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5 Business Models to Consider When Starting a Tech Company

• 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.

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.

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.

About the Author

Best Startup Business Models (and How to Choose the Right One)

• Startup Basics
• Startup Business Models

Last Updated: December 19, 2023 By Reyna Hurand

Launching a successful startup begins with choosing the right business model. 

Your business model is the core logic for how you deliver value to customers and generate sustainable profits. It touches every aspect of your startup operations.

But with so many potential models to choose from, how do you select the right one for your venture?

This article will explore the significance of business models for startups, provide an overview of popular models and examples, and give tips for choosing one aligned with your goals.

Understanding Startup Business Models

Choosing the right business model can spell the difference between startup success and failure. That's why it's so important for entrepreneurs to understand the pros, cons, and use cases of various models. Let’s dive in!

Jump Ahead:

What Is a Business Model?

• Why Startup Business Models Are Important
• Common Types of Startup Business Models  

How to Choose the Right Startup Business Model

Creating a business model canvas.

Essentially, a business model outlines how your startup works and earns money. It addresses crucial questions like:

• What value do you deliver to the customer?
• How do you deliver that value?
• How does the customer pay for that value?
• How do you convert payments to profit?

The key elements that make up a business model include your unique value proposition , customer segments, revenue streams, cost structure, resources, activities, channels, and partnerships.

Your business model essentially serves as a blueprint for how all the components of your company work together to create value, attract customers, and generate sustainable revenues. It's a holistic framework for how you operate your startup.

Business Model vs. Revenue Model vs. Revenue Stream

It's important to understand the differences between a business model, revenue model, and revenue stream:

• Business Model – The holistic logic for how a company operates and creates/delivers value to customers. It encompasses everything from value proposition to resource management.
• Revenue Model – How a company makes money from each customer segment. It focuses specifically on the revenue side of the business model.
• Revenue Stream – Each specific source of revenue for a company. A business model or revenue model may have multiple different revenue streams.

For example, a ride-sharing startup's business model explains everything from matching drivers to riders to ensuring reliable rides. Their revenue model entails taking a percentage commission on every ride. And revenue streams include commissions from regular rides, luxury rides, food deliveries, etc.

The business model is the big-picture view of how a startup operates sustainably. Revenue models and streams focus just on how it generates income.

Why Business Models Are Important for Startups

Your business model directly impacts all elements of your startup operations. It determines:

• How you generate revenue and profits: The revenue streams and profit formula in your business model influence everything from your pricing to sales processes.
• Your competitive positioning: Your business model shapes your startup's value proposition and competitive advantage. It's a key differentiator from rivals.
• Your growth opportunities: Some business models lend themselves better to rapid scaling and expansion than others.
• Capital and resource requirements: Certain business models demand more upfront capital, inventory, equipment, or other resources.
• Your cost structure: Your revenue model drives cost structure decisions like whether to focus on reducing fixed or variable costs.
• Team roles and competencies: Specific business model choices determine the types of expertise and talent you need in your startup team.

8 Common Types of Startup Business Models

There are many proven startup business models to choose from. Here are some of the most common:

1. Subscription

Examples: Netflix, Dollar Shave Club

The subscription model provides ongoing access to a product or service with monthly/annual billing. Revenue is predictable, and value stems from convenient access and membership benefits. 

• Predictable recurring revenue
• Build customer loyalty/retention
• Churn risks
• Higher customer acquisition costs

2. Marketplace

Examples: eBay, Upwork

Marketplaces connect users on both sides of a transaction, like buyers and sellers. Value is created by enabling these connections, and revenue comes from taking a % fee on transactions. Examples include ecommerce, ridesharing, home rentals, and freelance service marketplaces.

• Benefits from network effects
• Attractive unit economics
• Need critical mass of users on both sides
• Vulnerable to competitors

3. Advertising

Examples: Facebook, Google

Media sites, search engines, and social networks commonly use the ad model. These platforms attract users through free content/tools and monetize through selling ad space. Value is created through quality free services.

• Scales massively
• Small marginal costs per additional user
• Relies heavily on data collection
• Privacy concerns

4. Freemium

Examples: Dropbox, Canva, Mailchimp

The freemium model provides a free basic product to attract users and then upsells premium features or upgrades for monetization. Value is created through free entry-level access.

• Low barrier to entry
• Potential to upsell existing users
• Slow conversion from free to paying users

5. Affiliate

Examples: Amazon Associates, Shopify

In the affiliate model, companies pay commissions to “affiliates” for generating leads, clicks, or sales on their behalf. Affiliates earn through their promotional channels, while vendors acquire marketing reach.

• Little overhead
• Leverages influencer networks
• Low control, rely on the trust of partner brands

6. Pay-as-You-Go

Examples: AWS pay-per-use cloud services, Audible

The pay-as-you-go model bills customers based on actual usage or consumption rather than fixed fees. Value comes from flexible, metered pricing. Common for cloud services.

• Matches customer payment to usage, flexibility
• Complex billing and usage monitoring

7. Transactional

Examples: Walmart, Nike

This model often involves direct, one-time engagements between the customer and the business without ongoing commitments. It's commonly found in retail or e-commerce startups, where the primary focus is on making single sales rather than building recurring revenue streams.

• Simple and clear transactions
• No long-term commitment required for customers 
• Less predictable revenue
• Potentially lower customer lifetime value

Examples: Salesforce, Slack

The SaaS or software-as-a-service model provides access to software applications over the internet for a recurring fee, usually monthly or annual. Companies avoid large upfront costs.

• Scalability
• Costly to acquire customers

1. Understand Your Value Proposition

First, clearly articulate the core value you will provide to customers. Outline the specific problem you are solving for target customers and determine if your solution is primarily product-driven or more of a platform/network. Defining this value proposition is key to determining which business models could effectively deliver that value.

2. Define Your Target Customers

Create detailed buyer personas that analyze the demographics, behaviors, needs, and values of your ideal target customers. Outline what the customer journey typically looks like for engaging with your type of product or platform. Getting very specific on your customer profile and journey will inform suitable business models.

3. Evaluate Your Market Landscape

Do thorough research on competitors and alternatives in your space. Identify any gaps, opportunities, or customer pain points not being adequately addressed. Assess the overall market size for your solution and projected growth potential. Factoring in the competitive landscape will help reveal promising models.

4. Align with Core Team Strengths

Consider if you have the right mix of skills and experience within your core team to execute on a given model. Certain models align better with specific backgrounds and competencies. Choose a model that plays to the strengths of founders and early team members.

5. Evaluate Required Resources

Assess the key resources – financial, human, technical, equipment, etc. – required to successfully execute each potential business model under consideration. Evaluate if you have access to the necessary resources or if they would need to be developed or funded. Resources required often vary significantly between models.

6. Generate Business Model Options

Brainstorm two to three potential business models that seem well-suited to delivering your value proposition to target customers in your market. Weigh the relative pros and cons, trade-offs, and risks of each model under consideration. Review which models competitors are utilizing successfully or struggling with and develop a shortlist of viable models.

7. Project Costs and Revenue

For each potential model, estimate both the operating costs as well as the potential revenue based on your pricing strategy and target customer segment. Compare the costs and earnings across models to understand profitability. Choose a model that optimizes the financials based on your current resources.

8. Test and Validate Your Model

Share and discuss the two to three potential business models with prospective customers and people in your network. Gauge their feedback on what resonates or causes concerns about each model. Incorporate these customer insights into selecting and refining the best model. Experiment with the chosen model on a small scale first and be ready to adapt as needed based on market feedback.

Every startup should create a business model canvas as a blueprint for their business. A canvas provides a structured way to analyze and define all key components of your business model in one place. This ensures you craft a model that covers all the essential elements required for success.

Elements of the business model canvas include:

• Value Proposition – What value you provide customers
• Customer Segments – Who your target customers are
• Channels – How you reach customers
• Customer Relationships – How you engage with them
• Revenue Streams – How you earn revenue from each segment
• Key Activities – What activities your business performs
• Key Resources – Assets required to create/offer value
• Key Partners – Outside parties you leverage
• Cost Structure – Your expense drivers
• Unfair Advantage – Exclusive edge over competitors

Overall, your canvas creates an actionable plan for your startup's business model. Revisit it often as your model evolves.

Featured Articles

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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

14.Monopoly

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

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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December 14, 2023

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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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How to Design a Business Model for a Startup

• 16034 views
• Jan 21, 2022

Oleksandra I.

Head of Product Management Office

• Tech Navigator

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.

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

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.

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:

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:

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).

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?

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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10 Proven Business Models for Startups To Try In 2023

Mar 7, 2022 8 min read

Robert Krajewski

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

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. 

#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

#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

#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)

#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

#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

#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

#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

#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 

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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Business Models: Types, Examples and How to Design One

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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.

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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.

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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 .
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• The best accounting software .

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The Bottom Line

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

• A business model is a company's core strategy for profitably doing business.
• Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
• There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
• The two levers of a business model are pricing and costs.
• When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

Investopedia / Laura Porter

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, 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 .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

• Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
• Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
• Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
• Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
• Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
• Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
• Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

• Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
• Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
• More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2023 ."

