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What Is a Business Model?

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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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8 Types of Business Models & the Value They Deliver

• 26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

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8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

• Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
• Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

• Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
• Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

• Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
• Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

• Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
• Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

• Pros: You don’t have to have a novel idea to make money using a lease business model . You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
• Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

• Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
• Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

• Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
• Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

• Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
• Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

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50+ business model examples

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• Who is this guide for?

How to choose the right business model

Business model inspiration, companies to learn from, who is this guide for.

When in need of a business model for your next startup or corporate venture, there are more than a couple of options to explore. To make your decision-making a little easier, we’ve analyzed 50 innovative revenue models and partnership ideas. 

Browse these business model examples to spot the ideas that are fit for your company’s needs, and let these use cases inspire you to start building your own business plan.

At Board of Innovation, we specialize in innovation and business design. If you feel you need help moving forward, you can dive deeper into how we do business model innovation or get in touch .

In this deck, you will find a comprehensive guide through business models from different companies and industries.

This guide will help you understand how each business model works, the products or services they offer, and what makes it unique. These key insights will help you in the selection process of a business model that works best for you.

Have you ever wondered how some companies are profitable?

In this deck, we deep dive into business models used by companies in multiple industries. Using our Business Model Kit , we offer a visual overview of how each business profits from the model that drives it. .

Free (or nearly free) for the user:

• Early exit strategy
• Pay-what-you-want (PWYW)
• Tip jar/donation
• Freemium model
• Barter or swapping for services
• Barter or swapping for products

Third party options:

• Advertisement (ad-based) model
• Affiliate/referral fee
• Get-one-give-one model (G1G1)
• Franchise model

Mixed business model:

• Razor and blade model
• Crowdfunding
• Open source model
• No frills model (discount or budget model)

Broker/matchmaking:

• Commission-based model:
• Auction model

Paid (direct sales business model):

• Subscription model
• Premium model
• Pay-per-use model
• Add-ons/In-app purchases
• License fees
• Single purchase model
• Pay-as-you-go model (PAYG)

Grab is an on-demand ride service that has since expanded to everyday services like deliveries, financial services and more – making it a superapp. It charges a service fee of 20% ~ 30% for every transaction that goes through its platform.

Hubs charges clients for each industrial manufacturing job they begin through the platform. Prices are determined by a machine learning algorithm.

Patients Like Me offers a free health community service to its users. They make money by selling the data, generated by the community, to pharmaceutical companies.

WHOOP offers a wearable fitness gadget that gives personalized recommendations and feedback. WHOOP charges a monthly subscription fee to access the data on the platform, while the first device is free.

Digit is a financial service application that monitors financial behavior and automates its users’ savings. Digit receives a fixed monthly fee of $5 from its users. On top of that, it can leverage the funds it has under management for greater returns

Kiva is the first online non-profit lending platform for underserved populations.As a non-profit, Kiva doesn’t profit from loans received — lenders donate to Kiva to cover operating costs. The remainder of costs are covered through grants, supporters, and field partners.

Appear Here is the Airbnb of retail spaces — an online marketplace to list, find, and book short-term retail spaces. After the landlord sets a daily, weekly and monthly price, Appear Here takes commission between 12% - 15% on a completed transaction, while the space owners pay no listing fee.

Kaggle makes money in two ways: With Kaggle competition, they receive a “listening fee” for each competition posted on the platform. Also, they provide a service for matching companies to the top 0.5% of their community, which they call Kaggle Connect.

23andMe makes money with personal genetic tests, providing reports on lineage discovery & +240 health conditions. It’s believed that their DNA research studies & surveys will soon be an additional way of making money, with a mainly B2B focus instead of B2C.

Friendsurance works as a broker between Policy Holders and existing Insurance Partners. They’re letting customers share risks with friends, allowing them to lower prices due to reduced fraud & process costs, better risk pools, etc.

AliveCor makes money by selling ECG devices ($199) that fit on existing smartphones and via their AliveInsights Service – a professional analysis service that makes it easy to get expert insight on your ECG readings.

Glow sells “data insights” regarding conceiving to Research Institutions & gives exposure to trustworthy Infertility Treatment Clinics. The data is generated by users who use the Glow free fertility-tracking app.

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What is a business model? (Plus, how to define yours)

Last updated: March 2024

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics for addressing challenges.

Forward-thinking companies integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. That is why many choose tools that make it possible to quickly build and share a business model. In Aha! software, for example, there are multiple ways to build a model and connect it to everyday work. One of the quickest ways is by using our whiteboard template — featured below.

Get this business model whiteboard template — with a free trial .

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You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download free Excel and PowerPoint business model templates in this guide .

This article covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

15 elements of a brilliant business strategy

This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

The components of a business model include everything the organization needs to document and internalize so that the team can implement all three value focuses. This includes the market in which you operate, organizational strengths and challenges , essential elements of your product or products, and how you will generate revenue.

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

• What is value-based product development?
• What is a go-to-market roadmap?

What is a business roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Competitor analysis templates

• How to price your product
• How to position your product

Below are three types of business model layouts available in Aha! software that you can use to succinctly assess what is possible and what challenges could arise for your business.

Whiteboard business model template

Articulate the foundation of your product or service in a whiteboard-style format. The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Business model canvas

This business model canvas included in Aha! Roadmaps uses drag-and-drop components within a flexible layout. You can rename or hide components as needed. And you can create as many strategic models in your workspace as you would like.

How to craft a product strategy in Aha! Roadmaps

How to use the strategic model template in Aha! Roadmaps

Free Excel and PowerPoint business model templates

• Lean canvas

Similar to the business model canvas, the lean canvas in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise, single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market

Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve

What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP)

What will you build and how will you support it?

