key Activity. They need to find people to produce and deliver their original content, including actors, studios, writers, etc. as well as secure the licensing and streaming rights from 3rd party producers such as Sony, Warner Bros, and Disney.

Finally, they need a fast, easy-to-use application to host their online streaming service. This needs to be available for both TV and mobile devices if they are to deliver their “on-demand” value proposition.

K ey Partners

Seeing as Netflix’s entire business model is largely based around streaming 3rd party content, key partnerships need to be built with production studios . No content, no Netflix!

Also, as we touched upon earlier Netflix is one of the largest consumers of bandwidth worldwide. If the speed and delivery of their streaming service are to be continued then deals will also need to be made with internet service providers (ISPs).

Netflix’s biggest expenditures come from both their in-house content procurement and 3rd party licensing agreements . The high-quality standard of video streamed on Netflix is only possible due to the speed and performance of its online platform and application , which has additional costs of staff, software, etc.

To show you just how flexible the business model canvas can be, I wanted to throw in a slightly leftfield example. Vintae is a Spanish wine producer who, after a detailed analysis of the business model canvas, was able to innovate and disrupt one of the world’s most competitive industries.

As some of you may know, the wine industry is extremely competitive. It’s also steeped in history and tradition , making it very challenging for newcomers to grab market share, let alone think about year-on-year growth and revenue.

However, CEO “Richi” Arambarri looked at the traditional “ bodega ” business model and saw a chink in its armor.

A “small” innovation in the business canvas model helped them to become one of the region’s most important winery groups, with over 10 installations and a presence across all regional denominations (Rioja, Priorat, Rias Baixas, etc.) with year on year growth of 30% – practically unheard of in such a competitive industry.

So how did Vintae analyze the business model canvas to find a niche in their market?

To answer that question, we must first look at the traditional winery business model .

Traditional Winery Business Model with its 9 developed points

As you can see, the wine industry has historically been patrimonial. Vineyards and estates are passed down through generations with the winery responsible for all phases of production, clarification, and distribution.

The traditional winery business canvas model suggests you must be the owner of the winery/vineyard where the wine is “manufactured”, meaning physical assets are a key resource of the business model.

So, if you wanted to start producing a Rioja, for example, you’d have to set up your vineyard in the region.

This is monumentally expensive as you need to:

  • Purchase the land
  • Plant a vineyard
  • Absorb set-up and installation costs
  • Deal with maintenance costs

It’s here where Vintae saw their opportunity.

What if we move vineyard ownership across the business model canvas from key resources to key partners ?

By leasing the equipment and space of large wineries (of which there was plenty), they could still produce their wine but reduce the cost and exposure associated with land purchase, crushing equipment, huge storage tanks, vineyard maintenance, and their bottling line.

This enabled them to focus on their sales, marketing, and distribution channels to create a better brand experience for their customers.

Also, it afforded them more flexibility when creating new wines as they were no longer confined to the limitations of grapes grown on their vineyard.

The lightness of this new business model eliminates maintenance overheads, channels energy into personalizing the customer experience, and allows for unprecedented levels of growth in one of the world’s most competitive industries.

Vinate business model

Business Model Canvas Software

Although I did mention starting with a large whiteboard, sticky notes, and a pack of colorful sharpies there are several options in which you can digitize the business canvas model production process.

While I still believe the aforementioned process is extremely valuable (it gets your entire team’s input in a single hour-long session) you may decide it more viable for each member of management to pool their ideas digitally before sharing with the rest of the group.

If that’s the case, then take a look at some of the following software tools for creating your business model canvas.


Created by the founders of the business model canvas Alex Osterwalder and Yves Pigneur , Strategyzer offers a range of business model canvas templates for you to get started with.

If you opt for the paid model (there is a 30-day free trial period) they offer a series of various classes that teach you how to build and test different value propositions and business models.

A real-time built-in cost estimator analyzes the financial viability of some of your business ideas, identifying alternative areas you may wish to explore with your model.

All-in-all, it’s a great resource to play around with and test some of your business ideas, with the option to dive into further detail if you see fit.

Canvanizer is a free, easy-to-use web tool that allows you to share links between team members who are brainstorming ideas for a business model canvas, but working remotely.

Like Strategyzer, there are several business model canvas templates provided to help you get started with your analysis. The strength of this platform is its accessibility. Much like a Google Doc., several people can brainstorm on the same canvas simultaneously with changes being synchronized automatically.

Business Model Canvas Tool

A ThePowerMBA alumni, impressed by the simplicity and effectiveness of the tool, went ahead and created the free application Business Model Canvas Tool .

It’s an incredibly intuitive, and easy-to-use tool that allows you to create templates simply by clicking the + button in each building block.

Each business model canvas created can be downloaded and shared as a pdf. with the rest of the team.

Would You Like to Learn More about Business Models?

If, after going through our 9-step guide on how to use the Business Model Canvas you’d like to learn more about different business model analysis tools , take a look at our alternative MBA business program .

As you’ll see, the course gives students a 360-degree view of business and management practices – such as engines of growth, segmentation and targeting, and value propositions.

I highly recommend you go check it out.

Regardless, I’d love to hear what you thought about this guide. Was it helpful? Would you like to see additional business cases analyzed from your industry?

Let us know in the comments below.


What’s it like to take one of our programs.

The best thing is to try it yourself with these classes that are totally FREE! Sign up and experience being part of the business school that has challenged the traditional educational model.

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business model from startup

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Ayeah Goodlove

Perfect thought

kourosh abdollahzadeh

I am a DBA student. I have used your site a lot. Thank you for the information

KJ Hwang

Well defined steps, Thanks for good contents.

Reza Ebadi

Dear Sir many thanks for you guideline. it was very effective for me. Thanks a Million

Debashis Rout

Well explained with practical business case


Wow, this article was incredibly helpful! I’ve heard about the Business Model Canvas before, but I wasn’t sure exactly how it worked or how to use it for my own business.


I need a sample of business model canvas for a beauty palour

Opoku Samuel

you’ve done a great job. keep it up

Claudia Roca

This is a very insightful content with a step-by-step practical approach of how to write a BMC and what exactly it should contain.

My team and I literally used your guide to write a BMC for a project we were working on, and in just about an hour we were done.

Thank you so much for this content, it was really helpful.


Thank you very much Collins and we are glad you are using this tool.


Insightful! Gave me the clarity I needed for my upcoming business. Thank you so much.


Thank you very much for the business model example of ZARA. It was very very informative


This is a great explanation, the best i’ve seen. Thanks

Thank you very much for reading and sharing your comments

Tatyasaheb Phadtare

Really great tool for business and whom want to enter,. Thanks


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How To Create A Business Model Canvas

Every startup founder should be able to clearly outline their business model. learn how to create a business model canvass in this step-by-step guide..

November 15th, 2018    |    By: The Startups Team     |    Tags: Idea Validation

A business model canvas is a method for determining a company’s business model in a visual, straightforward way. It can be used to develop new business ideas or to sketch out the business model for an existing business. It was developed by Alexander Osterwalder in 2008 and is part of the lean startup methodology.

Every company needs to be able to clearly and concisely outline their business model. Not only does it serve as a guide for moving the company forward, it also helps when approaching investors and partners. However, figuring out a business model can be tricky, especially for first time founders. And that’s where Osterwalder’s business model canvas comes in.