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Business Model Canvas: Explained with Examples

Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

• The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
• The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
• The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
• The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
• The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
• It’s easier to edit and can be easily shared with employees and stakeholders.
• The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
• The business model canvas can be used by large corporations and startups with just a few employees.
• The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
• You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
• The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
• A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

• Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

There are different customer segments a business model can target and they are;

• Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
• Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
• Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
• Diversified: A diversified market segment includes customers with very different needs.
• Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

• Personal assistance: you interact with the customer in person or by email, through phone call or other means.
• Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
• Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
• Automated services: this includes automated processes or machinery that helps customers perform services themselves.
• Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
• Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

• Owned channels: company website, social media sites, in-house sales, etc.
• Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

• Transaction-based revenue: made from customers who make a one-time payment
• Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

• Asset sales: by selling the rights of ownership for a product to a buyer
• Usage fee: by charging the customer for the use of its product or service
• Subscription fee: by charging the customer for using its product regularly and consistently
• Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
• Licensing: customer pays to get permission to use the company’s intellectual property
• Brokerage fees: revenue generated by acting as an intermediary between two or more parties
• Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

• Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
• Problem-solving: finding new solutions to individual problems faced by customers.
• Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

• Human (employees)
• Financial (cash, lines of credit, etc.)
• Intellectual (brand, patents, IP, copyright)
• Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

• Strategic alliance: partnership between non-competitors
• Coopetition: strategic partnership between partners
• Joint ventures: partners developing a new business
• Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

• Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
• Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
• Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
• Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
• Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
• Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

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FAQs About the Business Model Canvas

• Use clear and concise language
• Use visual-aids
• Customize for your audience
• Highlight key insights
• Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

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 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?

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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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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

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’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

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 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

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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4 Most Popular Startup Revenue Models: A Detailed Comparison

For startups at every stage, generating revenue can be a challenge. Even when you have a great idea and an innovative product, it can be difficult to turn those into sustainable revenue streams. The truth is, there’s no one-size-fits-all answer when it comes to startup revenue models. In fact, some of the most successful startups have found creative ways to monetize their products and services. From subscription-based models to freemium strategies, startups are constantly testing and refining their revenue models to find the perfect fit. So, if you’re trying to decide which startup revenue model is right for you, read on. We’ll explore some of the most popular and effective strategies used by startup founders today.

What is a Startup Revenue Model

A startup revenue model is essentially the strategy that a startup uses to generate revenue and sustain its operations. It defines how the startup plans to make money. I also impacts how it will price its products or services, and how it will distribute and sell them. Having a clear understanding of their revenue model is crucial for startup founders. It helps them identify potential revenue streams, understand their costs, and determine their profit margins.

In addition to providing a roadmap for generating revenue, a well-defined revenue model is also important for attracting investors. Investors want to see that a startup has a clear plan for making money and achieving long-term sustainability. They want to see that the startup has a viable business model that can scale and generate ROI. A startup with a clear revenue model is more likely to attract investors and secure funding.

Furthermore, a well-defined revenue model can help startups achieve long-term sustainability. By understanding their revenue streams and profit margins, startups can optimize their operations. This allows them to make informed decisions about pricing, distribution, and marketing. It can help them generate more revenue and reduce their costs, ultimately leading to increased profitability and sustainability.

Overall, having a clear revenue model is essential for startup founders to achieve success. It helps them generate revenue, attract investors, and achieve long-term sustainability. By understanding their revenue model and continually refining it, startups can set themselves up for success and build a strong foundation for growth and expansion.

What’s the Difference: Business Model vs Revenue Model vs Revenue Stream

While often used interchangeably, there are distinct differences between business model, revenue model, and revenue stream:

Business model: A business model is the overall strategy a company uses to create and deliver value to customers while generating revenue and achieving profitability. It encompasses the entire framework of a company’s operations, including its target market, value proposition, pricing strategy, distribution channels, and cost structure. A business model is essentially the blueprint for how a company plans to create and capture value.

Revenue model: A revenue model is the specific strategy a company uses to generate revenue. It focuses solely on the ways a company will generate income, such as through product sales, advertising, licensing, or subscription fees. Revenue models are often closely tied to a company’s business model. However, they are more narrowly focused on the revenue generation aspect.

Revenue stream: A revenue stream is a specific source of revenue within a company’s revenue model. It represents the actual money coming into the company from a particular source, such as sales of a specific product, licensing fees, or advertising revenue. A company may have multiple revenue streams within its overall revenue model.

In summary, a business model is the overarching strategy for creating and capturing value. Conversely, a revenue model is the specific strategy for generating revenue. And a revenue stream is a particular source of revenue within the overall revenue model. Understanding the differences between these concepts is important for startup founders, as it can help them develop a comprehensive strategy for growth and success.

To learn more about startup revenue models, see if you qualify for membership to join Founders Network .

4 Most Popular Revenue Models for Startups

There are several popular revenue models that startups can use to generate income and achieve profitability. In this section, we’ll explore some of the most popular types of revenue models for startups. We’ll also detail how they work, their pros and cons, and provide examples of startups that have successfully implemented them. These revenue models include:

• Subscription-based model
• Freemium model
• Advertising model
• E-commerce model

Each of these models has its own strengths and weaknesses, and the most effective revenue model for a startup will depend on its industry, target market, and product or service offering. By understanding the different types of revenue models available, startup founders can make informed decisions about how to generate revenue and achieve long-term sustainability.

Subscription-based Model

The subscription-based model is a revenue model in which customers pay a recurring fee, typically on a monthly or annual basis, to access a company’s product or service. It differs from a transactional revenue model where customers typically pay for products or services on a one-time basis. This model has become increasingly popular in recent years, particularly in the software and media industries, as it provides a predictable and recurring source of revenue for startups. For example, all new software entrants and 80% of historical vendors are offering subscription-based financial models.

• Provides a recurring and predictable source of revenue, which can be beneficial for startups seeking stability and long-term sustainability.
• Builds customer loyalty and retention, as customers are incentivized to continue paying for the service in order to maintain access.
• Can provide opportunities for upselling and cross-selling additional products or services to existing customers.
• Can be difficult to acquire new customers, as the subscription model requires a higher level of commitment and investment from the customer than a one-time purchase.
• Requires ongoing investment in product development and customer support to maintain customer satisfaction and retain subscribers.
• Can be vulnerable to churn, as customers may cancel their subscriptions if they no longer see value in the service or if a competitor offers a better alternative.

Examples of startups using the subscription model:

Birchbox , a beauty subscription service, delivers a personalized selection of beauty products to customers each month for a recurring fee.

Ruzuku , an online course platform that offers a subscription-based pricing model for access to its course creation and management tools.

Calm , a meditation and relaxation app that offers a premium subscription with access to additional features and content.

Freemium Model

The freemium model is a revenue model in which a basic version of a product or service is offered for free, with the option to upgrade to a premium version for a fee. This model is commonly used by software and app-based startups. However, it can be applied to a wide range of industries. Ideally, freemium conversion rates are between 2-5% , although typically, the conversion rate is around 1%.

• Offers a low barrier to entry for potential customers, allowing startups to reach a wider audience and potentially acquire more users.
• Can build customer loyalty and engagement, as users have the opportunity to try the product or service before committing to a purchase.
• Provides opportunities for upselling and cross-selling premium features or services to existing customers.
• Can be difficult to convert free users to paid customers, as they may be satisfied with the basic version of the product or service and not see the value in upgrading.
• Requires ongoing investment in product development and customer support to maintain customer satisfaction and encourage upgrades.
• Can be vulnerable to churn, as free users may leave if they no longer see value in the basic version or if a competitor offers a better alternative.

Examples of startups using the freemium model:

Hootsuite , a social media management tool, offers a free version with limited functionality, but charges a fee for access to more advanced features and reporting tools.

HubSpot , a marketing and sales platform, offers a free CRM tool as well as paid versions with additional features and capabilities.

Zoom , a video conferencing platform, offers a free version with limitations on call duration and participant numbers, but charges a fee for access to additional features and increased capacity.

Advertising Model

The advertising model is a revenue model in which a company generates income by displaying advertisements to its users or customers. This model is commonly used by media and content-based startups, as well as social media platforms and search engines.

• Can provide a significant source of revenue for startups with a large user base or audience.
• Can provide opportunities for targeted advertising, allowing advertisers to reach specific demographics or interest groups.
• Can be a low barrier to entry for users, as they can access the product or service for free and are only exposed to advertisements.
• Can be disruptive or annoying to users, potentially leading to reduced engagement or usage of the product or service.
• Can be challenging to attract and retain advertisers, particularly for startups with a smaller user base or audience.
• May require ongoing investment in ad technology and infrastructure to effectively monetize user data and deliver targeted advertising.

Examples of startups using the advertising model:

Google , the search engine giant, generates the majority of its revenue through advertising by displaying targeted ads to users based on their search queries and online activity.

Facebook , the social media platform, generates revenue through advertising by displaying ads in users’ news feeds and targeting ads based on user data and interests.

Chegg , a student-focused education technology company, generates revenue through advertising by displaying ads to its users alongside its textbook rental and homework help services.

E-commerce Model

The e-commerce model is a revenue model in which a company generates income by selling products or services online through a website or mobile app. This model is commonly used by retail and consumer goods startups, as well as service-based startups that offer online bookings or subscriptions.