4. Create a pricing strategy

How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach

How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices

How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability

How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges

Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model

Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings

What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

• What is a business model?
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• What is the Complete Product Experience (CPE)?
• What is a customer journey map?
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• Introduction to marketing strategy
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• What to include on your product roadmap
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• What milestones should be included on a roadmap?
• How often should roadmap planning happen?
• How to build a roadmap for a new product
• How to build an annual product roadmap
• How to customize the right roadmap for your audience
• Product roadmap examples
• How to report on progress against your roadmap
• How to communicate your product roadmap to customers
• What is a content marketing roadmap?
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• What is scrum?
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• What is the role of a product manager in scrum?
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17 Common Business Model Examples

Noah Parsons

7 min. read

Updated October 29, 2023

You don’t have to invent an entirely new business model to start a business. 

In fact, the vast majority of businesses use existing business models and refine them to find a competitive edge. 

Here’s a list of business model examples you can use to start your own business .

• 1. Advertising

The advertising business model has been around a long time and has become more sophisticated as the world has transitioned from print to online. The fundamentals of the model revolve around creating content that people want to read or watch and then displaying advertising to your readers or viewers.

In an advertising business model, you have to satisfy two customer groups: your readers or viewers, and your advertisers. Your readers may or may not be paying you, but your advertisers certainly are.

An advertising business model is sometimes combined with a crowdsourcing model where you get your content for free from users instead of paying content creators to develop content.

Advertising business model examples

• The New York Times
• 2. Affiliate

The affiliate business model is related to the advertising business model but has some specific differences. Most frequently found online, the affiliate model uses links embedded in content instead of visual advertisements that are easily identifiable.

For example, if you run a book review website, you could embed affiliate links to Amazon within your reviews that allow people to buy the book you are reviewing. Amazon will pay you a small commission for every sale that you refer to them.

Affiliate business model examples

• TheWireCutter.com 
• TopTenReviews.com

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• 3. Brokerage

Brokerage businesses connect buyers and sellers and help facilitate a transaction. They charge a fee for each transaction to either the buyer or the seller and sometimes both.

One of the most common brokerage businesses is a real estate agency , but there are many other types of brokerages such as freight brokers and brokers who help construction companies find buyers for dirt that they excavate from new foundations.

Brokerage business model examples

• RoadRunner Transportation Systems
• 4. Concierge/customization

Some businesses take existing products or services and add a custom element to the transaction that makes every sale unique for the given customer.

For example, think of custom travel agents who book trips and experiences for wealthy clients. You can also find customization happening at a larger scale with products like Nike’s custom sneakers.

Customization business model examples 

• 5. Crowdsourcing

If you can bring together a large number of people to contribute content to your site, then you’re crowdsourcing. Crowdsourcing business models are most frequently paired with advertising models to generate revenue, but there are many other iterations of the model. Threadless, for example, lets designers submit t-shirt designs and gives the designers a percentage of sales.

Companies that are trying to solve difficult problems often publish their problems openly for anyone to try and solve. Successful solutions get rewards and the company can then grow its business. The key to a successful crowdsourcing business is providing the right rewards to entice the “crowd” while also enabling you to build a viable business.

Crowdsourcing business model examples

• Kickstarter
• 6. Disintermediation

If you want to make and sell something in stores, you typically work through a series of middlemen to get your product from the factory to the store shelf.

Disintermediation is when you sidestep everyone in the supply chain and sell directly to consumers, allowing you to potentially lower costs to your customers and have a direct relationship with them as well.

Disintermediation business model examples

• 7. Fractionalization

Instead of selling an entire product, you can sell just part of that product with a fractionalization business model.

One of the best examples of this business model is timeshares. Where a group of people owns only a portion of a vacation home, enabling them to use it for a certain number of weeks every year.

Fractionalization business model examples

• Disney Vacation Club
• 8. Franchise

Franchising is common in the restaurant industry, but you’ll also find it in all sorts of service industries from cleaning businesses to staffing agencies.

In a franchise business model, you are selling the recipe for starting and running a successful business to someone else. You’re often also selling access to a national brand and support services that help the new franchise owner get up and running. In effect, you’re selling access to a successful business model that you’ve developed.

Franchise business model examples

• Ace Hardware
• McDonald’s
• 9. Freemium

With a freemium business model, you’re giving away part of your product or service for free and charging for premium features or services.

Freemium isn’t the same as a free trial where customers only get access to a product or service for a limited period of time. Instead, freemium models allow for unlimited use of basic features for free and only charge customers who want access to more advanced functionality. For more on the freemium model (and other pricing models popular with SaaS businesses), see this article .

Freemium business model examples

• 10. Leasing

Leasing might seem similar to fractionalization, but they are actually very different. In fractionalization, you are selling perpetual access to part of something. Leasing, on the other hand, is like renting. At the end of a lease agreement, a customer needs to return the product that they were renting from you.

Leasing is most commonly used for high-priced products where customers may not be able to afford a full purchase but could instead afford to rent the product for a while.

Leasing business model examples

• DirectCapital
• 11. Low-touch

With a low-touch business model, companies lower their prices by providing fewer services. Some of the best examples of this type of business model are budget airlines and furniture sellers like IKEA. In both of these cases, the low-touch business model means that customers need to either purchase additional services or do some things themselves in order to keep costs down.

Low-touch business model examples

• 12. Marketplace

Marketplaces allow sellers to list items for sale and provide customers with easy tools for connecting to sellers.

The marketplace business model can generate revenue from a variety of sources including fees to the buyer or the seller for a successful transaction, additional services for helping advertise seller’s products, and insurance so buyers have peace of mind. The marketplace model has been used for both products and services.

Marketplace business model examples

• 13. Pay-as-you-go

Instead of pre-purchasing a certain amount of something, such as electricity or cell phone minutes, customers get charged for actual usage at the end of a billing period. The pay-as-you-go model is most common in home utilities, but it has been applied to things like printer ink.