The business model canvas can be printed out in large scale, so that an entire team can work on it together. Consider using post-it notes so that ideas can be added, subtracted, and moved around as you work collaboratively toward developing a clear business model for your startup.

business model canvas

Business model canvas framework

The business model canvas framework contains nine sections. Let’s take a closer look at each one.

1. Key Partners

For the key partners section, you’re trying to determine who else you need in order for your startup to be successful. Who’s going along for this ride with you and your team?

✓  Who are our key partners? ✓  Who are your suppliers, if relevant? ✓ Who are your investors, if relevant?

2. Key Activities

What’s the most important thing your company has to do in order to be successful? The answer to this is often the product or service you’re delivering to the end customer.

✓ What’s the most important action your startup needs to take in order to be successful? You must settle on one.

3. Key Resources

In order to be successful, your startup needs a variety of resources. “Resources” doesn’t just mean money, though, although that type of resource is certainly important. Resources refers to everything your startup needs to succeed.

✓ What financial resources do we need? ✓ What human resources do we need? ✓ What physical resources do we need? ✓ What intellectual resources do we need?

4. Value Proposition

Your startup’s value proposition is the promise you make to customers about the services or goods you’re going to deliver. It’s can also be thought of as the value your customers find in your product.

✓ What value do we bring to our customers? ✓ What problem are we solving? ✓ What makes us different from our competitors? ✓ What’s new about our startup?

5. Customer Segments

No product can survive without customers, which makes it essential to determine what your customer segments are. The business model canvas has five customer segments: mass market, niche market, segmented, diversified, and multi-sided platform/market.

Mass Market Mass market means your product or service appeals to the widest possible range of people. Think of a product like dishwashing soap. Pretty much everyone uses it.

Niche Market Niche market means your product or services appeals to a specific group of customers, based on their particular needs. For example, only new parents are going to be interested in purchasing a Baby Bjorn.

Segmented Many companies have multiple markets within their main market. This is called a segmented market. So, for example, you may need to segment out your market based on demographic characteristics like age, gender, or location.

Diversified A company that serves more than one market segment has a diversified market.

Multi-Sided Platform Some companies have two or more markets that they’re serving simultaneously, with the same business. For example, if your company is a go-between for vendors and buyers — like Amazon is — then you have a multi-sided platform.

✓ Who are our most important customers? ✓ Who were our very first customers? ✓ Who gets the most out of our value proposition?

6. Customer Relationships

Startup founders know that customer service is the key to success. Customer relationships can take the form of personal assistance, dedicated personal assistance, self service, automated service, communities, and co-creation. But whichever method you choose, just make sure it’s excellent.

✓ How is my company going to interact with customers? ✓  How am you going to provide that key support and build an ongoing relationship with them? ✓ How will customers be able to reach us if they need support with our product ✓  What’s the most cost effective way to still provide great customer service?

7. Channels to reach customers

Your company won’t survive if you can’t reach your customers — so how are you going to get your product or service to them?

✓ Are we going to reach our customers directly, through our own channels? ✓  Are we going to to reach our customers through partner channels, like Amazon or a podcast network or other major distributors? ✓ Or are we going to use a combination of both?

Cost Structure

In this section, you’re going to explore the different costs and monetary consequences of your model.

✓  Is your company cost-drive or value-driven? ✓  What are your fixed costs? ✓ What are the most important costs for your startup? ✓  Which Key Resources are most expensive? ✓ Which Key Activities are most expensive? ✓ What are your variable costs ? ✓ What are your economies of scale ? ✓ What are your economies of scope ?

9. Revenue Streams

Your revenue streams are how you actually make money — and how much money you make. Your startup may have one or many revenue streams, but this is where you’ll identify them.

✓ What are your customers currently paying for similar products? ✓ How are they paying for those products? ✓ Do they like that payment method? Would they prefer a different one? ✓  How much are they willing to pay you? ✓ How much does each individual revenue stream contribute to overall revenue of the company?

How is a business model canvas different from a traditional business plan?

A traditional business plan can takes months to compose and can run to as many as 100 pages. It’s about mapping out all of the possible contingencies for your business, from your five-year profit forecast to your cash flow, cap table, market size, product, solution… You get the idea. It’s a static document that’s meant to reassure both entrepreneurs and investors that a company will succeed.

A business model canvas, on the other hand, can be created in a day. It’s meant to be a dynamic document that help provide some structure to a startup, with the understanding that it’s just a starting point. It fits neatly into the lean startup model because it’s all about getting a model created quickly so that entrepreneurs can start testing their assumptions and hypothesis. Lean startup focuses on moving quickly and pivoting often if necessary, which a traditional business model simply doesn’t allow you to do.

Tools to build a business model canvas

If you’re looking to build your own business model canvas, the best place to go is Strategyzer , which is Alex Osterwalder’s company. There you’ll find not only the format of the business model canvas, but also a range of tips and sheets and information on how to best utilize it. For those of you who want to go really deep, they even offer a full business model online course.

But, don’t get too stuck in your head about it! The beauty of the business model canvas lies in its quick execution and flexibility. So what are you waiting for?

About the Author

The startups team.

Startups is the world's largest startup platform, helping over 1 million startup companies find customers , funding , mentors , and world-class education .

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The Leading Source of Insights On Business Model Strategy & Tech Business Models


How To Create A Business Model In Seven Steps

Define the problem you’re going to solve, then define the customers for which the problem will be solved. Next, identify the customer and the problem. After that, define a set of possible solutions. After, define a set of possible monetization strategies for that solution, test, and choose your business model .

Table of Contents

A business model design in seven steps

Time needed:  1 day

How to create a business model in one day and seven simple steps


The most valuable asset any organization has is its business model .

Indeed, that is the way all the moving parts of the organization fit together to create a value chain.

The aim of the value chain is value creation for several players in that industry, market, and so on.

The business model is not static, it changes and evolves along with the scale of the organization.

The type of  business model you designed for your company will not work if your company scales. You’ll need to rethink and redefine it.

This is even more evident in companies that are trying to innovate.

When those organizations create a new technology or an innovative approach to existing industries, it is critical to understand who are the players involved in that industry and how you’re creating value for them.

In this blog, we covered the business models  of many organizations.

For instance, Google’s massive success is strictly connected to its business model .

The company managed to create a balance between several players in the publishing and information industry where each of those players gets back some value (economic and not) from having a relationship with Google .

Where do you start when it comes to creating a business model ?

Related : Successful Types of Business Models You Need to Know

It’s all about business model design

The primary aim of a business model is to create a sustainable chain, able to unlock value for several players in a market, industry, or niche .

Therefore, this value chain will start from a value proposition , a promise you make to the key players and partners in that market, industry, or niche depending on where you start.

For instance, when PayPal started out it didn’t look to dominate the whole market. It started from a niche .

As Pether Thiel put it in his book, Zero to One:

The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

Indeed, PayPal began by identifying its most valuable partner, what at the time they called “power user.”

That was a choice driven by its business model design .

Therefore, instead of focusing on generically offering a service for everyone, PayPal focused on acquiring and attracting as many power users as possible.

Those power users were mostly on another platform that had already scaled up: eBay.

Thus, PayPal focused all its effort on acquiring those power users from eBay , fast!

Only after PayPal had drafted, tested, and validated a clear value proposition for a small , yet critical group of power users, it could move on to take larger and larger segments of that market.

What is a value proposition?

At its most basic level, a value proposition is a promise you make as an organization to deliver something (either monetary or advantage) to a critical player you have in our industry.

For instance, when Google started it showed right away it was capable of offering 10x of search results, at a faster speed and more relevant to users.