• Provides a direct channel to customers, allowing startups to reach a global audience and potentially increase sales and revenue.
• Can provide opportunities for personalized marketing and product recommendations based on customer data and behavior.
• Can allow for greater flexibility in pricing and promotions, as well as the ability to offer a wider range of products and services.
• Requires ongoing investment in website development, online marketing, and e-commerce technology to effectively monetize online sales.
• Can be vulnerable to fraud and security breaches, potentially leading to financial losses and damage to customer trust.
• Can be highly competitive, particularly in saturated markets or with well-established online retailers.

Examples of startups using the e-commerce model:

Amazon , the world’s largest online retailer, generates revenue by selling a wide range of products directly to customers through its website and mobile app. On average, Amazon charges a seller who uses their site 15% of the sale.

Warby Parker , an online eyewear retailer, generates revenue by selling prescription glasses and sunglasses directly to customers through its website and mobile app.

Freshly , a meal delivery service, generates revenue by selling prepared meals and snacks directly to customers through its website and mobile app.

In-depth Side-by-Side Comparison of Startup Revenue Models  

It’s important to note that no single revenue model is the “right” choice for all startups. The best revenue model for a given startup will depend on its target market, competitive landscape, and overall business strategy.

It’s also worth considering that many successful startups use a combination of revenue models to generate income and build a sustainable business.

Can You Use Multiple Revenue Models?

Combining multiple revenue models can be a smart strategy for startups. It enable them to diversify their income streams and build a more sustainable business over the long term. Look for financial models that work well together and complement each other. For example, a subscription-based business could also offer add-on products or services for one-time purchases. Similarly, an e-commerce business could generate additional revenue  by incorporating an affiliate revenue model. 

When it comes to deciding when to combine revenue models, there’s no one-size-fits-all answer. However, some situations where combining revenue models can be particularly effective include:

When one revenue model alone isn’t enough to generate sustainable revenue: For example, a startup may start with a subscription-based model but later add e-commerce or advertising to supplement its income.

If different revenue models can serve different customer segments: A startup may have a subscription-based model for its core customers, but also offer a pay-per-use option for occasional users.

When expanding into new markets or verticals: A startup may add a new revenue model as it expands into a new market or vertical, in order to better meet the needs of that specific audience.

Examples of startup companies that have successfully combined multiple revenue models include:

Dropbox: A freemium-based model combined with subscription plans and enterprise licensing.

Uber: A pay-per-use model combined with dynamic pricing, surge pricing, and affiliate marketing through partnerships with credit card companies.

The New York Times: A subscription-based model combined with advertising and branded content partnerships.

Amazon: An e-commerce model combined with affiliate marketing, subscription-based services (e.g. Amazon Prime), and advertising through Amazon Advertising.

In each of these cases, the combination of revenue models has allowed these companies to generate diverse income streams and build a more sustainable business over time.

Choosing the Right Revenue Model for Your Startup

Choosing the right revenue model is crucial for the success of any startup. However, it can be a daunting task for many founders. With so many different revenue models to choose from, it can be difficult to know which one is the best fit for your business. Factors such as the nature of your product or service, target market, and competition can all play a role in determining the most effective revenue model. And this can change over time. A startup might start out using a transactional revenue model and shift to a subscription model later on. 

In this section, we will provide tips on how to figure out the right revenue model for your startup. 

Consider your target market and their willingness to pay

Understanding your target market and their willingness to pay is critical when choosing a revenue model for your startup. Without a clear understanding of your market, you may end up choosing a revenue model that doesn’t align with your customers’ needs. This can lead to low adoption rates, low customer retention, and ultimately, low revenue.

To determine the most appropriate revenue model for your target market, here are some steps you can take to research and analyze your market:

Define your target market: Start by defining who your ideal customer is. Consider factors such as age, gender, location, income, interests, and pain points. This will help you narrow down your market and identify the revenue models that are most likely to resonate with your target audience.

Conduct market research: Once you’ve defined your target market, conduct market research to gather insights on their behavior, preferences, and willingness to pay. You can use surveys, focus groups, interviews, and online analytics tools to gather data.

Analyze your competitors: Analyze your competitors’ revenue models and pricing strategies to see what’s working well in your industry. Look for gaps in the market that you can fill with your own revenue model.

Experiment and test: Once you’ve gathered data on your target market and competitors, experiment with different revenue models and pricing strategies to see what resonates best with your audience. Test different pricing levels, features, and messaging to see what drives the most revenue.

Monitor and adjust: Keep an eye on your revenue streams and adjust your revenue model as needed. Monitor customer feedback and make changes to your pricing and features to better align with your customers’ needs and preferences.

Consider the value your product or service provides

When choosing a revenue model for your startup, it’s important to consider the value that your product or service provides to your customers. The value of your offering can impact the pricing strategy you use, the target market you focus on, and the revenue model you ultimately choose.

To determine the value of your product or service, consider the following factors:

Unique selling proposition: What makes your product or service unique? What problem does it solve for your customers? Understanding your unique selling proposition (USP) can help you determine the value your product or service provides to your customers.

Benefits to customers: What benefits do your customers receive from using your product or service? How do these benefits compare to other products or services in the market? Understanding the benefits your offering provides can help you determine the price point and revenue model that will be most effective.

Market demand: How much demand is there for your product or service in the market? How does this demand impact the value of your offering? Understanding the market demand for your offering can help you determine the appropriate revenue model to use.

Once you’ve determined the value of your offering, you can use this information to choose the most appropriate revenue model. For example, if your product or service provides high value and is in high demand, you may consider using a premium pricing model or a subscription-based model to capture the most revenue. If your product or service provides lower value or is in a competitive market, you may consider using a freemium or advertising model to generate revenue.

Consider the costs associated with each revenue model

When choosing a revenue model for your startup, it’s important to consider the costs associated with each revenue model. Understanding the costs can help you determine the most effective revenue model to use and ensure that you are generating a profit.

To calculate the costs of each revenue model, consider the following factors:

Development costs: How much does it cost to develop and maintain your product or service? This includes costs such as research and development, software development, and marketing expenses.

Operating costs: What are the ongoing operating costs associated with your revenue model? For example, if you are using a subscription-based model, you will need to consider the costs of customer support, server maintenance, and billing.

Transaction costs: What are the transaction costs associated with each revenue model? This includes costs such as credit card processing fees, shipping costs, and commissions paid to third-party providers. 

Once you’ve calculated the costs associated with each revenue model, you can determine the most effective revenue model to use. For example, if you have high development costs and low operating costs, a one-time purchase model may be the most effective revenue model. If you have high operating costs and low transaction costs, a subscription-based model may be the most effective revenue model.

It’s important to note that the costs associated with each revenue model can impact your overall revenue. For example, if you choose a revenue model with high transaction costs, such as a marketplace model, your profit margins may be lower. On the other hand, if you choose a revenue model with low operating costs, such as a freemium model, you may be able to generate higher profits over time.

Test and experiment with different revenue models

Testing and experimenting with different revenue models is crucial for determining the most effective model for your startup. It allows you to gather data and insights to make informed decisions about which revenue model will generate the most revenue and profit for your business.

Here are some tips and strategies for testing and experimenting with revenue models:

Conduct customer research: Ask your customers what they are willing to pay for your product or service, and which revenue model they prefer. You can use surveys or focus groups to gather this information.

Start small: Test out different revenue models on a small scale before fully implementing them. For example, you can offer a limited-time discount for a subscription-based model to see if customers are interested in paying for your product or service on a recurring basis.

Monitor key metrics: Track key metrics such as revenue, customer acquisition cost, customer lifetime value, and churn rate for each revenue model you test. This will help you evaluate the effectiveness of each model and make informed decisions.

A/B testing: Use A/B testing to compare different revenue models. For example, you can offer a one-time purchase option and a subscription-based model to different groups of customers to see which generates more revenue.

Iterate and optimize: Use the data and insights you gather from testing and experimenting to iterate and optimize your revenue model. Continuously improve your revenue model to ensure that it is generating the most revenue and profit for your business.

It’s important to note that testing and experimenting with revenue models can take time and resources. However, the insights and data you gather will be invaluable in helping you make informed decisions about which revenue model to use for your startup.

FAQs About Startup Revenue Models

How do i properly price my products or services for maximum profitability.

Pricing your products or services for maximum profitability can be a complex process. Here are some steps to help you:

Understand your costs: Before you can price your products or services, you need to know your costs. This includes the cost of materials, labor, overhead, and any other expenses associated with producing or delivering your product or service.

Research your market: Understand your competitors and the market demand for your product or service. Analyze their pricing strategies and determine how you can differentiate yourself to stand out.

Determine your value proposition: Identify the unique value that your product or service provides to customers. This can include features, quality, convenience, or any other aspect that sets you apart from your competitors.

Consider your target customer: Understand your target customer and what they are willing to pay for your product or service. Conduct customer research to determine their preferences, buying behavior, and price sensitivity.

Develop pricing strategies: Once you have a clear understanding of your costs, market, value proposition, and target customer, you can develop pricing strategies that align with your business goals. Some common pricing strategies include cost-plus pricing, value-based pricing, and dynamic pricing.