Pay-as-you-go business model examples

• Water companies
• HP Instant Ink
• 14. Razor blade

The razor blade business model is named after the product that essentially invented the model: sell a durable product below cost to increase volume sales of a high-margin, disposable component of that product.

This is why razor blade companies practically give away the razor handle, assuming that you’ll continue to buy a large volume of blades over the long term. The goal is to tie a customer into a system, ensuring that there are many additional, ongoing purchases over time.

Razorblade business model examples

• Inkjet printers
• Amazon’s Kindle
• 15. Reverse razor blade

Flipping the razor blade model around, you can offer a high-margin product and promote sales of a low-margin companion product.

Similar to the razor blade model, customers are often choosing to join an ecosystem of products. But, unlike the razor blade model, the initial purchase is the big sale where a company makes most of its money. The add-ons are just there to keep customers using the initially expensive product.

Reverse razorblade business model examples

• iPhone & iTunes
• 16. Reverse auction

A reverse auction business model turns auctions upside down and has sellers present their lowest prices to buyers. Buyers then have the option to choose the lowest price presented to them.

You can see reverse auctions in action when contractors bid to do work on a construction project. You also see reverse auctions anytime you shop for a mortgage or other type of loan.

Reverse auction business model examples

• Priceline.com
• LendingTree
• 17. Subscription

Subscription business models are becoming more and more common. In this business model, consumers get charged a subscription fee to get access to a service.

While magazine and newspaper subscriptions have been around for a long time, the model has now spread to software and online services and is even showing up in service industries.

Subscription business model examples

• Innovate with established business models

This is by no means an exhaustive list of all business models that exist—but, hopefully, it gets you thinking about how you might structure your business.

The key thing to remember is that you don’t need to invent a new business model. 

Using existing models can lead to success because the model has been proven to work. You’ll be innovating in smaller ways within that existing business model to grow your business.

For more examples and an overview of selecting a viable business model , check out our full business model guide.

Clarify your ideas and understand how to start your business with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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50 Types of Business Models (2022) – The Best Examples of Companies Using It

Last updated: Jan 30, 2021

Are you looking for ideas to unlock your long-term business value? If you shook your head in yes, remember that business model is one of the ways to streamline your business process.

Precisely, a business model is a holistic framework to define, understand, and design your entire business in the industry. Often novice entrepreneurs do not understand the significance of the business models.

Check out 50 different types of business models , along with examples of companies for better insight. Try to adopt these business models in your startup.

Table of Contents

1. Franchise model

Best for the company’s expansion, franchising allows the franchisor to license its resources, brand name. Intellectual property and rights for a franchise to sell its products and services in exchange for a royalty.

McDonalds’s is the best example, which has 93% of its franchised restaurants worldwide.

McDonald’s is the leader in the global foodservice. It operates 36,059 franchised restaurants out of a total of 38,695 restaurants worldwide. Its franchise restaurants have increased year-on-year for the last 13 years.

Example: Subway , McDonald’s , Gold’s Gym

2. Multi-sided platform model

Any company that offers services to both sides of business carries out a multi-sided business model. The perfect example is LinkedIn , which provides subscription services to people to find job opportunities as well as to HR managers to find candidates for their vacancies. 

  Example: LinkedIn , Freelancer.com

3. Cash machine business model

Also known as the cash conversion cycle (CCC). It basically means how quickly a company converts cash to good and services and then again into cash. This model is used by the companies who make low-profit margin but survive in the market with a disruptive position. Like, Amazon generates a massive amount of cash from its online store before it pays to its suppliers. Another way to look is that Amazon runs its supply chain on vendor credit.

Cash Conversion Cycle : Cash ==> Product & Services ==> Cash

Example: Amazon , Alibaba , Apple

Pro tip: This type of business model is most suitable for inventory type of businesses.  

4. Freemium business model

A mix of free and paid services, the freemium model is mostly used by tech companies in the Software as a Service (SaaS) or apps business model. To grow business and acquire customers, companies offer free (lite) versions to customers but for a limited time or with limited features. To unlock the upgraded features, the customer has to opt for paid services.

Examples : Zoom , Dropbox , MailChimp , Evernote etc.

Pro tip: It’s an excellent way to encourage customers to try the software or application. 

5. Subscription business model

This model allows the customer to get services by paying a fixed amount every month or year. In this case, the company has to provide enough value to its customer, so they visit the website over and over again. 

It allows companies to segment the market and offer a specific number of items in its content under different plans and prices known as tiered offerings.

For example, Netflix offers monthly subscriptions under the Basic plan for $8.99/month, Standard plan for $12.99/month, and Premium plan for $15.99/month.  

Examples: Netflix , LinkedIn , Amazon Prime , Dollar Shave Club , are few of its examples.

Pro Tip: This model is useful for content or service-based websites. 

6. Peer-to-peer business model

As per this model, a company acts as a middleman between two individual parties and create value for both demand and supply side. It’s different than a typical relationship of a business selling its services to consumers (B2B or B2C). It makes money through commissions. Airbnb is the right example that allows transactions between hosts and hostees.

Example:  Airbnb , Uber , eBay , Offerup , Freelancer.com,  

7. One-for-one business model

The one-for-one business model can be referred to as a social entrepreneurship business model. It’s a hybrid solution, a combination of both profit and not-for-profit services. Although there are some debates about its long-term sustainability, many companies are pivoting their business models to cater to socially conscious millennials. The best example is TOMS Shoes that provides shoes to underprivileged children globally for every pair of shoes sold.   

Examples: TOMS Shoes , Warby Parker (donated eyeglasses), Two-degree Food , Soapbox Soaps .  

8. Hidden revenue business model

This model refers to a revenue generation system in which users don’t have to pay for the services offered, but the company still earns revenue streams from other sources. Like, Google earns from advertising money spent by businesses to bid on keywords while users don’t pay for the search engine.