However, had Google kept its search engine primarily focused on providing paid results, it would not have taken off.

Instead, Google focused on offering relevant paid results but also a bunch of organic results.

In short, Google managed to index and rank the web pages from blogs, journals, news sites and any other website that made those pages available to Google for its index.

In exchange for that content, Google offered back visibility as qualified traffic toward those sites.

Indeed, search engines back then (at the end of the 1990s) were not focused on offering quality traffic.

Thus, most of the audience you got back to your site might have been quite relevant to your business.

Google instead, with its dominant search engine allowed publishers, and businesses (small and large) to gain customers.

That sealed an implicit deal “Me (Google) will send you qualified traffic that helps you grow your business if you (publisher, business, or whoever publishes on the web) offer me your content to be indexed.”

We might call that an implicit contract, which is the beginning of a value chain.

In fact, from this sort of contract part of the Google business model has been built. Imagine the scenario where Google was not attractive enough to provide qualified traffic to content producers.

They would have stopped offering their content for free by blocking access to the search engine.

Instead, they allowed Google to index their pages because the visibility they got was too attractive.

A business model is also about how you make money but how you make money isn’t your business model

One of the biggest misconceptions of the business model is to confuse it with the monetization strategy or the revenue model of the company.

While this is an essential piece of the puzzle, it is just one of the components of a successful business model .

In this blog, we’ve discussed at great length how companies make money  as a way to start the discussion of a business model .

However, a business model implies the understanding of

operations, customer acquisition and retention, supply chain management, and the cost above and revenue aspects

According to the business model you designed over the years for your organization there will be a piece that plays a more critical role compared to others.

For instance, a vital component of the Coca-Cola business model is its distribution strategy .

For other companies like McDonald’s, the key to its business model success is the heavily franchised restaurants that helped the company scale up all over the world.

Each company will develop a unique  model  among the many types of business models which is what makes it thick in the long run!

What principles should I follow to create and design a business model?

Developing a deep understanding of your business model implies asking a few critical questions. For instance, some of those questions might be:

  • What value do I offer my potential customers? Or what problem do I solve with my product/service?
  • How do I charge my customers?
  • What does my acquisition cost look like?
  • What channels can I tap into to find my ideal customer?
  • Did I create a predictable revenue stream ? If not what can I do to generate that?

Your business model will be based on a few critical assumptions about who your customers are, how your product or service should look like, what are the favorite channels to reach them, and a few others.

Those assumptions will be tested as soon as you start kicking off your operations.

Your main concern should be just that. You need to check those assumptions as quickly as possible. 

Steve Blank has identified 17 principles in his  Customer Development Manifesto :

  • There Are No Facts Inside Your Building, So Get Outside
  • Pair Customer Development with Agile Development
  • Failure is an Integral Part of the   Search for the Business Model
  • If You’re Afraid to Fail You’re Destined to Do So
  • Iterations and Pivots are Driven by Insight
  • Validate Your Hypotheses with Experiments
  • Success Begins with Buy-In from Investors and Co-Founders
  • No Business Plan Survives First Contact with Customers
  • Not All Startups Are Alike
  • Startup Metrics are Different from Existing Companies
  • Agree on Market Type – It Changes Everything
  • Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
  • If it’s not About Passion, You’re Dead the Day You Opened your Doors
  • Startup Titles and Functions Are Very Different from a Company’s
  • Preserve Cash While Searching. After It’s Found, Spend
  • Communicate and Share Learning
  • Startups Demand Comfort with Chaos and Uncertainty

I suggest you read this manifesto over and over again. This should be the first step!

What tools can you use to design and create your business model?

One of the most used tools to design and create a business model has revolved around the customer development manifesto above.

However, it is essential to keep in mind that this manifesto was the fruit of an era where venture capital had become scarce compared to the dot-com bubble at the end of the 1990s.

Those tools for business modeling have been developed in that context. Thus, those are not a one-size-fits-all toolbox but rather work better in a context where capital is scarce, and you need to test your business model assumptions as quickly as possible. In that context three primary tools are:

  • Business model canvas.
  • Lean startup canvas.
  • Customer development canvas.

Those tools can be used by entrepreneurs in the phases of the business model generation:

  • Map the business model hypotheses.
  • Test these hypotheses with customer feedback.
  • Iterative this process.

The result will be an incremental development of a product that will reach a minimally viable version .

The better the product, based on customer feedback, the larger the audience it will reach.

Lean makes sense when capital is scarce and when you need to keep burn rates low.

Lean was designed to   inform the founders’ vision  while they operated frugally at speed. It was not built as a focus group for consensus for those without deep convictions .

Is the lean startup still a valuable model?

As Steve Blank has pointed out in an HBR article entitled “ Is the Lean Startup Dead? “

I realized it was time for a new startup heuristic: the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.

In other words, the more risk capital that is available on the market the least the lean startup model might work.

The reason is, that if you have massive risk capital, you won’t need to test all your assumptions.

Quite the opposite, you’ll need to execute them fast.

Also, one of the primary logic of the lean startup is to burn cash at the slowest rate possible, while evolving (so-called pivoting) your business model .

If money is not an issue, then why go for the lean startup?

Steve Blank went further:

Rather than the “first mover advantage” of the last bubble ,  today’s theory is that  “massive capital infusion owns the entire market.”

Therefore, if you secured a massive injection of money, then your aim might be primarily toward growth , rather than profits.

In that context, the lean startup might not work!

Are capital moats sustainable?


When a company or startup has a substantial capital allocate for growth , that is when this injection can become a short-term competitive advantage.

However, as companies finance growth through artificial injection of capital, those also become extremely risky, because many of the assumptions underlying the business model can’t be tested organically, thus leaving the company’s foundations weak.

An example of this excess of use of capital as a competitive moat has been WeWork , which has proved one of the most disastrous business endeavors of the last decade.

Thus, capital moats and technological moats need to be balanced with careful business model testing and organic validation in the marketplace!

Key Highlights

  • This step is the foundation of your business model . It involves identifying a specific problem that your product or service aims to solve.
  • Problems can be functional (solving a practical need) or emotional (addressing a psychological desire or pain point).
  • Defining the problem clearly helps you focus on delivering value to your target audience.
  • Once the problem is defined, it’s important to identify the individuals or groups who are facing this problem. These are your potential customers.
  • Group your potential customers into categories, keeping it to a maximum of three types. Each type may have distinct characteristics and needs.
  • From the categories of potential customers and the identified problems, narrow your focus to one key customer type and one specific problem.
  • This step helps prevent spreading your resources too thin and allows you to concentrate on understanding your primary audience and addressing their primary need.
  • Brainstorm a range of solutions that could address the key problem for your chosen customer type.
  • List up to ten solutions. Then, evaluate these solutions based on feasibility, cost, time, and resources required.
  • Narrow down the list to three solutions that are viable given your constraints.
  • For the solution you’ve chosen, consider how you’ll monetize it. Determine how your business will generate revenue from providing the solution to your target customers.
  • Brainstorm up to five potential monetization strategies. These could include subscription models, one-time purchases, freemium offerings, etc.
  • Focus on the two strategies that can be tested quickly and efficiently.
  • This step involves practical validation of your selected solution and monetization strategies.
  • Test your product or service with real customers to gather feedback. Evaluate how well your monetization strategies perform in real-world scenarios.
  • Based on the feedback and data collected, choose the most effective solution and monetization strategy combination.
  • With a validated solution, monetization strategy , and a clear understanding of your target audience, you have the foundation of your business model .
  • Your business model is the blueprint that outlines how your company will create, deliver, and capture value in the market.
  • Continuously monitor and refine your business model as you gather more insights from customers and adapt to changing market conditions.