Test and optimize: Test your pricing strategies to see how customers respond. Monitor key metrics such as sales volume, revenue, and profit margins, and optimize your pricing based on the results.

Continuously evaluate and adjust: Pricing is not a one-time decision. Continuously evaluate your pricing strategy and adjust it as necessary to ensure maximum profitability.

How can I forecast and track my startup’s revenue over time?

Forecasting and tracking your startup’s revenue over time is crucial to understanding the health and growth of your business. Here are some steps to help you forecast and track your startup’s revenue:

Define your revenue streams: Identify all of the ways in which your startup generates revenue. This could include sales of products or services, advertising revenue, subscription revenue, or any other revenue streams.

Estimate revenue for each stream: For each revenue stream, estimate how much revenue you expect to generate. Use historical data, market research, and other relevant information to inform your estimates.

Create a revenue forecast: Once you have estimated revenue for each stream, create a revenue forecast that projects revenue over a specific period of time (e.g., monthly, quarterly, or annually). Use a spreadsheet or other tool to create the forecast, and update it regularly based on actual results and changes to your business.

Track actual revenue: Track your actual revenue over time, and compare it to your revenue forecast. Use this information to identify areas where your revenue forecast may be inaccurate, and adjust your forecast accordingly.

Analyze revenue trends: Analyze revenue trends over time to identify patterns and opportunities for growth. Look for changes in revenue from each stream, as well as changes in overall revenue.

Use key performance indicators (KPIs): Use KPIs such as customer acquisition cost, customer lifetime value, and revenue per customer to track the effectiveness of your revenue generation efforts.

Iterate and adjust: Use the insights you gain from forecasting and tracking your revenue to make adjustments to your business strategy, revenue streams, and pricing strategies. Continuously iterate and adjust your revenue model to maximize revenue and profitability.

Can I pivot my revenue model if it’s not working as expected?

Yes, you can pivot your revenue model if it’s not working as expected. In fact, many startups pivot their revenue model as they evolve and learn more about their market and customers.

However, it’s important to approach a revenue model pivot with caution and careful planning.

Overall, pivoting your revenue model can be a complex and challenging process. However, it can also be a necessary step in ensuring the long-term success and sustainability of your startup. With careful planning, research, and testing, you can pivot your revenue model effectively and position your business for growth and profitability.

How can I scale my revenue model as my startup grows?

Scaling your revenue model is an important consideration as your startup grows. Here are some strategies to help you scale your revenue model:

Focus on customer acquisition: As your startup grows, you’ll need to acquire new customers to maintain revenue growth. Consider investing in marketing and advertising to reach new audiences and expand your customer base.

Increase pricing: As your product or service gains more market traction and provides more value to your customers, you may be able to increase your prices. This can help you maintain or even increase revenue while also positioning your startup as a more premium offering.

Diversify revenue streams: Consider adding additional revenue streams to your business model as your startup grows. This can include offering complementary products or services, expanding into new markets or geographies, or developing new revenue models altogether.

Improve operational efficiency: Look for ways to improve the efficiency of your operations to reduce costs and increase revenue. This can include automating processes, streamlining supply chain management, and improving customer service.

Invest in technology: As your startup grows, technology can help you scale your revenue model more effectively. Consider investing in tools and platforms that can help you automate processes, improve customer engagement, and streamline operations.

Continuously monitor and optimize: Continuously monitor and optimize your revenue model as your startup grows. Regularly analyze metrics such as customer acquisition cost, customer lifetime value, and revenue per user to identify areas for improvement and fine-tune your revenue model accordingly.

How do I handle seasonal fluctuations in revenue?

Handling seasonal fluctuations in revenue can be challenging. Here are several strategies that can help:

Plan ahead: Analyze historical data to identify patterns in revenue fluctuations and plan ahead for seasonal changes. This can include adjusting inventory levels, staffing, and marketing efforts to align with seasonal trends.

Diversify revenue streams: Consider diversifying your revenue streams to minimize the impact of seasonal fluctuations. This can include offering complementary products or services that are in demand during different seasons. It can also include expanding into new markets or geographies that have different seasonal patterns.

Develop promotions and sales: Consider developing promotions and sales that align with seasonal trends to encourage customers to make purchases during slower periods. This can include holiday-themed promotions, special offers for off-season products or services, or bundled packages that offer savings during slower periods.

Focus on customer retention: During slower periods, it’s important to focus on retaining existing customers. Consider offering loyalty programs, personalized promotions, and excellent customer service to build loyalty and encourage repeat business.

Maintain cash reserves: Maintaining sufficient cash reserves can help your startup weather seasonal fluctuations in revenue. This can include setting aside a portion of profits during high revenue periods or securing a line of credit to help cover expenses during slower periods.

How can I use data to optimize and improve my startup’s revenue model?

Using data to optimize and improve your startup’s revenue model can be a powerful way to drive growth and increase profitability. Here are some steps you can take to use data effectively:

Collect and analyze data: Start by collecting data on your customers, sales, and revenue. Use tools like Google Analytics, customer relationship management (CRM) software, and accounting software to track key metrics and identify trends.

Identify opportunities for improvement: Analyze the data you collect to identify opportunities for improvement. Look for trends and patterns that can help you identify areas where you can increase revenue, reduce costs, or improve customer satisfaction.

Test and experiment: Use A/B testing and experimentation to test different revenue models, pricing strategies, and marketing tactics. This can help you identify what works best for your business and optimize your revenue model over time.

Use predictive analytics: Use predictive analytics to forecast future revenue and identify potential opportunities or challenges. This can help you plan ahead and make strategic decisions to optimize revenue.

Continuously monitor and adjust: Continuously monitor your revenue and use the data you collect to adjust your revenue model as needed. Regularly review your revenue metrics and make adjustments to pricing, marketing, and other factors to optimize revenue.

How can I effectively communicate my revenue model to potential investors and partners?

Effectively communicating your revenue model is essential when seeking investment or partnership opportunities. Here are some tips on how to do it effectively:

Keep it simple: Start by keeping your explanation of your revenue model simple and concise. Avoid using technical jargon or complex terms that may be difficult to understand.

Use visuals: Visual aids such as charts and graphs can help make your revenue model more understandable and memorable. Use these tools to illustrate your revenue streams, pricing strategy, and customer acquisition costs.

Provide examples: Use real-world examples to help investors or partners understand how your revenue model works. Use case studies or customer success stories to demonstrate how your revenue model has worked in the past.

Highlight scalability: Emphasize how your revenue model is scalable and can grow as your business expands. Highlight potential growth opportunities and how your revenue model can be adapted to accommodate them.

Address potential challenges: Be transparent about any potential challenges or risks associated with your revenue model. Explain how you plan to address these challenges and mitigate risk over time.

Be confident: Finally, be confident when presenting your revenue model. Show investors and partners that you believe in your business and revenue model and that you are committed to making it a success.

What is a good revenue model for a startup school?

A revenue model for a startup school would depend on the specific services offered and the target market. However, here are a few potential revenue models that may be effective:

Tuition-based model: The most straightforward revenue model for a startup school is to charge tuition fees for students. This can be done on a per-course basis, per semester, or as a flat rate for the entire program. This model is best suited for schools that offer formal, structured programs.

Membership-based model: Another option is to charge membership fees for access to a range of resources and services, such as online courses, workshops, mentorship, and networking events. This model is best suited for schools that offer a variety of services to entrepreneurs and startup founders.

Commission-based model: A commission-based model involves taking a percentage of the revenue generated by startups that are incubated or accelerated by the school. This model is best suited for schools that offer more hands-on support, such as mentorship, networking, and funding connections.

Corporate partnership model: A school could also partner with corporations and charge for services such as customized training programs, hackathons, or innovation challenges. This model is best suited for schools that have established relationships with large corporations or have a niche focus in a specific industry.

How and when should startups validate their revenue model(s)?

Startups should validate their revenue model as early as possible, preferably during the idea validation stage. Validating the revenue model means determining whether customers are willing to pay for the product or service and whether the revenue generated will be sufficient to sustain the business.

There are several methods that startups can use to validate their revenue model:

Conducting customer interviews: Startups can conduct customer interviews to understand their needs and willingness to pay for the product or service. This can provide valuable insights into the target market and help determine the most effective revenue model.

Creating a minimum viable product (MVP): An MVP is a simplified version of the product or service that allows startups to test the market and get feedback from customers. By launching an MVP and measuring customer response, startups can validate their revenue model and make any necessary adjustments.

Conducting A/B testing: A/B testing involves creating two versions of the product or service and testing them with different groups of customers. This allows startups to determine which version generates more revenue and optimize the revenue model accordingly.

Running pilot tests: Startups can run pilot tests with a small group of customers to validate their revenue model. This can involve offering a free trial or discounted pricing to attract customers and measure their response.

It’s important for startups to validate their revenue model as early as possible to avoid wasting resources. By using these methods to validate the revenue model, startups can increase their chances of success.

What are some of the best revenue models for app-based startups?