Examples: Google , Facebook , Instagram , Twitter

9. Razor and blade business model

In this model, one item (Razor) is sold at a low price while another associated item (blade) is sold at a premium price. It is also known as a printer and cartridge business model. For example, the price of inkjet printer itself was just a one-time expense, however, getting a new ink cartridge replaced is an ongoing expense for consumers. The model is great if you have a loyal customer base and if you can create some sort of lock-in situation with customers.

Example: Xbox or PlayStation Video Games , HP Printers , Nespresso coffee machines , AT&T Mobile phones with 2-year contract .

Pro tip: Use this model, if there is a need for recurring sale of an associated item, which can generate a continuous flow of revenue.

10. Reverse Razor and Blade business model

The business model is contrary to the razor blade model. It implies offering low priced products to encourage customers to buy high priced items as well.

This business model uses the strategy with a one-time offer for the premium product and acquires more revenue from secondary items in the long term. 

Example: Apple employs this business model perfectly. Apple’s App Store and iTunes sell apps, movies, songs, etc. at reasonable rates but charges premium prices on its devices like iPhone, iPad, and Mac. 

11. Direct sales business model

In this model, products are directly sold to the end customers either in a one-on-one conversation or small gathering, remember Tupperware house parties ? The salesperson gets a share of every sale. Although technology has superseded the direct sales method in many ways, still many companies prefer to give a personal touch to its customers.

Examples: Tupperware , personal care & nutrition brands ( Avon , Arbonne , and Herbalife )

12. Affiliate marketing business model

In this model, companies make money by featuring, reviewing, and recommending other company’s products or services.  Think about product review websites. These websites are paid based on sales opportunities that they bring to their vendor companies.

Examples : NerdWallet , Capterra , MoneySavingExpert.com , and thewirecutter .

13. Consulting business model

Companies that provide consulting services by hiring experienced and qualified people and having them assigned on client’s projects follow the consulting business model. These companies tend to charge on the hourly basis and/or they take a percentage share based on the successful completion of the project (cost reduction project). Mckinsey and Boston Consulting Group are multi-billion-dollar businesses that are based on this model.

Examples: Deloitte , Mckinsey , BCG, software or website development firms

Pro tip: if you are a subject matter expert (SME) in a field, and when the duration of the project is uncertain (based on the change in client’s requirements) then consulting business model is an excellent way to charge your clients.

14. Agency-based business model

This is a project-based business model, where an outside firm is hired to complete a specific task. Traditionally, businesses that lack internal expertise hire agencies to get a customizable solution for their needs. Remember Mad Men ? Acclaimed Netflix series that focuses on advertising agency and their clients. Some niche agencies are digital marketing, design & architecture, survey, promotion, media, public relationship, branding, website development, social media, etc.

Example: TBWA\Media Arts lab (Apple’s go-to ad agency), Leo Burnett Company (United Airlines, McDonald’s , Kellogg’s are some of their notable clients)  

15. User-generated content business model

Allowing users to generate quality content on websites for free to answer other users’ questions and provide reviews, this business model is new yet fast-growing.

This model is driven by a wide range of digital commodities, from videos to reviews, pictures, blog posts, testimonials, and any other type of content created by users of a brand. And made accessible via social media.

User-generated content is compiled and sold to companies seeking to exploit consumers’ ideas and content to promote their brands.

Examples: The top examples are YouTube , Quora , Yelp , Yahoo Answers , Reddit .

16. Online educational business model

Targeting the educational industry, including students and teachers, this business model allows them to get access to educational resources via flat course fees or subscription. It can be said as a combination of freemium, course fees, and a subscription-based model.

Examples: Khan Academy , LinkedIn learning , Coursera , Udemy , edX , etc.

17. Instant news business model

This model focuses on sharing and updating news instantly without any intermediary.

Companies that use this model provide open and reliable channels allowing trusted primary or secondary sources to communicate breaking news or urgent announcements directly to their audience.

In the past few years, some social media platforms have emerged as the go-to option for instant news from primary sources like presidents, CEOs of companies, and so on. 

Example: Twitter is the best example. Users can access the news in real-time by checking the trending hashtags.

18. Multi-brand business model

This model is based on marketing more than two products, almost similar yet competing with each other and come under a single organization but having different brand names. It is done to create economies of scale and to build an empire.

Examples: Procter & Gamble , Unilever , and Nestle are a few examples.

19. E-Commerce business model

A simple yet most promising business model, e-commerce allows buyers and sellers to connect and transact using an online platform (online shop).

There are several types of e-commerce business models, including Business to Business (B2B), Business to Customer(B2C), Customer to Customer (C2C), and Customer to Business (C2B).

Example: Amazon , Alibaba , eBay , OLX , Walmart , etc.

20. Distribution based business model

A company that works by having one or a few key distribution channels to integrate with its final customers follows this model.

Companies that use this model provide channels for businesses to sell to customers via dealers, brokers, supermarkets, retailers, and so on.  

Example : Unilever  spends its major part of revenue in maintaining a proper distribution.

21. Drop-shipping business model

A cost-effective as well as an exciting business model. In drop-shipping, a business owner contacts many different suppliers/ wholesalers to sell their product on the website. Once an order is placed on a business owner’s website, wholesaler drop-ships the products directly from the manufacturer to the customer. In this case, the business owner does not have to hold any an inventory and uses the third party to manage all the shipping and logistics needs.

Pro tip: It’s an excellent way to start a niche e-commerce business website with a limited upfront cost.

Examples: Doba , Oberlo , Dropship Direct , and Wholesale 2B are few examples.

22. Enterprise business model

Targeting and focusing only the large clients, enterprise business model is all based on getting big deals. It is built on complex sales with a good few potential clients. Like the clients of Fortune 500 usually have multi-billion dollars budget.

Example: Boeing , Raytheon, SpaceX , Goldman Sachs is an example of Enterprise business model because their sales motion is targeted towards very large business enterprise customers or governments .  