Create Your Business Model Idea In Less Than A Minute!

With our Business Model Idea generator, you can craft the perfect business model idea, in less than a minute, by leveraging AI, to help you find the first version of the building blocks needed to build a successful business model !

FourWeekMBA Business Toolbox

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Web3 Business Model Template


Asymmetric Business Models


Business Competition


Technological Modeling


Transitional Business Models


Minimum Viable Audience


Business Scaling


Market Expansion Theory




Asymmetric Betting


Growth Matrix


Revenue Streams Matrix


Revenue Modeling


Pricing Strategies


Other business resources:

  • What Is Business Model Innovation And Why It Matters
  • Successful Types of Business Models You Need to Know
  • What Is A Heuristic And Why Heuristics Matter In Business
  • What Is Bounded Rationality And Why It Matters
  • The Complete Guide To Business Development
  • Business Strategy: Definition, Examples, And Case Studies
  • Blitzscaling Business Model Innovation Canvas In A Nutshell
  • What Is a Value Proposition?
  • What Is a Lean Startup Canvas?
  • What Is Market Segmentation?
  • Marketing Strategy: Definition, Types, And Examples
  • Marketing vs. Sales
  • What is Growth Hacking?

More Resources


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Business Models for Startups: Choose the Best One

Business Models for Startups – Learn and Earn!

Young entrepreneurs are enthralled to venture into new businesses to quench their thirst to succeed in the market. The adrenaline rush in their business-focused mind pushes them to make things faster –whether it is to work on a business idea, hire remote developers, kick start the project, or deploy the product, the startup owners aren’t afraid of taking risks.

Nevertheless, for a seasoned businessperson or a novice, you must need the best business model for the startup in place or else your all efforts may end up in vain. Also, having knowledge about the ideal business model will also help to hire developers that are best fitted for your requirement.

Table Of Content

What is a business model for startups, revenue model vs business model, factors that help you decide the best business model for a startup.

  • Business models for startups a broad classification
  • Best Business model ideas for startups
  • Top business models

While companies have fancy goals, visions, and missions, the ultimate aim is to lead the market to the top list. Nevertheless, a business model is an umbrella term that includes several other factors, and if you want to make it simple, ask yourself these questions –

  • Who is your target audience, customer, client, or consumer?
  • How would they buy your products or avail of your services?
  • How much do you feel your targeted customers would pay for your products/services? And, would they find it worth it?

Simply put, the business models for a startup would establish a strong bond or connection between your business (products or services) and your clients. This is the factor your entire venture depends on; this is the pillar of your project and the backbone of your future prospects. It is worth noting that if you choose the wrong business model, your business would suffer despite having great products and unparalleled services.

Young business owners are known to adopt aggressive strategies as they want quick ROI and revenues due to the intensely competitive market; however, they often confuse business models with revenue models. Hence, it is important that you clearly distinguish between the revenue model and the business model.

A revenue model houses all of your revenue sources. It is, as compared to a business model, a narrow term. Any transaction of money through any source would be considered a revenue model.

On the flip side, a business model for a startup is a broader term that involves, of course, the revenue model as well as other factors and processes that build your business and help your business to perform effectively, such as the cost of production.

For instance, if only customers’ transactions are considered as a revenue model for a retailer, their business model would also include suppliers, marketing, staff, transportation, and the like.

Before we get on to the types of business models that help your startup boom, having a glance at different factors that impact your choice is will help have a better insight. Here is the chunk you would mind before putting your finger on an appropriate business model for your startup –

Jump on the bandwagon (success stories)

You don’t need to reinvent any strategy! There are many players already in the market and also in the past. Use a blueprint that has proved itself in leading the markets among tough competitors. Established players in the market are the epitome of success and hence you shouldn’t ignore their journey. Certain business models have always worked (for instance, say freemium) for all companies. There is no harm in adapting something that is a sure shot for any business.

Another aspect, as industry experts opine, is to apply the same successful model to the places where they are not being experimented on yet. Though riskier, this model has a fair chance to boost your startup business. Booking.com, for instance, implemented the online marketplace business for the hospitality industry (as they got inspired by eBay).

Business Model Factors

Assure the scalability

The volatile market and uncertainty in consumer demands have made all industries quite riskier. Hence, the business model should be flexible because depending on the circumstances, the model can be modified.

Miscellaneous costs

Running a service or building a product involves several costs and so does storing and delivering it. Also, competitive analysis and market costs should be considered while choosing the startup business model. Cost structure or pricing and marketing costs should be considered while finalizing the business plan. If you are going for a freemium model, calculate all the risks plus the pros and cons of it. This goes true with other models as well; hence, choose everything carefully.

Revenue model

Don’t ignore the sister concern of the business model – the revenue model. Depending on the revenue streams , your business model shall change, and hence it cannot be ignored. Subscription-based models and freemiums are the most common among startup owners.

Business models for startups: A broad classification

Young entrepreneurs are visionary and present-day business owners have better tools to market and manage their businesses of all kinds. A few decades back, the traditional business models worked well but they took quite a long to reach every potential customer. Today, with the advent of the latest technologies, it is possible to boost any business. Nevertheless, we shall start with the basic (broad classification) of the business models for startups before the super seven models.

Business Models For Startups

Business to Business (B2B)

The business-to-business model involves two businesses -it could be a manufacturer and wholesaler or a retailer and a wholesaler. Not between a company and a consumer, this model works between two companies. The transaction terms, methods, and types could be larger and different than day-to-day trades.

Business to Consumer (B2C)

Here, the model describes the business between a company and a consumer. Direct sales to consumers through a company can be called as a B2C model. Most startups these days still rely on this traditional model because of its promising results.

Customer to Customer (C2C)

Unlike between two businesses or a business and a client, this model works between two customers. The classified section in a newspaper shows a deal between two customers where one wants to sell and another wants to purchase. Such digital platforms are available in the market based on C2C models.

Super seven business models for startups

As technology evolves, the business models for startups also grow. Today, entrepreneurs have contemporary ways to handle businesses. Super seven business models have been serving various industries with their assured results. Still, you need to be careful choosing the one.

There is no one size fits all because each startup has its own strategies and hence the business model for startups would differ from case to case. It all depends on the targeted audience, cost to develop and deploy the customized solutions, storage and delivery, and top of all marketing and maintenance. Here we present to you the top seven innovative business models for startups proven to have excelled in the market by all accounts.

Standard Business Models For Startups

The freemium business model for startups tops the list as most businesses must have run this model at least once in their tenure. The best part of this model is the perfect blend of free and premium products/services that startups have to offer. While the free services can attract any consumer, creating a free premium service with more features and perks has an even mightier impact on the consumers.

For instance, if the startup is based on web design and development offering a free package of basic designing and developing services would attract a certain number of customers; on the other hand, a premium package that includes extra features such as video making more design revisions would attract and retain more customers.


Another popular business model for a startup is the subscription model which works on subscriptions of various kinds and prices for a particular product or a service. Such a model is generally an apple of mid-sized to large-size companies’ eyes because they are more into generating stable revenue. The cash flow is recurrent and customers turn into loyal clients through this model.

Giants like Netflix and Spotify run on subscription models that offer music, movies, and even channels. Even further, most companies create an option of ‘auto-renewal’ of the subscription which guarantees a smooth and regular cash flow.