App-based startups have a unique advantage of being able to leverage various revenue models due to the nature of their platform. Here are some of the best revenue models for app-based startups:

In-app Advertising: This revenue model involves displaying ads within the app to generate revenue. App developers can earn money either through click-throughs or impressions. Examples of apps that use this revenue model are Instagram and Snapchat.

In-app Purchases: This revenue model involves offering users the ability to purchase digital or physical goods within the app. Examples of apps that use this revenue model are gaming apps like Clash of Clans and Candy Crush.

Subscription-based: This revenue model involves charging users a monthly or yearly fee for access to premium content or features. Examples of apps that use this revenue model are Spotify and Netflix.

Freemium: This revenue model offers a basic version of the app for free, but charges for access to premium features. Examples of apps that use this revenue model are Dropbox and LinkedIn.

Sponsorship: This revenue model involves partnering with brands to promote their products or services within the app. Examples of apps that use this revenue model are Nike Training Club and McDonald’s Happy Studio.

What are the most unusual but effective revenue models used by internet startups?

There have been some creative and unusual revenue models that internet startups have employed over the years. Here are a few examples:

Affiliate revenue model: Some startups earn revenue by promoting other companies’ products and earning a commission for each sale they generate.

Pay-what-you-want: This model allows customers to pay what they think a product or service is worth, rather than a fixed price.

Donation-based: Some startups rely on donations from users or supporters to fund their operations.

Commission-based: Some startups act as intermediaries between buyers and sellers and take a commission for each transaction they facilitate.

Crowdfunding: This model allows startups to raise capital by soliciting small contributions from a large number of individuals.

Freemium with a twist: Some startups offer a free version of their product, but instead of charging for premium features, they ask users to donate to a charitable cause.

Which Startup Revenue Model is Right for You?

In conclusion, having a clear and effective revenue model is essential for the success of any startup. It helps founders to generate revenue, attract investors, and achieve long-term sustainability. Choosing the right revenue model requires careful consideration of factors such as the target market, the value proposition of the product or service, and the associated costs. It is also important to continuously seek out new revenue streams and experiment with different revenue models.

As a startup founder, you can benefit from joining communities such as Founder’s Network , where you can connect with other founders and gain mentorship. By leveraging the knowledge and experience of others, you can gain valuable insights into revenue models and improve your chances of success. Keep in mind that validating your revenue model early on and tracking revenue over time can also help you make informed decisions about the direction of your startup.

In today’s highly competitive business landscape, having a well-defined revenue model is more critical than ever. By selecting the right revenue model and continuously seeking out new revenue streams, you can ensure the long-term success of your startup.

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21 Different Types of Business Models With Examples

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.

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

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.

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.

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

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

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

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

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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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What is a Business Model? Types of Business Models

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.

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.

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.

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.

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.

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.

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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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

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.

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.

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

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

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

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

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

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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Setting up a new company a business model that suits your idea.

The business model is the foundation for all of a company’s future goals and strategies. But what factors need to be considered when developing a functioning business model? We explain.

The key points in brief:

• A focused business model helps companies to concentrate on their core objectives.
• The various components of the business model influence each other.
• There are different approaches to developing a suitable business model.
• The business model is the basis for a detailed business and financial plan.

Behind every successful company is a good idea. But a business idea can only become a flourishing company if it has the right business model. The business model determines how a company generates value, how products or services are placed on the market, how customers are acquired, and how revenue is generated.

The choice of a suitable business model is the basis for strategic planning. It should be flexible enough to respond to changes in market conditions or new insights, which often only become apparent in the course of business activities.

1. Definition and content of a business model

1.1. Value proposition

At its core, the value proposition defines what a company offers its customers and, in particular, how its offering differs from that of its competitors. This requires in-depth knowledge of the market concerned.

A winning value proposition addresses the needs, wishes, or problems of (potential) customers and comprises the following features:

• Uniqueness: The product or service is clearly different from other competing offers on the market.
• Relevance: The product or service solves specific problems or needs faced by the target customers.
• Clarity: The benefits of the product or service are immediately apparent to customers.
• Availability: The target group understands how to access the product or service.

As an example of a value proposition, let’s take a fictitious company that offers a mobile app for managing personal finances. This is how the value proposition could look:

• Uniqueness: The app uses Artificial Intelligence to personalize savings tips and automate transaction categorization.
• Relevance: It addresses the general need for simpler financial management and helps users to manage their budget more effectively and achieve their savings goals.
• Clarity: The benefits offered by the service are clear: simplified financial management and personalized savings.
• Availability: Being easy to use, the app can benefit every user, regardless of their previous financial experience. The app can be downloaded from the Apple and Android app stores by all prospective users, and the basic version is free of charge.

1.2. Customer segments and target groups

Another key aspect when developing a business model is to identify the relevant customer segments. A precise definition of the segments is helpful in aligning a product or service, as well as the marketing and sales, to the specific needs, behaviors and preferences of potential customers .

As a rule, customer segments are defined by the following attributes:

• Demographic characteristics: age, gender, level of education, income, occupation, etc.
• Geographical characteristics: location, urban or rural areas, etc.
• Psychographic characteristics: interests, hobbies, values, attitudes, lifestyle, etc.
• Behavioral characteristics: purchasing habits, usage rate, brand loyalty, price sensitivity, media behavior, etc.

By thus permitting entire groups with similar preferences to be addressed rather than individual persons, marketing campaigns can be better controlled, higher sales achieved, and advertising costs saved, because there is less coverage waste.

1.3. Sales channels

The choice of the right sales channels to reach (potential) customers also determines the success of a business model. The channels are used not only to market and sell the products or services , but also to support and retain customers . They can be real-world (retail stores or events) or digital (websites, social media, or email marketing). By using these channels effectively, it is possible to communicate with customers, build relationships, and ultimately achieve the defined sales targets.

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1.4. Revenue model

The revenue model defines  how a company plans to generate revenue . Different business models generate income from a variety of sources, depending on their product or service range, their market, and their strategic orientation. The most common sources of income are the direct sale of products and services, subscription models, or usage-based models such as pay-per-use.

1.5. Key resources

To be successful, a company needs the right resources: they make it possible to define the value proposition and market, sell, or deliver the products or services.  Identifying and managing these key resources is crucial to the performance and sustainability  of a business model. Key resources can be divided into different categories: physical, intellectual, human, and financial resources. For a software company, for example, the key resources could look something like this:

• Intellectual: software code, databases, and patents.
• Human: development experts with specialized knowledge of programming languages and system architecture.
• Physical: server infrastructure for the provision of cloud services.
• Financial: capital for research and development as well as for marketing campaigns.

A company’s costs  include all expenses required to operate and maintain the business . The cost structure forms the basis for pricing, profitability analysis, and strategic planning, and costs can be divided into different categories:

• Fixed costs: expenses that remain constant regardless of production volume, e.g., rent for business premises, wages, insurance, and the cost of services or software. These costs are incurred on a regular basis and can therefore be planned.
• Variable costs: expenses that vary directly in proportion to the production quantity or service volume, e.g., material costs, direct labor costs, sales commissions, or shipping costs. The more products a company manufactures or the more services it offers, the higher the variable costs.
• One-off costs: non-recurring expenses incurred for special projects, purchases or events. These include the cost of setting up the company, major investments in equipment or technology, relocation costs, or major marketing campaigns.
• Cost of capital: the cost of financing the company – through equity or borrowed capital, e.g., interest on loans taken out and dividends.
• Operating costs: ongoing expenses for day-to-day business operations, including administrative costs, sales and marketing costs, as well as maintenance and repairs.

2. The scalability of a business model

The crucial question is how quickly a business model can be scaled up – i.e., enable rapid sales growth – without the need for major investments. This allows the margin to be increased as the turnover rises. Scalable business models are often characterized by a comparatively low fixed cost base and generally have a high proportion of variable costs.

3. Methods for developing a business model

There is no single or perfect way to develop a business model: The best approach depends on the company’s goals and strengths as well as the nature of the business, the industry, and the market environment. Below are a few examples of formal methods:

3.1. Business Model Canvas

The Business Model Canvas is a strategic management tool that helps to visualize and analyze a business model. It includes key elements such as value proposition, customer relationships, sales model, and more. The tool is particularly useful for startups and new business ideas, as it enables the rapid customization and testing of different business models.

3.2. SWOT Analysis

The SWOT Analysis helps companies to understand their internal strengths and weaknesses as well as external opportunities and risks. This method can be applied across all industries and offers valuable insights that can help to refine the business model.

3.3. Lean Startup

This method focuses on the rapid testing and adaptation of the business model through the Build-Measure-Learn cycle. It is ideal for technology startups and other business models operating in a rapidly changing market, as it reduces the risk of investing time and resources in products or services that may not meet customer needs.

3.4. Design Thinking

Design Thinking is an iterative process that helps teams to focus on users and develop creative solutions to their problems. This process typically involves planning, implementing, reviewing, and analyzing feedback, after which adjustments are made before the cycle begins again. The method is particularly well suited to service companies or products that focus strongly on the user experience.

4. The business model versus the business plan

In a nutshell, the business model is the foundation on which a company is built; it describes how the company creates value. The business plan, on the other hand, builds on the business model and contains specific, time-dependent objectives and plans for implementing the business model. The business plan is used to present the business idea, marketability, financial planning, and growth potential of the company to investors and banks.