23. Social enterprise business model

This model is based on the fundamental that companies should make profits without causing any harm to anyone, and a part of it should be spent in humanitarian works to improve human living conditions.

Example: Brunello Cucinelli is an Italian luxury brand that donates about 20% of its profits towards a social cause.  

24. Direct-to-consumers business model

This model allows companies or brands to sell their products to final customers directly. Highly effective marketing campaigns and advertising activities are required to retain customers.

Example: Unilever is the best example while being one of the world’s largest advertisers.

25. Family-owned business model

Any business that is run by a family, and its decision-making processes are controlled by two or more family members is a family-owned business.

The leadership of the company is passed to the heir, who will hand over the reins to their children.

Examples: Ford , Walmart , Estee Lauder , Prada , Comcast are few examples.

26. Blockchain-based business models

The most advanced, futuristic, and modern technology of Blockchain has changed the entire landscape of transactions, involving decentralized network system on a global scale.

Using a decentralized network enhances trust and allows consumers to transact peer-to-peer. Blockchain-based businesses make a profit using tokens and offer Blockchain as a service .

Many crypto-currencies like Bitcoin , Ethereum , and Litecoin use Blockchain technology-based business model.

27. Vertically integrated supply chain business model

This model is about owning and managing the supply chain activities (manufacture, distribution, and retail) for its products by the company itself. When a company has better control over how a product is produced and delivered to end users, it can provide products at lower prices (with better margin) to consumers.

On the contrary, for example, if a company only manufactures a product, and uses a distribution and retail partner. Then at every step of the supply chain, the additional cost is added (markup) by the time the product reaches the end customer.

Examples : Think about companies having both factories and retail/online stores. Amazon , Tesla , Luxottica , Apple , Walmart , and other grocery stores.

28. Combination of chains and franchise business model

This model is simply a mix of operated chains and licensed stores (franchising). Starbucks is the most famous example that owns both company-operated stores and licensed stores. 

In Starbucks’ model, all 15,041 stores in the U.S. are company-owned, and all international stores are franchised.

29. Data licensing business model

A business model of ‘data’ has gained a new meaning in this modern world, especially in the technology sector. Data is a critical component in web technology where companies require critical information to carry out operations and earn revenue.

Example: Twitter sells real-time data to its partners, which is then used for advertising and customer insight.

30. Attention merchant business model

Attention merchants or influencer operate through advertising model and make money by grabbing the attention of their target audience .

Apple CEO Tim Cook once wrote , “ When an online service is free, you are not the customer. You are the product. ”

Examples : Snapchat & Instagram allows brands to market themselves through advertising on their platform.

From YouTube to Tik Tok and other social media platforms, you can watch videos for free, but you will be targeted by endless adverts . 

31. Discount with high-quality business model

This kind of business model is usually practiced by supermarkets and departmental stores that get products in bulk and sell on the wholesale rate.

Examples: discounted products with high quality like ALDI , Tesco , Lidl , Ross Stores , and ASDA Stores.

32. Pyramid Scheme Business model

  A pyramid scheme is a business model often considered illegal or controversial. The model functions on the sole principal of recruiting members by promising them a reward in the shape of payments or services if they agree to enroll others into the scheme, rather than supplying investments or sale of products.

As the recruiting circle grows with infinite speed, the actual recruitment becomes quickly impossible, which leaves member without any profit.

Example: Amway is a billion-dollar company which has used these pyramid schemes.

33. Nickel and Dime business Model

This business model consists of the lowest price strategy for the basic product or service. By keeping the basic price as low as possible, an additional amount is charged for the other perks and services that are offered with the main basic service.

Example: Spirit and Frontier Airlines are a budget airline that charges the lowest possible price for the flight tickets and charges fee over additional services like printed boarding pass fees, carry-on/ check-in luggage, seat preference, priority boarding, Wi-Fi, beverage, meal/snack, phone booking fees, etc.

34. Aggregator Business Model

Aggregator Business Model is a network model which provides collective information about a particular service and sell them under their brand name.  Under this business model, most companies provide information and sources on a single industry.

Example: Companies like Zillow and Oyo for Hotels, Uber for taxi service, Yodlee for financial service, all use Aggregator business model. 

35. API licensing Business Model

API stands for application programming interface (API). It is basically a set of subroutine definitions, communication setups, and tools for developing software. API licensing business model provides licensing protocols which allow developers’ community to create third-party plugin/add-on apps for well-known platforms. And developers pay a fee to get API access.

Example: Microsoft , Apple , LinkedIn , and Twitter , they all provide API license services.

36. Crowd Source Business Model

Crowdsource business Model facilitates companies with access to operational solutions like ideas and technologies, upgraded consumer interaction, opportunities for co-collaboration, operation optimization, and reduced costs.

Example: Companies like Wikipedia , YouTube , Kickstarter , LEGO ideas , Unilever , Coca Cola (new flavor of beverage) are involved in crowdsourcing.

37. High Touch Business Model

In the high-touch business model, customers’ interaction and involvement are on the highest level to make the experience personalized. It is a phenomenon in which a customer gets involved in a kind of partnership with the business. High touch is needed for larger accounts because they pay more and are sticky.

Example: Buying a car at Auto dealership, house, enterprise SaaS requires multiple interactions with the salesperson.

38. Low Touch Business Model

Low touch business model is, of course, the opposite of high touch business model where the product or service is delivered by minimum customer interaction. Low touch is good for low price software tools where acquiring customers is easier.

Example: Companies like Amazon , Zendesk , SurveyMonkey uses low touch business model.

39. Flex Pricing Business Model

Flexible pricing model operates through a business strategy in the final price of an item is negotiable. In short, buyers and sellers can bargain the price to suit their purpose the best.

Example : Letgo

40. Auction-Based Business Models

The model is based on the biding option to buy a product or service. The model is although not very common now, it is still used for industries like antiques, real estate, collectibles, and the sales of businesses.