The business model of disintermediation has been a pet model for wholesalers, direct sales companies, and manufacturers. The primary reason for adapting the disintermediation business model for startups is to keep middlemen at bay. In a standard-retail business model, the middlemen had a significant cut. But here, as a result of disintermediation, the cost of the product or service markedly goes down, and the chances of increased business profits are manifold.

The best example we can quote for this model is a retailer who would take an order and ship it directly to the consumer cutting down on any perks paid to intermediary agencies. The ideal startup business model could be disintermediation as there is always a budget constraint in the initial stages of any such business. Walmart, Alibaba, Amway, and Dell are a few giants in the market who worked on the disintermediation model at least once in their tenure of success.


The marketplace business model is actually a platform that just provides a digital ground where buyers meet sellers. This digital fun-and-fair provides enormous opportunities for companies and consumers to have long-lasting and trustworthy relationships. The biggest advantage of having a marketplace business model for startups is that they don’t need to maintain the supply chain or inventory. Nor do they need to bother about the product development services and manufacturing; being a digital marketplace platform, this business just maintains the transactions between buyers and sellers.

Amazon, the best example of a marketplace model, offers zillions of products worldwide without manufacturing and direct selling them. Nevertheless, they put a gigantic amount of bucks into creating the best user experience through their UI and innovative marketing methods.

Exactly going by its term, the on-demand business model for startups is something that is provided to the seeker (customer or client) as and when needed. The clients would request a service and will obtain it in time. Uber could be the best example to quote for an on-demand customized business model that allows a traveler to request a ride and get it right then.

Another business that works on an on-demand model is the laundry business and other businesses such as Postmates wherein consumers can order groceries and even foods through mobile devices and the goods are delivered to their doorsteps. While a model for on-demand delivery app could focus on a niche business, newer models have a blended approach to develop a potential over-the-top on-demand business model for startups. For example, last-minute or 10-minute delivery option for groceries and food has been the rage these days in the market.

Virtual goods

Chiefly for the gaming industry, virtual goods’ selling has been getting immense popularity these days as a newer effective business model for startups, with the best monetization strategies. Virtual goods models offer virtual products to consumers which could range from weapon or vehicle upgrades, coins, credits, and much more.

While for the gaming industry, this is the backbone, smart business owners can also implement virtual goods models innovatively in their businesses. For instance, Facebook offered a digital (virtual) gift that a user can send to another user.

Cafu fuel app

The Cafu fuel app is transforming the car service industry by making it simpler, smarter and hassle-free. It helps car owners save their most precious asset which is time by offering 24/7 petrol and diesel delivery. Cafu is among the successful on-demand fuel delivery apps . It provides two fuel delivery business models, one is an on-demand method and the other is a subscription model.

With an on-demand fuel delivery app, customers can quickly and conveniently get their cars fueled up at the same price as the petrol station without any delivery fees.

Also known as a magic model, the reseller business model for startups is quite similar to the marketplace model. Here, one can use different types of reseller models depending on the products or services sold and investments or budgets. For instance, eBay promotes products and sells on its platform; nevertheless, when the goods are sold it is the listed company that has to take care of deliveries.

Such reselling model is a perfect fit for startups that don’t want to get into the hassle of handling deliveries. In this model, the cost is brought down significantly because the staff required for deliveries isn’t required by the reseller.

What are the business models for market leaders?

Let us take some examples of the world’s most renowned companies and their business models.

The quick eCommerce grocery delivery application, Zepto, has set the epitome of 10-minute hyperlocal delivery where customers can order groceries and get the goods delivered to their doorsteps within the shortest possible time, ten minutes, approximately.

Delivery charges, Membership fees, Advertisements, and Dark Store charges are some of the monetization models that are used in 10-Minute Grocery Delivery Apps like Zepto, Gorillas, and BlinkIt,

This marvelous marketplace application provides ample opportunities for skilled workers, handymen, and service seekers to be on the same board and solve their purposes. This model has provided a fair example of a digital marketplace to many young entrepreneurs all over the world. Based on a simple business model, TaskRabbit can be customized with many other features and facilities.

Marketplace apps like Taskrabbit, Thumbtack, Handy, and Upshift can have additional revenue generation models and features such as Usage fees, Peak Pricing, Advertisement, Paid plans, Pay-per-Lead, Brand Partnership, and more.

BookMyShow is a 360-degree solution for entertainment in multitier towns and cities. Initially developed as a ticket booking application, this digital platform has grown manifold in just a few years of its establishment. BookMyShow is a perfect answer to the ever-increasing global mobile ticketing market which has been growing at a whopping 18% CAGR.

Movie review and cast, proper display of seats, short trailer of the movie, review rating and offer, and bifurcation of theatres according to the city are top features that should be added in the ticket booking app like BookMyShow.

Probably the most popular taxi booking application in the world, Uber houses a wide range of services from carpooling to hourly car rent and regular cab booking for on-demand purposes. Uber helps set powerful transport networking and thus makes various jobs and businesses flow smoothly in urban settings.

With several monetization options such as profit sharing, premium accounts and in-app advertisements, a taxi booking application like Lyft, Cabify, Gett, & Uber can be immensely beneficial for your business.

Should one quote a proven application that works on a subscription-based business model for startups, Netflix is the example. With a revenue of billions of dollars, this video streaming application has successfully attracted 220+ million paid subscribers worldwide . The application has several subscription options from running the content on one to several devices.

SVOD, TVOD, and AVOD are the Business model followed by video streaming app like Netflix, HBO Max, Acorn TV, Disney+ Hotstar, and Amazon Prime.

Extending its service benchmark, Uber ventured into UberEats, a decent food ordering and delivery application that enables its users to order their favorite dishes from their favorite eateries and restaurants. Even further, UberEats with customized features also allow users to book tables at their favorite places to avoid waiting.

Premium advertisement services, 3rd party sd services, a commission from restaurants, user subscriptions, and delivery charges are some of the ways to generate revenue that food delivery apps like GrubHub, Uber Eats, Doordash, Instacart, and Postmates use.

Drizly is an alcohol delivery application that allows local liquor retailers to bring their inventory to their fingertips. Moreover, consumers can choose from a wide range of options and get their favorite beer, wine, spirits or liquor delivered to their doorstep. In the era of contactless and convenient delivery, on-demand apps like Drizly allow a contactless liquor buying experience.

With several monetization features such as premium accounts, chatbot integration, push notifications and in-app advertisements, you can build an alcohol delivery app like Drizly that can be exceedingly beneficial for growing your business.

Unique in its approach, PagarBook combines a foolproof method to manage employees and their payrolls smoothly. This digital platform combines the best features of human resource management software and accounts in a way that the company can handle everything from the same application. The employee attendance and payroll application simplify the heftiest tasks of managing employees’ records in small to mid-sized and large enterprises.

Integrating employee payroll and attendance management software like PagarBook, Paylocit, and Paychex will help to improve your organization’s benefits such as happy employees, stress-free process, avoid costly errors, save money on taxes, better RoI, and makes the process fast.

The huge potential of face-paced eCommerce growth brought the idea of Ajio to the market. The cost of developing an eCommerce app  depends on various factors such as the size of the business, app location, and the complexity of the app features. This eCommerce application is fashion-focused and houses plenty of varieties of apparel and accessories for all genders.

All the business models for startups have their own advantages but picking up the right one depends on the nature of your business, the budget you have, and the targeted clients. If you are not sure about a suitable business model, you may take the help of startup app development company .