5. General tips for developing your business model

It is well worth getting to grips with the question of the right business model. A well-thought-out business model lays the foundation for the success of your company. Here are a few general tips to help you develop the right business model:

• Customer focus: Understand your target customers in detail – their needs and wishes must be at the center of your business model.
• Flexibility: Be prepared to adapt your business model based on feedback and market research.
• Simplicity: A complex business model is difficult to communicate and implement. Strive for simplicity wherever possible.
• Sustainability: Consider how your company can create and maintain value in the long term.
• Make use of networks: Build relationships with mentors, industry experts, and potential partners to get the support you need.

6. Are you setting up a company? Then let us advise you

We see ourselves as a genuine partner for startups and scale-ups. We not only offer attractive banking packages for young companies , but also support you with startup and growth financing – by helping you to find investors, for example.

We are not just your bank. Whatever you are dealing with in your day-to-day business – whether you’re setting up your company, in the growth phase, or facing strategic challenges – talk to us. With the help of our experts and our extensive network, we can offer you solutions to almost any challenge your company may face.

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A.I. Start-Ups Face a Rough Financial Reality Check

The table stakes for small companies to compete with the likes of Microsoft and Google are in the billions of dollars. And even that may not be enough.

• Share full article

By Cade Metz ,  Karen Weise and Tripp Mickle

Cade Metz and Tripp Mickle reported from San Francisco, and Karen Weise from Seattle.

Call it the end of the beginning of the A.I. boom.

Since mid-March, the financial pressure on several signature artificial intelligence start-ups has taken a toll. Inflection AI, which raised $1.5 billion but made almost no money, has folded its original business. Stability AI has laid off employees and parted ways with its chief executive. And Anthropic has raced to close the roughly $1.8 billion gap between its modest sales and enormous expenses.

The A.I. revolution, it is becoming clear in Silicon Valley, is going to come with a very big price tag. And the tech companies that have bet their futures on it are scrambling to figure out how to close the gap between those expenses and the profits they hope to make somewhere down the line.

This problem is particularly acute for a group of high-profile start-ups that have raised tens of billions of dollars for the development of generative A.I., the technology behind chatbots such as ChatGPT. Some of them are already figuring out that competing head-on with giants like Google, Microsoft and Meta is going to take billions of dollars — and even that may not be enough.

“You can already see the writing on the wall,” said Ali Ghodsi, chief executive of Databricks, a data warehouse and analysis company that works with A.I. start-ups. “It doesn’t matter how cool it is what you do — does it have business viability?”

While plenty of money has been burned in other tech booms, the expense of building A.I. systems has shocked tech industry veterans. Unlike the iPhone, which kicked off the last technology transition and cost a few hundred million dollars to develop because it largely relied on existing components, generative A.I. models cost billions to create and maintain. The cutting-edge chips they need are expensive and in short supply . And every query of an A.I. system costs far more than a simple Google search.

Investors have poured $330 billion into about 26,000 A.I. and machine-learning start-ups over the past three years, according to PitchBook, which tracks the industry. That’s two-thirds more than the amount they spent funding 20,350 A.I. companies from 2018 through 2020.

The challenges hitting many newer A.I. companies stand in contrast to the early business results at OpenAI, which is backed by $13 billion from Microsoft. The attention it has generated with its ChatGPT system has allowed the company to build a business charging $20 a month for its premium chatbot and offered a way for businesses to build their A.I. services with the technology that drives its chatbot, which is called a large language model. OpenAI pulled in around $1.6 billion in revenue over the last year, but it is unclear how much the company is spending, two people familiar with the company’s business said.

OpenAI did not respond to requests for comment.

But even OpenAI has had challenges broadening sales. Businesses are wary that the A.I. systems can generate inaccurate answers. The technology has also been troubled by questions about whether the data that supported the models infringed on copyrights.

(The New York Times sued OpenAI and Microsoft in December for copyright infringement of news content related to A.I. systems.)

Many investors point to Microsoft’s rapid sales growth as evidence of A.I.’s business potential. In its most recent quarter, Microsoft reported an estimated $1 billion in sales from A.I. services in cloud computing, up from essentially nothing a year ago, said Brad Reback, an analyst at the investment bank Stifel.

Meta, on the other hand, doesn’t expect to make money for years off its A.I. products, even as it increases its infrastructure spending by up to $10 billion this year alone. “We’re investing to stay at the leading edge of this,” Mark Zuckerberg, Meta’s chief executive, said during a call with analysts last week. “And we’re doing that at the time when we’re also scaling the product before it is making money.”

A.I. start-ups have been challenged by that gap between spending and sales. Anthropic, which has raised more than $7 billion with backing from Amazon and Google , is spending about $2 billion a year but pulling in only about $150 million to $200 million in revenue, said two people familiar with the company’s financials, who requested anonymity because the figures are private.

Like OpenAI, Anthropic has turned to partnerships with large, established tech companies. Its chief executive, Dario Amodei, has been courting customers on Wall Street, and it recently announced that it was working with Accenture , the global consulting company, to create custom chatbots and A.I. systems for companies and government organizations.

Sally Aldous, a spokeswoman for Anthropic, said that thousands of businesses were using the company’s technology and that millions of consumers were using its publicly available chatbot, Claude.

Stability AI, which does image generation, announced last month that its founding chief executive, Emad Mostaque, had resigned , just a week after the resignation of three researchers who were part of the five-person team that built the company’s original technology.

It was on track to generate about $60 million in sales this year against about $96 million in costs from its image generation system, which has been available to customers since 2022, a person familiar with its business said.

Stability AI’s financial position looks better than those of language-model makers like Anthropic because developing image generation systems is less expensive, A.I. investors said. But there’s also less demand to pay for images, so the sales prospects are more uncertain.

Stability AI has been operating without the support of a tech giant. After raising $101 million from venture capitalists in 2022 , it needed more funds last fall but was struggling to show investors that it could sell its technology to businesses, said two former employees, who declined to speak publicly because they were not authorized to do so. It raised $50 million from Intel late last year but still faced financial pressure, they said.

As the start-up grew, its sales strategy shifted, these people said. At the same time, it was spending millions a month on computing costs. Some investors pressured Mr. Mostaque to resign, according to an investor, who declined to speak publicly about a personnel issue. This month, after his resignation, Stability AI did layoffs and restructured its business to put the company on “a more sustainable path,” according to a company memo reviewed by The New York Times.

Stability AI declined to comment. Mr. Mostaque declined to discuss his exit.

Inflection AI, a chatbot start-up founded by three A.I. veterans, had raised $1.5 billion from some of the biggest names in tech. But a year after introducing its A.I. personal assistant, it had almost no revenue, according to one investor. The Times reviewed a letter that Inflection had sent to investors saying additional fund-raising was “not the best use of our investors’ money, especially in the context of the current frothy A.I. market.”

In late March, it folded its original business and largely disappeared into Microsoft, the world’s most valuable public company.

Microsoft also helped fund Inflection AI, whose chief executive, Mustafa Suleyman, rose to prominence as one of the founders of DeepMind, a seminal artificial intelligence lab that Google acquired in 2014. Mr. Suleyman founded Inflection AI alongside Karén Simonyan, a key DeepMind researcher, and Reid Hoffman, a leading Silicon Valley venture capitalist who helped found OpenAI and is on Microsoft’s board.

Microsoft and Inflection AI declined to comment.

The company was steeped in talented A.I. researchers who had worked at places like Google and OpenAI.

But almost a year after releasing its A.I. personal assistant, Inflection AI’s revenue was, in the words of one investor, “de minimis.” Essentially zilch. It could not continue to improve its technologies and keep pace with chatbots from the likes of Google and OpenAI unless it continued to raise huge sums of money.

Now Microsoft is swallowing most of its staff, including Mr. Suleyman and Dr. Simonyan.

This is costing Microsoft more than $650 million. But unlike Inflection AI, it can afford to play the long game. It has announced plans for the staff to build an A.I. lab in London, working with the kind of systems the start-ups are hoping will break through.

Erin Griffith contributed reporting.

Cade Metz writes about artificial intelligence, driverless cars, robotics, virtual reality and other emerging areas of technology. More about Cade Metz

Karen Weise writes about technology and is based in Seattle. Her coverage focuses on Amazon and Microsoft, two of the most powerful companies in America. More about Karen Weise

Tripp Mickle reports on Apple and Silicon Valley for The Times and is based in San Francisco. His focus on Apple includes product launches, manufacturing issues and political challenges. He also writes about trends across the tech industry, including layoffs, generative A.I. and robot taxis. More about Tripp Mickle

Explore Our Coverage of Artificial Intelligence

News  and Analysis

As experts warn that A.I.-generated images, audio and video could influence the 2024 elections, OpenAI is releasing a tool designed to detect content created by DALL-E , its popular image generator.

American and Chinese diplomats plan to meet in Geneva to begin what amounts to the first, tentative arms control talks  over the use of A.I.

Wayve, a London maker of A.I. systems for autonomous vehicles, said that it had raised $1 billion , an illustration of investor optimism about A.I.’s ability to reshape industries.

The Age of A.I.