The modern version of the auction model can be witnessed on online platforms trade’s new and used items like eBay and Amazon

41. Reverse Auction Business Model

This business model follows a strict pattern of setting the highest prices and let the buyers bid accordingly until the prices start to drop.

A reverse auction is popularly used by businesses seeking suppliers. Eligible suppliers bid lower and lower at each subsequent round to entice the business and win the contract.

Example: Bidding for government contracts

42. Brokerage Business Model

Brokerage business model provides a single platform to buyers and sellers for communicating the deals. It charges a fee for any transaction between the parties either from the buyer or the seller depending on the featured category.

Example: Expedia , Century 21

43. Bundling Business Model

Bundling is a business strategy that combines products or services to offer a package gathered as a single combined unit to sell at a comparatively low price. It is the form of convenient purchasing for several products and services from a single business unit.

Example: Microsoft Office 365 (PowerPoint, Excel, Word, OneNote, Outlook) Value meal at Burger King or McDonald’s , Printer and ink

44. Disintermediation Model

Disintermediation Model removes the capacity of outsourcing or a third-party intermediary. In fact, the organizations following this model deal with the clients and customers directly via different channel like the internet. 

Example: Dell , Tesla are good examples of companies which follows disintermediation model.

45. Fractionalization business model

Fractionalization model is selling a product or service for partial usage or separate parts. It’s a strategy which divides products and services into further subcategories to introduce variety in the products, charging for each category separately.

Example: You can sell a pizza by the box or individual slices of different varieties( cheese/ pepperoni)

46. Pay as Go (Utility) Business Model

The business model charges as per the usage of the product or service.

In recent years, the Pay-As-You-Go model has been adopted by governments and organizations to distribute common goods like solar panels to rural communities , which they pay for gradually over a long period. 

Example: This model includes electricity, water, and cell phone companies and Amazon Web Services

47. Product as a service

Product as a service means to sell the service of a product rather than selling the actual product.

Example: Zipcar , Fedex Printing service follows the product as a service business model.

48. Standardization business model

Standardization means to make a service universal, which was once a customized one. This attracts customers due to convenience and low prices.

Example: MinuteClinics (a subsidiary of CVS health) is a good example of Standardization.

49. User Base Communities

User base communities earn by developing an interactive platform where users communicate on their own with each other and can advertise at the same time. The model generates revenue with both subscription and advertising fee.

Example: Craigslist , Angie’s list

50. Leasing business model

Leasing refers to renting large or high-profile items like machines and electronic equipment instead of them selling it. 

Example: Home Depot (Tool rental) MachineryLink , Hertz , Enterprise , etc. have adopted a similar business model.

In addition to the business models mentioned above, there are many others. While these are most commonly used by companies today, you need to wisely and smartly choose one or combination for your business.

Tell us what you think? Did you find this article interesting?                                                     Share your thoughts and experiences in the comments section below.

A management consultant and entrepreneur. S.K. Gupta understands how to create and implement business strategies. He is passionate about analyzing and writing about businesses.

18 comments

Cancel reply.

Great.. Thank you so much!

Well presented in uniform format to make comparison easy. Clearly and succintly written

Very useful and informative, many thanks!

very informative and useful as it made it easier for me to decide what can be done next thank you very much

What are some good examples of number 22 – Enterprise business model?

Companies such as Boeing, Lockheed Martin (aircraft manufacturers), Goldman Sachs, BlackRock (investment firms) are good examples of the enterprise business model because their primary customers are large enterprises or governments.

Good example for the enterprise business model…

Life long learning

Very useful

Thank you !

Thank you for this summary of business models.

Glad you liked it Alex. Happy Reading !

I must admit that this is quite a wonderful compilation.

I found it very useful and well summarized.

Thank you for sharing the comprehensive list of 50 business models along with examples of companies implementing them. It’s a valuable resource for anyone seeking to better understand the diverse ways businesses can operate and succeed. In addition to the information you provided, I’d recommend checking out this article at https://www.cleveroad.com/blog/startup-business-model/ . It provides practical insights into selecting the most suitable business model for startups, which complements the list you shared and could guide entrepreneurs toward more informed decisions.

I am from South Sudan, if I want to implement one of online business which one will suit our situation here in the country, and that will generate income for me?

The Bussiness model which you mentiontioned is very useful an informative. Thank you.

Nilesh, glad you like it. Happy Reading 🙂

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The Ultimate Guide to Understanding Business Models 2023

The term “business model” has only been around since the 1990s, so there’s still some confusion about exactly what it means. In short, a business model defines your business’s plan to make money. You can also use business models to your business’s advantage if you know how they work. 

In this article, learn what business models are, why they matter for your business, the most common types of business models, and how to choose the right business model for your business. 

What Are Business Models?

Business models detail your business’s plan to make an income. The most basic components of a business model answer the following questions:

• What products or services will your business sell?
• Who do you plan to sell to?
• Which marketing channels will you use for your business?
• How much will it cost to run your business?
• How will your business make a profit?

There are a variety of business models you can use, like a subscription business model, freemium business models, retailer business model, bundling model, leasing model, and more. 

Understanding business models is useful for both new businesses and established businesses. If your business has multiple revenue streams, you may utilize several business models.

The Importance of Understanding Business Models for Small Businesses

A business model defines how you will create a profitable business. A successful business model allows a business to fulfill the needs of its customer base with an affordable cost structure and competitive pricing. It’s a good idea for established businesses to evaluate their business model to make sure it still holds up to changes in the business environment and the target market needs.

If you want to bring on investors to your business idea, you’ll need a business model outline that shows exactly how you plan to (or continue to) bring in revenue. A detailed business model reassures investors that you have a solid business plan in place. 