He is the Co-Founder and CEO of Prismetric . An enthusiastic entrepreneur, interested to discuss new app ideas, rich gadget tricks and trends, and admires signature tech business styles to readily embrace. He enjoys learning most modern app crafting methods, exploring smart technologies and passionate about writing his thoughts too. Inventions related to mobile and software technology inspire Ashish and he likes to inspire the like-minded community through the finesse of his work.

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7 Different Business Model Ideas for Your Startup

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Different business models are used for different types of startups.

As a startup business seeking long-term success, it's not enough for you to have a great idea for a product or service. No matter how great an idea is, startups may have difficulty finding success if they have yet to determine how the business will sustain itself in the long run.

As such, you should work on developing a business model that will help you ascertain how your business is going to be run. To create an effective business model, you'll want to identify your customer base, any sources of revenue , financing details, and the products or services that you're going to provide.

Different business models are used for different types of startups. For instance, if your startup is going to be selling a service online, you may want to consider the freemium model, which allows you to provide free and premium tiers for your service. If you plan on selling a subscription for the service that you provide, the subscription model is likely your best option. Once you've made a decision on how you want your company to be financed, what kinds of products you want to sell, and what your customer base is going to be, you'll be able to select the business model that meets your needs.

The seven different business model ideas that will be detailed in the following include the:

Marketplace model

On-demand model

Disintermediation model

Subscription model

Freemium model

Virtual good model

Reseller model

Each of these business models offers many distinct advantages, which is why they have been implemented by such businesses as Amazon, Walmart, Uber, and Hulu.

1. Marketplace Model

amazon app on iphone

The marketplace model  is a type of business model that allows you to act as the go-between for sellers and buyers. Likely the most popular company to use the marketplace model is Amazon. They only act as the online marketplace that takes care of the transactions between buyers and sellers.

The main advantages of using a marketplace model include the fact that you won't need to store any inventory and that you won't have any overhead costs, which takes away a significant amount of the frustration and expenses that typically come with running a business. Since you don't manufacture a product, you won't need to worry about selling it. Marketplaces will usually take a small percentage of the transaction between the buyer and the seller.

If your business makes use of this model, you will need to provide customers with a reason to use your marketplace. To be successful , you likely shouldn't create a marketplace that's similar to Amazon. You could instead focus on a market that would be receptive to a smaller marketplace. For instance, a startup might want to create an art marketplace where customers can request artwork for logos, branding, and book covers. The artists on the other end could then fulfill these requests. The key is to reach out to a customer base that will be receptive to your idea.

Examples of Companies who use this model:

2. on-demand model.

uber driver in car in traffic

The on-demand model is exactly as it sounds, which means that you will be tasked with providing customers with a service that they can request and obtain any time they please. Uber is a top example of this business model that allows customers to request a ride, after which a driver will pick them up and take them to their destination. Other businesses that use this model handle all kinds of on-demand services for everything from the beauty industry to the laundry and dry cleaning industry. With a service like Postmates, it's possible to order food, groceries, and other items via a mobile phone app. A delivery person for the company will then pick up these items and deliver them to the individual who made the request.

While this business model is similar to a marketplace, it requires more work to be put in by the startup in question. This business model is ideal for startups that are looking to cater to younger demographics that require instant gratification.

Keep in mind that this is a relatively new business model that's becoming more efficient and cost-effective with each passing day. Startups will usually need to leverage existing infrastructures and new forms of technology to provide customers with this kind of business model. Likely the most notable benefit of this model is that it takes use of freelance labor, which helps keep costs down.

Examples of Companies who use this model :

3. the disintermediation model.

store shopping payment

The disintermediation model is a standard business model that's used by a wide range of wholesalers, manufacturers, and businesses that offer direct sales. The goal of this model is to get rid of the middleman, which lowers the cost of doing business for the manufacturer. The main benefit of using this business model is that the end-user should be able to pay a much lower cost than they normally would for a product or service.

With a standard retail business model, manufacturers will ship their products to a distributor that will act as the intermediary between the manufacturer and the customer. This intermediary will usually take a cut of the sales, which lessens the amount of money that the manufacturer or producer obtains from the transaction. This business model is ideal for startups that have the necessary resources to produce and distribute goods. The low prices that are possible with this business model should attract new customers.

4. Subscription Model

spotify on ipad and laptop

The subscription model  is an increasingly popular business model that involves a company selling a service via a subscription as opposed to a one-off product. This business model is being used by a large number of companies to obtain stable cash flows that are recurrent. The most popular subscription services are Spotify and Netflix, which provide customers with access to music, movies, and TV shows for a monthly or yearly subscription fee.

If you believe that your startup can use the subscription business model, you need to target the customer base that's looking for convenience. Most customers will choose to auto-renew their subscriptions, which ensures that they always have the service that you're providing to them. Because of recurring sales, this model allows you to predict what your yearly revenues are going to be, which is fantastic when you're trying to bring in new investors.

5. Freemium Model

man on ipad linkedin

The freemium model   is among the more popular business models for startups since it combines free and premium services into one business model via a tiered approach. The free service that you offer to everyone would include basic features of the service. The premium component of this business model allows you to create a premium service that offers more features and perks than the free service. If your startup is centered around web design and development, you could start by offering a free package that includes some basic design services. You could then create a premium package that includes extra features like free hosting, video production, and unlimited design revisions.

These additional features may entice customers to purchase the premium package. When you select this business model, it's important that the free and premium tiers are balanced. While the free tier should offer enough features to be compelling, it's essential that the premium offering is much more appealing to your core audience. With this business model, you'll be able to bring in customers who are interested in trying out your service for free, which allows them to become familiar with the service before upgrading to a premium option.

6. Virtual Good Model

facebook on iphone next to laptop

The virtual good model  is commonly used by video game developers but can also apply to a range of other businesses. This type of business model provides customers with the ability to purchase virtual goods, which only exist online. In a video game, these virtual goods could be extra lives or weapon upgrades.

Many companies that create smaller games for smartphones will implement a virtual good store within the game where users can purchase all kinds of online goods. Aside from game developers, creative thinking will be needed to use this business model. A company like Facebook allows users to purchase and send a virtual gift to another user, which has proven to be popular. Since you only need to bandwidth for these virtual goods, the margins are very high.

  • Acclaim Games

7. Reseller (Magic) Model

online shopping woman's hand on ipad

The reseller model   is a business model that's very similar to the marketplace model. When a startup operates as a reseller, they will focus on promoting and selling products that are produced or manufactured by another company or individual. There are a couple of different reseller models that you can use for your startup. With companies like eBay, the products are promoted and sold on their website. Once sold, however, delivery of the product will need to be handled by the individual or company that has listed the item for sale. This type of reseller is able to avoid inventory problems.

You can also benefit from the fact that you won't need as many salespeople, which significantly lessens the costs associated with HR. The most common reseller model is the retailer model, which involves products being held at a store or warehouse by the reseller before being passed on to the customer who buys the product. While retailers hold some inventory in their stores, they only purchase a small amount from the manufacturer or producer at a given time. The primary benefit of this business model is that it's a tried and true method of obtaining a profit.

How to Choose the Most Profitable Startup Business Model

store open sign

Each of these business models have different advantages that you can make use of when developing your own startup. For instance, the marketplace business model ensures that you have very little overhead and that you won't need to carry any inventory. These businesses are great because they can be run from wherever you want.