A new category of apps promises to relieve parents of drudgery, with an assist from A.I.  But a family’s grunt work is more human, and valuable, than it seems.

Despite Mark Zuckerberg’s hope for Meta’s A.I. assistant to be the smartest , it struggles with facts, numbers and web search.

Much as ChatGPT generates poetry, a new A.I. system devises blueprints for microscopic mechanisms  that can edit your DNA.

Which A.I. system writes the best computer code or generates the most realistic image? Right now, there’s no easy way to answer those questions, our technology columnist writes .

The platform business model meets advanced manufacturing at MakerVerse

For many venture capitalist firms, investing in start-ups helps provide pathways to novel solutions. Venture capital firm Ninepointfive centers its business philosophy on investing in corporate spin-offs and start-ups that create technology that can change the global supply chain landscape. That focus led it to MakerVerse, a company that connects industrial buyers and engineers to hundreds of vetted manufacturing suppliers.

McKinsey’s Jerome Königsfeld and Christian Jansen sat down with Paul van Emmerick, founding partner of Ninepointfive, and Dr. Markus Seibold, CEO of MakerVerse, to discuss the benefits of bringing together a venture capitalist mindset with expertise in advanced manufacturing. Van Emmerick shares his approach to scaling up a business and the attributes of a promising investment, while Seibold discusses MakerVerse’s inception, the company’s operating model, and the goals it has as it scales.

Key insight #1: Investing in spin-offs allows companies to innovate quickly while providing start-ups with advantages and resources.

Jerome Königsfeld: What is the investment thesis of Ninepointfive?

Biographies

Paul van Emmerick, Ninepointfive

Paul van Emmerick is a founding partner and investor in Ninepointfive. He has a background in civil engineering and political science and more than 20 years of experience as a CEO of corporates, consultancies, and investment firms. Ninepointfive is a venture capital fund, concentrating on cultivating a targeted portfolio of corporate ventures and expediting their growth alongside prominent corporations. These ventures operate independently and are established through an equity partnership involving the management, the corporate partner, and the fund.

Dr. Markus Seibold, MakerVerse

Dr. Markus Seibold is founder and CEO of MakerVerse. He has extensive experience in the advanced manufacturing industry and was vice president of additive manufacturing for Siemens Energy and CEO of Materials Solutions, where he oversaw the company’s rapid growth. Over more than a decade, he has played a pivotal role in scaling 3-D printing from its early-stage research and development phase to a thriving commercial business, establishing Siemens Energy as a prominent leader in additive manufacturing. MakerVerse, a Berlin-based start-up, is a joint venture between Siemens Energy, ZEISS, and Ninepointfive. The platform taps into a network of suppliers and producers to help users gain access to a variety of industrial parts, technologies, materials, and finishes.

Paul van Emmerick: Ninepointfive invests in corporate-backed spin-offs and start-ups. These start-ups have distinct expertise and assets, and our work alongside corporate partners provides them better access to technology and customers—which traditional start-ups may struggle to get—so they can achieve larger scale and success to accelerate their business-building capabilities. Investing in corporate start-ups is becoming increasingly common as more companies engage in start-up activities through various models, such as corporate venture capital or venture factories. These investments require both internal and external sources to drive business building and prioritize or filter ideas from various sources, such as business unit-sponsored ideas, cross-business unit initiatives, or employee-driven ideas.

By leveraging the strengths of both start-ups and corporates, we can create a win–win situation, in which start-ups receive the support they need to thrive and corporates benefit from the innovation, speed, and growth potential of these start-ups.

Christian Jansen: How does Ninepointfive support start-ups?

Paul van Emmerick: Besides providing a check, we contribute to start-ups’ success by helping them build out critical functions. For example, we help them hire quality talent so they can bring in individuals with different perspectives and expertise to gather fresh ideas and diverse skill sets. We also help be a supportive presence for the founders. Building a start-up can be lonely for founders, so having someone who can provide guidance and support can make a big difference.

Key insight #2: Constant engagement with corporate executives helps to identify promising candidates for investment.

Jerome Königsfeld: How do you screen the market for opportunities and identify the most promising candidates?

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Paul van Emmerick: We constantly engage with C-level executives to understand their strategic priorities and early spin-out opportunities. And if an opportunity arises, we help them assess its viability as an independent strategy. We mainly look for opportunities with start-ups in sectors that address challenges in global supply chains, where technology can play a meaningful role. Three types of companies are most compelling to us: business-to-business software-as-a-service companies that specialize in logistic supply chain and manufacturing; business models that have generated proof of concept in another region, such as the United States, that we can then bring to the European sphere; and companies that work with major European players or midsized companies that are category leaders in their niche. We look for start-ups with excellent founder teams, typically with a Pan-European presence, that are hands-on in their approach.

Jerome Königsfeld: What made you decide to invest in MakerVerse?

Paul van Emmerick: MakerVerse has an outstanding and diverse team, and their leadership team was determined to achieve their vision. They’re tapping into the burgeoning market of on-demand manufacturing, and the founding team had already validated the concept with core players in the industry, so we trusted that the new platform would get customer traction fast. Also, the timing was right. We recognized that their innovative platform approach will help companies make their supply chains more resilient, which is top of mind for most executives.

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Key insight #3: Corporate backers accelerate product development and generate market traction.

Christian Jansen: What is the business model of MakerVerse, and what inspired you to build it?

Dr. Markus Seibold: When I worked at Siemens Energy, our global additive manufacturing team of a couple of hundred people became more and more specialized, limiting access to 3-D printing to only a small group of people in the company. I wanted to find a business model that would make 3-D printing available to all employees so we could have a greater impact. MakerVerse was inspired by that desire.

With MakerVerse, we wanted to create the leading platform for on-demand manufacturing that connects industrial users to hundreds of producers to allow for rapid and easy access to all relevant manufacturing technologies that can suit all kinds of creative needs. At first, we validated and pitched the business idea and highlighted the synergies with the core business of Siemens Energy. The positive early customer feedback encouraged me to think even bigger and to offer the platform not only to Siemens Energy employees but also to every corporation that needs on-demand manufacturing. We decided to spin out the business and gained corporate investors, Siemens Energy and ZEISS, and venture capitalist funds, including Ninepointfive, as early backers.

Our goal now is to reduce capital expenditure and provide companies with access to not just 3-D printing but also the full range of manufacturing technologies, such as CNC [computer numerical control] machining and injection molding. We aspire to become the standard for ordering on-demand manufactured parts and to be core to the supply chain of our customers, from start-ups to blue chips.

Jerome Königsfeld: How did you turn your idea of an on-demand manufacturing platform into reality?

Dr. Markus Seibold: We started with a low cost commitment and focused on developing our first minimum viable product. We created mock-ups to visualize what the product would look like, gathered early customer feedback, and started building the product. Within two months, we created our first version of the platform, and after three months, we held our first event onboarding initial customers.

The initial platform could deliver only the two core benefits of the platform: automated pricing and ordering. As the entrepreneur Reid Hoffman said, “If you’re not embarrassed by the first version of your product, you’ve launched too late.” Regardless, it was sufficient to begin creating customer value. We then shifted to focus on sales and marketing efforts to promote the product. From there, we iteratively developed and improved the platform based on customer feedback.

We’ve been successful because of the talented members of our founding team and engineering team; talent like this will also help us to grow in the future.

Jerome Königsfeld: Paul, in addition to the seed funding, you also led the €10 million Series A funding round for MakerVerse. What made you invest again?

Paul van Emmerick: We saw our investment thesis proved in MakerVerse. MakerVerse developed its product faster than any other player in the market using the engineering expertise it inherited from its corporate backers. The follow-up investment demonstrated the faith we have in the team and the platform. Also, positive customer traction, both in terms of value and actual numbers, proved that MakerVerse was a good investment. We recognized the long-term value of the company; the core elements needed to succeed—an excellent team and the unique technology—were in place.

Key insight #4: AI helps to automate and personalize customer interactions when scaling a business.

Jerome Königsfeld: What role does AI and generative AI [gen AI] play in MakerVerse’s business model?

Dr. Markus Seibold: AI is at the heart of our product. We used AI to develop a state-of-the-art pricing engine that analyzes millions of data points in real time and provides an automated quote for all orders, even for a basket of parts. The AI helps create a seamless customer experience and allows customers to buy desired parts with a few clicks.

Our data science team developed a pricing engine that compiles millions of parts, geometries, and pricing combinations. A digital description of the part helps the model predict a price in seconds. We continuously learn from orders to optimize our pricing algorithm. We are expanding the application of gen AI further to better capture customer requirements automatically and match those requirements with the right production partner in our global network. In addition, we also embrace AI capabilities across business functions and use gen AI to help us create tailored content for our different marketing channels.

Dr. Markus Seibold is cofounder and CEO of MakerVerse. Paul van Emmerick is a founding partner of and investor in Ninepointfive. Christian Jansen is a partner in McKinsey’s Hamburg office, and Jerome Königsfeld is a partner in the Cologne office.

Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.

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Rice Has a Methane Problem That a Startup Is Promising to Fix

By Michelle Ma

Rice farming is a surprisingly large source of planet-warming methane . Yet while a solution to tackle emissions has existed for decades, farmers haven’t embraced it. Now, a startup has found a way to get them on board with a technique that can halve harmful emissions.