Additionally, you can use business models to strengthen the foundation of your business and create “virtuous cycles,” which we define below, that allow your business to streamline its revenue-making process.

What Is the Difference Between Business Strategies and Business Models?

A business model and a business strategy sound very similar, but there is a big difference: A business model outlines how your business will make money, while a business strategy explains how you’ll make more money than the competition.

As an example, let’s say you run a boutique clothing business that offers your customers hand-picked items. That’s your business model. When another business that runs on a similar model opens nearby, your business strategy comes in. You’ll need to decide how you’re going to stand out from the competition — maybe it will be through offering discounts, a loyalty program, or adding new products to your line.

While the decisions you make about your business goals make up your business model, the decisions you use to beat the competition make up your business strategy. Your model is more stable than your strategy. It’s likely not going to change at a moment’s notice, but your business strategy might.

Types of Business Models

There are 19 types of business models that companies use as a baseline or template for creating their business’s revenue plan. Any business model innovation outside of these standard models is considered “disruptive.” This phrase often applies to the tech industry but can be applicable elsewhere. 

We highlighted some of the most common business model examples below. 

1. Product-based business model

A product-based business sells physical items to solve its customers’ problems. This is a business at the end of the supply chain that provides customers with products directly, like your local retailer or bakery. A product-based business model serves as the middleman between manufacturers and customers. 

Entrepreneurs looking to finance a product-based business model plan often turn to business credit cards or small business loans . These financing options can provide capital support to build up inventory, sell a new product, or open a brick and mortar location.  

2. Service-based business model

Also called a fee-for-service model, it’s as simple as it sounds: You offer a service that your customers pay for. Your business may charge a per-service fee, an hourly fee, a retainer per month, or commission. A freelancer, barber, or accountant could all fit into this business model, as well as a software as a service (SaaS) business. 

Small business owners who need funding for the service-based business can also look into business credit cards or business loans. The amount of funding you’ll need depends on your business — a freelancer will likely need much less capital to operate than a barber, for example.

3. Subscription-based business model

A subscription-based business model allows customers to pay a recurring monthly fee to receive ongoing services or products. Netflix and other streaming services are good examples since they provide on-demand movies for customers who pay a subscription fee, as well as business services like Salesforce or QuickBooks. Subscription boxes that mail physical products are other examples. 

Small business funding like lines of credit or term loans can be perfect for providing support for startup costs, raw materials, or key resources for subscription-based businesses.

4. Advertising-based business model

To run an advertising-based business, you’ll form partnerships with advertisers and key partners who pay for the attention your audience gives you. This can come in the form of advertising on social media, in a magazine, or the side of a truck. Affiliate marketing is a kind of advertising-based business model, where a business owner receives commission when one of their audience members purchases it.

Working with small business credit card providers can help businesses working in this revenue model to pay for subscriptions that enhance customer relationships, like LinkedIn or Instagram services that make customer connections easier and faster.

5. Distribution business model

A business running under a distribution model will put manufactured products on the market. They’ll use their distribution channels to dispense products from manufacturers directly to the customer. Amazon is an example of a distributor at its core, although they also have many other revenue streams that they have added over the years that makes them a combination of multiple business models.

Small business loans can provide enough capital to get a distribution business up and running — and flourishing. Financing can give your business a competitive advantage because they may allow you to afford to add to your inventory and grow as needed, as well as offer lower prices to edge out the competition.

6. Marketplace business model

A business using the marketplace business model provides an ecommerce platform for its customers to conduct business on, like eBay or Shopify. Other businesses pay to use this online ecosystem to sell their own goods and get easier access to new customers and a smoother checkout process. 

Business credit cards and small business loans can also work well for a marketplace business to pay for startup costs or customer acquisition costs.

7. Franchise-based business model

A franchise-based business recreate their existing business model in additional locations. A franchisee will pay to get access to a proven business model and setup support, and the franchisor will get part of the earnings from the new location. Restaurants and fitness companies often operate under a franchise business model. 

Small business loans can provide necessary capital for a franchise business to ramp up operations as needed.

Additional business models include:

• Pay-as-you-go model, like utility companies
• Brokerage model, like real estate companies
• Razor blade model, like razor blade companies that require ongoing purchases of replacement parts)
• Reverse razor blade, like Apple selling a high-price iPhone upfront and then low-cost apps
• Bundling model, like telecommunications companies that sell internet and phone services

How to Choose the Right Business Model for Your Small Business

The best business model for your business depends on your individual needs and goals. First think through who you’re planning to sell to. The model you choose depends largely on your target customer segments. If your target market is moms who are too busy to shop for clothes, opening a retail store might not make sense. Your target customers may prefer a curated subscription box, so you’ll want to re-evaluate your business model.

Next, define the problem you’re trying to solve. What you’re selling is the solution to the problem. This could be a physical product (or products), a service, or a subscription. With the clothing business, the problem you’re trying to solve is that moms don’t have time for self-care. To solve this problem, you could make online shopping an option (under a product-based business model), offer styling services (under a service-based business model), or send out subscription boxes (under a subscription-based business model). While you can combine several business models in one business, each of these options would operate under separate business models.

A business model works if it makes sense for your business’s offering and the customer you’re trying to reach — and it’s profitable. You’ll want to test out the business model you choose and evaluate whether it’s the right fit for you. 

Getting financing is often necessary, no matter which business model you choose. One of the best ways to increase your financing options is to establish and build business credit. Learn how to establish business credit in this Nav guide.

Avoid These Common Mistakes When Choosing a Business Model

There are a few big mistakes to avoid when you’re picking a business model. According to the Harvard Business Review , you’ll want to make sure that you aren’t looking at your business and the chosen model in isolation — a lot of your success depends on how it interacts with other companies in the marketplace. Not paying attention to how your business model works against other players in your industry only works if you’re the only one (which is highly unlikely, at least for a long time). 