You could choose to purchase an office space or could decide to run the business virtually. The best way to identify which of these business models is right for you is to make sure that the business owner is informed about each type of business model and what the company will need when implementing one of these models.

Once you've found the business model that's right for your startup, you should be able to create a roadmap of growth for your company. With a business model in hand, you can get started on building your business. Creating a startup will usually involve identifying sources of funding , creating a business plan, and making sure that your product or service is market viable . At the beginning, you'll likely find that your budget is low, which could put a damper on growing your business. Likely the best way to navigate this obstacle is by joining an incubator for low-cost access to office space, lab space, and high-end equipment.

If you are developing a medtech or bioscience startup and require access to a laboratory, consider applying today for a space at University Lab Partners , the first wet lab incubator in Orange County ! From here, you can complete the work that's necessary for growing your business without needing to spend all of your precious startup resources to do so!

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When you are starting out with a new business , the term “startup business model” gets thrown out a lot. This happens especially when you are discussing your�startups. While you understand the term “startup business model” a lot better later on,� when you are starting out, it’s hard to understand what exactly it is, and which one will work best for you and your company.

Before we understand which startup business model works for you best, we need to understand, just what exactly is a business model.

A business model helps you explain which consumer problem your startup will help solve, why your business solution works better than that of your competitors and how big a profit your company can get out of this business.

It also helps you understand who exactly are your customers and who are the ones who are willing to pay the costs for your services.

Here are 6 types of startup business model:

1) business-to-business (b2b).

This kind of business consists of all the transactions and dealings between two companies/ businesses.

One of the best examples of B2B business model in India is�Alibaba which is a wholesale B2B marketplace. Alibaba offers millions of products in over 40 major categories to its customers which includes consumer electronics, machinery, apparel and many more.

While Alibaba has many competitors like IndiaMART, IndiaTrade�and recently launched Amazon Business, it will take some time to dethrone Alibaba in B2B platform as currently is�the go-to platform for cross-border trades and helps all businesses be it small, medium or worldwide.

Advantages�of B2B business model

a) Market Predictability

Compared to any other business strategies, the B2B business model has better market predictability and more market stability.

b) Better Sales and less competition

This business model also has less competition as compared to the other startup business models and thus, once you build a set of loyal customers ,�has a�higher�chance�of better sales.

c) Lower Costs

As you are selling in bulk and as there is�an effective supply chain management process, this online business model leads to lower costs for the businesses. Further, in most cases, the work is done through automation that eradicates chances of errors and undue expenditure that one faces in other business models.

Disadvantages of B2B business model

a) Limited Market

As compared to any other business model, especially the B2C model, this type of business model has a very limited market base. They depend mostly on volumes than the number of unique customers.

b) Lengthy Decision

Further, the majority of the purchase decisions in B2B businesses involve a long and lengthy process as there are two businesses involved and thus might have multiple stakeholders who need to take a decision and one or the other might raise an issue and thus take time to convince or completely say no.

c) Inverted Structure

As compared to other models, in B2B, consumers hold more power and decision making power than the sellers.

While your competition is limited, your consumers�are limited as well and the majority of the times have additional demands like customizations, specifications and other things they want you to do so as to lower price rates, and in the process increase your expenditure.

business model from startup

2) Business-to-Consumer (B2C)

Business-to-consumer or B2C startup business model refers to those businesses�that sell their services or products directly to the consumers or people who are the end-users of their product or service.

While there are many examples of B2C companies in India, the best one to look at would be e-commerce portals such as� Amazon, Flipkart, and Snapdeal.

All three of the above-mentioned companies serve directly to individual customers and cater to the public and stand out with a brand image and voice.

Advantages of B2C business model

a) Lower Cost

As compared to any other startup business model, B2C has the lowest cost as you communicate and deal directly with the end consumer and thus eliminate the cost that many lose to brokers in between.

b) 24/7 shop and searchability

With the arrival of the digital age and e-commerce sites, the B2C startup business model now has the added advantage of having a “shop” open 24/7 in the form of the online site which also easy to search on the net and app platforms.

c) Sharing information directly with consumers

As compared to other business models, B2C has the added advantage of having direct contact with their end consumers. This enables them to share any information with them easily. In fact, you can also pitch your products directly to them via emails, apps stores etcetera.

Disadvantages of B2C startup business model

a) Security

When you hear of sites like Flipkart and Amazon, you also hear of things such as online fraud and identity theft. Thus, you not only have to constantly upgrade your security system to keep at top of things, but you also have to take the backlash of even one-off security breach that still takes place despite all the upgrades.

Further. while you can convince people in the cities to trust you, when it comes to smaller towns and villages, it is much harder to get people to trust you than people they meet and greet personally.

b) Limited Interaction

While you can reach out to your consumers directly via app notification, popups, and emails. it is very limited in interaction which people have one on one and which also gives your consumer the option to physically see, smell and touch the products.

c) Competition

As compared to other startup business model, B2C has to deal with a huge competition which is present both online and offline.

While the online platform has made a huge dent in the Indian market, a huge chunk of the market is still controlled by physical shops. These shops act as a broker between B2C businesses and thus make a huge impact.

[optin-cat id=5314]

3) Consumer-to-Consumer (C2C)

Consumer to consumer or C2C business model is when consumers sell directly to consumers and the best and the oldest example for C2C transactions would be the classifieds section of any�newspaper.

Be it when you are auctioning a product or selling it via OLX in recent time. In both these cases its the customer � not a business � selling goods or services to another customer and that too directly.

Advantages of C2C business model

a) The main advantage of C2C business is that sellers and buyers are reachable and the transaction is mutual and effortless.

b) Is possible for one customer to be a seller as well as a buyer

Disadvantages of C2C startup business model

a) The biggest disadvantage of C2C is a lack of quality control and no guarantee that the good is worth the money paid. This not only makes the consumer apprehensive but also is disastrous for any business reputation.

b) While selling via C2C, you cannot be guaranteed that you will get the payment the consumer offered. Parties many times stop cooperating after a transaction is completed and thereby can lead to improper shipping and exploitation of product.

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4) Subscription Based

The subscription-based business model is typically provided by software companies and/or app-based businesses. Here, they offer their product as a one-off purchase, and in return companies using their service enjoy recurring revenue in forms of monthly or annual payments.

startup business model -image 04

The best and biggest example for this is service like Netflix and Hotstar who build a contract with different companies like HBO and offer their shows to end consumers in return for subscription fees.

Advantages of the subscription-based model

a) The biggest advantage is that it is easier as compared to some other models and huge customer acquisition and retention .

b) The business model also provides regular income. Instead of asking for a substantial up-front investment, they give the option of buying decision to the end consumers at a relatively low initial cost. This retains them for longer. This also gets people to invest Rs.500 per month for 12 months than investing Rs. 5000 on the spot.

Disadvantages of the subscription-based model

a) The biggest drawback is that you need a very large customer base to continuously pull in substantial revenue and to start the business.

b) While consumer retention is higher, the one who leaves early also leads to a substantial loss if you look at the revenue they would have otherwise given in the long run.

5) On-Demand Business model

The on-demand business model is one of the most recent forms of the business model which was largely birthed out of our need for instant gratification or answer.

Today, we want all the information immediately and just a click away.

Companies that have recognized this behaviour pattern are thus offering a myriad of different services on-demand to make a profit out of this need.

The biggest example of this is Airbnb,�Ola, and Trivago. They provide all the information about tickets and hotel rooms instantly. Hence, people are able to book a room or flight without even physically looking at them.