Singapore-based Rize has raised $14 million in Series A funding, a round co-led by Breakthrough Energy Ventures, GenZero, Temasek and Wavemaker Impact.

Rice is responsible for about 10% of global methane emissions, due to the way it’s grown. The crop is largely grown in flooded fields as a weed-avoidance practice, since other grasses aren’t adapted ...

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Can a Canadian ride-hailing startup compete with Uber and Lyft?

Ride-hailing company hovr says fair pay for drivers will power their business.

New ride-hailing app Hovr promises better driver pay but faces steep competition

Social sharing.

Harrison Amit is leading a small startup with a big idea.

"The vision for the company is helping over 10 million drivers," said the 28-year-old CEO of Hovr (pronounced Hover). 

The Toronto-based ride-hailing company launches today, and will service the city and surrounding suburbs.

Amit's goal is to make the company a national brand within a year and go way beyond that.

The question is whether this young entrepreneur compete with the global giant Uber, which has a 15-year head start and had  150 million active monthly users  in Q4 2023 (including Uber Eats customers), or Lyft, which was founded 12 years ago and had 22 million active monthly riders  in Q4.

Hovr's yet to provide a single ride, but Amit believes his company's approach could shake up the ride-hailing industry because of how it will pay drivers.

"Our tagline at Hovr is 100 per cent fare is 100 per cent fair. And what that means is that the drivers take home 100 per cent of the fare from every ride that they receive."

It's a play on words, but also a strategic play, setting Hovr apart from the giants it's up against. 

What 100% of the fare means 

Amit says Hovr will appeal to drivers because instead of taking a percentage of the total fare on every trip to turn a profit like Uber and Lyft do, Hovr will charge a $20 monthly membership fee to work for the service.

That price is an introductory rate that Amit says will rise as the business grows, but a fixed cost means drivers don't pay more for working more. 

That's how Hovr lets drivers keep "100 per cent of the fare."  

Hovr says it will make the costs of each ride transparent, giving riders a bill that shows the fare or driver's pay (the base rate, kilometres and time), and includes what the passenger is being charged for insurance, city fees, a transaction fee plus a $1 "platform fee" from the company. 

Amit says the 100 per cent fair slogan has helped sign up 5,000 drivers and 25,000 potential customers, through word of mouth, social media and a few billboards in downtown Toronto. 

• As ride-hailing apps move in, can St. John's avoid 'Uber remorse'?
• Uber's new Toronto ad campaign aims to tackle 'misinformation,' but not all are convinced

Milton Brady, a former cabbie who's been with Uber for four years, said he couldn't wait to sign up for Hovr.  

"Hovr is a knight in shining armour," he said.

Brady says the industry needs more competition to make things better for drivers, and that Hovr's pay model would give drivers a "chance to actually build some kind of economical stability in their lives."

Ride-hailing ripe for disruption?

In Amit's view, the ride-hailing business is due for a shake-up, like the taxi business was upset by Uber when it arrived.

"We're entering a market that is ripe for disruption," he said, "It's riddled with dissatisfaction, on both sides from the riders and the drivers." 

Complaints about surge pricing and service , a tax investigation  and unionization efforts  are all issues the industry has faced.    

"As an industry, ride hailing is in need of change," said Kam Phung, an assistant professor with the Beedie School of Business at Simon Fraser University in Vancouver. 

"We know that it is riddled with problems and challenges, specifically on the workers' rights fronts."

• Uber and Lyft to pay $328M to settle wage theft claims in N.Y. court case
• CBC Investigates Uber deliberately dodged authorities, ignored rules in early years, leaked documents show

On Valentine's Day this year, a driver protest and strike was staged in several cities around the world as some gig workers logged off their apps, refusing work to bring attention to their pay and working conditions. 

In Toronto, a report from Ridefair Toronto and the Rideshare Drivers Association of Ontario (RDAO) estimated many drivers were making less than minimum wage after expenses. 

More protests  were staged this week in several cities to line up with International Workers' Day on May 1, with Toronto drivers protesting at the city's Union Station and Pearson Airport.

Toronto ride-hailing and food delivery drivers strike for better pay, working conditions

What uber and lyft say about the business and fair pay.

Both Uber and Lyft see the ride-hailing industry as thriving and report positive trends in their quarterly reports.

Both have also said they feel competition is good for consumers and drivers.   

Uber Canada told CBC News in a statement "the vast majority of drivers are satisfied," and in the Toronto area, for example, "are making $33.35 during engaged time per hour before tips."

The company also said it believes "drivers should earn a guaranteed minimum wage," and it will comply with new laws in Ontario and BC that enforce such a standard.  

In an interview with CBC News, Lyft CEO David Risher said roughly speaking, out of every dollar that you as a rider pay, Lyft earns about nine cents.  

He said the remaining 91 cents is split between insurance and other fees, but most of it goes to the driver.

"It's in our best interest that drivers actually get paid more, because it means more people are on the platform," he said. 

A global brand?

Amit says Hovr is "positioning itself for the global stage," but interest from drivers will be the key to the company's growth.  

He hopes drivers who are excited about Hovr and working for Lyft or Uber will convince their passengers to switch over, as well. 

"I don't believe there's any level of brand loyalty, it's more of a forced relationship with these companies, due to a lack of options." 

Phung believes Hovr could grow quickly because there's a demand from some consumers for "gig-economy models that actually allow workers to have a fair wage, and contribute to the creation of a just and equitable society."  

But, he added, the reality of competing against big multinationals means the company could be in for a bumpy ride.

ABOUT THE AUTHOR

Producer, CBC News Business

James Dunne researches, produces and writes stories for the CBC News business unit. Based in Toronto, he's covered business for about 15 years starting with local news, before moving on to the show Venture and co-creating the series Fortune Hunters. His work for those programs won awards at the New York Festivals and Columbus International Film and Animation Festival. James has a master's degree in public policy and administration and has also worked on special projects as well as the World at Six on CBC Radio One. Contact James at [email protected]

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With files from Philippe de Montigny, Yanick Lepage and Nisha Patel

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Stormy Daniels finishes testimony, judge again denies Trump lawyers’ mistrial request

• Former Playboy model Karen McDougal will not be called as a witness, Trump defense attorney Todd...
• Donald Trump continued to attack New York Supreme Court Justice Juan Merchan on Thursday afternoon, accusing...
• Stormy Daniels’s redirect examination ended on an interesting note: She confirmed for prosecutor Susan Hoffinger that...

Here's what to know:

Here's what to know, live coverage contributors 16.

5:48 p.m. EDT 5:48 p.m. EDT

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5:08 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 5:08 p.m. EDT

5:06 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 5:06 p.m. EDT

5:05 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 5:05 p.m. EDT

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4:32 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 4:32 p.m. EDT

4:29 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 4:29 p.m. EDT

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4:24 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 4:24 p.m. EDT

4:23 p.m. EDT 4:23 p.m. EDT

4:15 p.m. EDT Key update 4:15 p.m. EDT

4:04 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 4:04 p.m. EDT

4:02 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 4:02 p.m. EDT

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3:54 p.m. EDT 3:54 p.m. EDT

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3:48 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 3:48 p.m. EDT

3:27 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 3:27 p.m. EDT

3:04 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 3:04 p.m. EDT

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3:03 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 3:03 p.m. EDT

3:03 p.m. EDT Key update 3:03 p.m. EDT

2:33 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 2:33 p.m. EDT

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2:15 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 2:15 p.m. EDT

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1:06 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 1:06 p.m. EDT

1:04 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 1:04 p.m. EDT

1:02 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 1:02 p.m. EDT

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12:28 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 12:28 p.m. EDT

12:25 p.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 12:25 p.m. EDT

12:23 p.m. EDT 12:23 p.m. EDT

12:21 p.m. EDT Key update 12:21 p.m. EDT

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11:52 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 11:52 a.m. EDT

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11:40 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 11:40 a.m. EDT

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11:24 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 11:24 a.m. EDT

11:10 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 11:10 a.m. EDT

11:09 a.m. EDT Key update 11:09 a.m. EDT

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10:50 a.m. EDT Key update 10:50 a.m. EDT

10:38 a.m. EDT 10:38 a.m. EDT

10:33 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 10:33 a.m. EDT

10:26 a.m. EDT Key update 10:26 a.m. EDT

10:22 a.m. EDT 10:22 a.m. EDT

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10:08 a.m. EDT Reporting from the New York courthouse 10:08 a.m. EDT

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9:51 a.m. EDT 9:51 a.m. EDT

9:51 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 9:51 a.m. EDT

9:39 a.m. EDT Key update 9:39 a.m. EDT

9:38 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 9:38 a.m. EDT

9:37 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 9:37 a.m. EDT

9:35 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 9:35 a.m. EDT

9:30 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 9:30 a.m. EDT

9:27 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 9:27 a.m. EDT

9:24 a.m. EDT REPORTING FROM THE NEW YORK COURTHOUSE 9:24 a.m. EDT

9:22 a.m. EDT Key update 9:22 a.m. EDT

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