Advantages of�On-Demand Business model

a) The main advantage of this model is the ease of use and convenience that it offers consumers. The peace of mind they get at having a place booked for them even before they have reached the city makes it quite appealing to customers.

b) By utilizing new technology, this business model is much lower in cost as it relies mostly on freelancers. The operating costs of this business are also much lower as it doesn’t require a physical place with regards to consumer’s request and works mostly on web or app.

Disadvantages of�On-Demand startup business model

a) Its advantage also works as its biggest disadvantage. On-demand business model mostly depends on freelancers and their behaviour and screwups also affect your reputation and business.

b) The lack of physical presence also makes it harder for consumers to trust you and thus unless they have that need, they really approach you for your services regularly.

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6) Freemium business model

Freemium business model applies a clever strategy of drawing the customers to their service with a free product along with making certain features exclusively available to premium users.

startup business model -image 07

The biggest example of this is many gaming apps, one example being Dream 11. It provides players to not only compete against each other but also gain profit or money when they invest money into their app.

Advantages of the freemium business model

a) The biggest appeal of the freemium business model is that the customers can see and experience your service for free first and then make a call. This makes them more inclined to trust you and check out what you have to offer.

b) You also get to decide what you want to offer as free and what as paid service. This lets you offer them a basic game first and an additional advantage only at the cost of some money. This gives you total control of your services and makes consumers aware of what they can and cannot have and thus tempt them towards the have nots.

Disadvantages of the freemium business model

a) You need to be extremely persuasive to be able to convince your consumers that the advantages of upgrading to a premium user have more advantage than being a freemium customer.

b) While many customers are ready to pay for your service to get the added advantage, there are many more that are ready to wait and get that advantage a week or month later than actually pay for it. These consumers sometimes even convince premium consumers that it is not worth it and get them back to not paying.

While each of these startup business models has its own advantages and disadvantages, keep in mind that choosing the right business model for your startup is a�process and you will not figure it overnight.

You also need to research and research well to know what is the best business model for your startup. Keep all the options, pros and cons in front of you to know if they would make the business successful and profitable.

Liked it? Read more here:

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Seed funding: Everything founders should know about fundraising, seed rounds and more for 2024

business model from startup

If you’re looking at the current seed funding climate and thinking it’s rough out there, you’re not alone. The last few years have been a roller coaster for startups. First came the uncertainty in the early days of the pandemic, then came the exuberance mid to late in the pandemic when cash flowed freely to startups of nearly every stripe. Seed funding sizes were up, and so were valuations.

Today, things aren’t quite so copacetic. Money is tighter, and the hurdles for startups are higher. But for entrepreneurs early in their journey, that doesn’t mean it’s not a good time to raise a seed round.

“I’ve been really excited by the types of entrepreneurs that we’ve been meeting in the seed stage ecosystem right now,” Talia Goldberg , partner at Bessemer Venture Partners, told TechCrunch+. “In some ways, when the markets are down a bit, the real entrepreneurs come out.”

To understand what’s happening with seed rounds this year, TechCrunch+ spoke with Goldberg and two other seasoned investors: Pae Wu , general partner at SOSV, and Maren Bannon , partner at January Ventures. They offered their perspectives on what milestones they look for when evaluating seed-stage pitches, what sorts of round sizes and valuations they’re seeing, and what advice they’re giving their portfolio companies.

Seed round: current mood

The definition of a seed-stage startup has been evolving over the years as round sizes and valuations creep higher. Investors are also expecting to see a bit more from prospective companies, in terms of market fit and revenue. The pandemic is partly to blame, Bannon told TechCrunch+.

“There was a lot of capital in the COVID era that came in — all these angel funds, operator funds, rolling funds, a lot of that was spreading capital at pre-seed,” she said.

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This CEO built his company for $60 in one weekend—it brought in $80 million last year: 'You can copy my model'


Noah Kagan's book " Million Dollar Weekend " isn't about getting rich quick.

The multimillionaire founder and CEO of discount software firm AppSumo would be the first to tell you that he didn't become wealthy overnight.

But by acting quickly and decisively when he realized he had a good idea on his hands, he put himself in the position to succeed. It took Kagan, now 41, just a few days in 2010 to found AppSumo, a company which brought in about $80 million in revenue last year.

Kagan's idea: copying MacHeist, a site that offers discounted software bundles for Apple users, and making a similar service available for PC. Kagan emailed the founder of Imgur, an image-sharing service popular on Reddit, and offered to promote a discounted version of the software in exchange for a percentage of what he sold.

Then he reached out to Reddit's founding engineer to ask if he could advertise the deal on the site for free.

"Why not?" Kagan recalls hearing. "Our users love Imgur. They'll be thrilled to get a discount."

He paid a developer in Pakistan $48 to build a website with a PayPal button and spent $12 on a domain name. One weekend, $60 down, and he was up and running. The rest, as they say, is history.

If you're an aspiring entrepreneur, you may be able to ensure that history repeats itself, Kagan says: "Literally, you can copy my model."

Here are three steps he recommends for anyone looking to start a successful business in 48 hours.  

1. Get started now

Your natural instinct when looking to start a business may be to learn as much as you possibly can. You might spend days taking courses, reading books and watching YouTube videos to build up your expertise. But ultimately, you're wasting time, Kagan says.

"You've got to start today. You can't keep watching videos," he says.

What does that mean? It means that you'll likely have some ideas that don't quite get off the ground and others that outright fail from the jump. Consider these experiments rather than failures, Kagan says — experiences you can learn from.

Successful entrepreneurs, Kagan writes, "take action first, get real feedback, and learn from that, which is a million times more valuable than any book or course. And quicker!"

2. 'Practice the skill of asking'

Starting a small business, as Kagan describes it, is really a series of asks — a process you'll have to get comfortable with if you want to succeed.

"You have to practice the skill of asking," Kagan says. "Asking someone to be your customer, asking someone to be your partner, asking someone for feedback on your idea."

The scariest part about asking is the possibility that you'll be rejected. To assuage that feeling, Kagan reminds himself that, in the grand scheme of his life, none of the people rejecting him will end up being all that important. He even goes so far as to set a rejection goal for himself when rolling out a new idea or initiative.

"'This is going to suck. Let me aim to get at least 20 rejections,'" he says he tells himself. "That alone helps me accept that I will get rejected and turn it more into a game versus a blow to my self-worth."

3. Find a problem people will give you money to solve

When launching a business, you shouldn't be looking to drum up excitement from a product. Rather, you should be looking to find existing demand and satisfy it.

"The most important thing is that you're solving a problem people are excited to give you money for," Kagan says. "You have to find a thing."

Your process may lead you to many things that don't work. Kagan's mishaps include forays into online gambling ("no one came") and lawn care ("no one wanted to give me money").

When you have a potential hit on your hands, though, you'll know it, he says, citing his company's foray into offering discounted alternatives to popular software solutions.

"I asked people if they were interested in a DocuSign alternative," he says. "I did $3,000 in 24 hours."

Once you find something that works, double and triple down, Kagan says.

"The best business is the one that works," he says. "I started three other businesses that did similar things. And when I finally cancelled those and really focused on the one that worked, that's when my business really took off."

Want to land your dream job in 2024?  Take CNBC's new online course How to Ace Your Job Interview to learn what hiring managers are really looking for, body language techniques, what to say and not to say, and the best way to talk about pay.

I was fired from Facebook in my 20s—now I make $3.3 million running my own tech company


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