Also, you’ll need to make sure your business model lines up with your company’s goals and reinforces itself. Say you have an affordable motel chain that operates using a franchise business model. Deciding to offer high-end breakfast options or luxury bath products, for example, would eat into your profits. 

Instead, you’ll want to offer cost-effective products that fit your business model and create what is called a “virtuous cycle.” A virtuous cycle starts with a business decision (giving clients affordable bath products) that supports your business’s goals (to offer low-cost motel rooms to customers) — and allows you to keep your business’s expenses down. Lower expenses come full circle to allow you to offer lower-priced stays. 

Businesses can use these cycles to compete with others in their industry by making their own virtuous cycles stronger, making competitors’ cycles weaker by limiting their growth, or using rivals with different business models to form a symbiotic relationship. 

Importance of Understanding and Optimizing Your Business Model

Having a deep understanding of your business model and how it informs your business goals will help you make appropriate decisions moving forward. If a business decision doesn’t flow with your business model, it will become apparent quickly. For example, say you run a barber shop on a fee-for-service business model. If your customers are asking for virtual appointments where you teach them to cut their own hair, you can turn to your business model to help you decide. In this case, an additional does fit under your current business model and may be an easy addition to your offerings.

On the other hand, if you’re considering creating and selling your own hair care products to your customers, you’ll quickly see that that is a different business model altogether. While it can work to have two business models inside of one business (and many companies manage this well), you’ll need to understand that the two are separate types of businesses. Having this knowledge will give you the tools to examine how the two will work together and whether you’re ready to add a second business model or not. 

Your business model is just your template — it’s up to you to personalize it. And although you won’t want to change it once a week, your business model isn’t set in stone. If your business fails to become profitable, it might be time to choose a new business model. Maybe you move from selling retail products in store to delivering subscription boxes because your target market prefers that. Or maybe you decide to switch from selling physical goods to selling services because the services provide more revenue.

Compare Your Financing Options With Confidence

Spend more time crushing goals than crunching numbers. Instantly, compare your best financial options based on your unique business data. Know what business financing you can qualify for before you apply, with Nav.

This article was originally written on March 9, 2023.

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Tiffany Verbeck

Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.

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What is a Business Model? Types, Examples, and Components

 Understanding the concept of a business model is crucial for entrepreneurs, business students, and professionals. A business model defines how a company creates, delivers, and captures value. It acts as a blueprint for the operations, strategies, and potential profitability of a business. This article explores the various facets of business models, their importance, and the different types that are prevalent in today’s business environment.

Defining a Business Model

Peter Drucker defined the term business model as “assumptions about what a company gets paid for”. While that is a true statement, a business model is more than that. It outlines the products or services the business plans to sell, its identified target market, and any expected expenses. Business models are pivotal for both new and established businesses. They help operators understand their business structure and dive deep into the workings of their operations and market positioning.

While there have been interpretations and definitions of a business model throughout the years, this definition is how most people view a business model. Now let’s take a look at why it is important for an entrepreneur, business leader, and professionals of all kinds to understand this concept.

Importance of a Business Model

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. Once you understand that, you also can answer the question “How does our business model add value to our customers”.

A business model serves as a roadmap for the business, outlining clear strategies and objectives. A well-defined business model helps attract investors, guiding leaders in decision-making, and providing a clear understanding of how to create value for customers. It also assists in understanding and predicting the financial health of the business.

Types of Business Models

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

Examples of business models

To get a better understanding of the types of business models available, let’s take a look at some of the most common business models used by businesses and startups. There are dozens of types of models but these are some of the types most people are familiar with.

• Subscription Model : Popularized by companies like Netflix and Spotify, this model involves customers paying a recurring price at regular intervals for access to a product or service.
• Freemium Model: This model offers basic services for free while charging for premium features. Companies like LinkedIn and Dropbox are prime examples.
• Advertising Model: This is a very popular model used by social media companies and media platforms. Simply put, this model generates revenue by offering advertising space.
• Franchise Model: In this model, a business (the franchisor) allows others (franchisees) to operate a copy of their business model in exchange for a fee. McDonald’s is a famous example.
• Direct Sales Model: This approach involves selling directly to consumers, bypassing any intermediaries. Companies like Avon and Tupperware have been successful with this model.
• E-commerce Model : E-commerce businesses operate online and include giants like Amazon and eBay, along with countless small businesses with online stores.

These are by far not the only t ypes of business models out there. Also, the type of business model a business chooses is not necessarily limited to its specific income-generating method. For example, there is a type of model called the business-to-business model. In this model, a company can choose to only sell its products and services to businesses. Choosing this model focuses not on the income method but more so its target market.

Key Components of a Business Model

1. value proposition.

The value proposition is at the heart of a business model, defining the unique benefits and advantages that a company offers to its customers. It answers the question of why a customer would choose one product or service over another.

This aspect is not just about the product or service itself but also includes elements like customer service, brand reputation, and overall customer experience. For example, Apple’s value proposition is not just in its innovative products but also in its ecosystem and brand prestige.

2. Revenue Streams

When most people think of a business model, they tend to think of its revenue streams. Revenue streams represent the various ways a business makes money. These can include direct sales, subscription fees, licensing, and advertising. A diversified revenue stream can help buffer a business against market fluctuations. It can also help them reach their financial goals because some revenue streams can be maxed out fairly quickly.

For example, a software company might earn revenue through direct software sales. However, they may choose to add a subscription service to capture the customers not willing to pay full price to own the software. They may also decide to offer customization services because an enterprise may need that while a consumer may not.

3. Market Segmentation

Market segmentation involves dividing a target market into manageable groups. Businesses can segment their market by demographics, geography, behavior, or other criteria. Understanding these segments allows companies to tailor their offerings and marketing strategies to meet the specific needs of each group. For example, a cosmetic company might segment its market into different age groups, offering different products to teenagers, adults, and seniors.

4. Cost Structure

This component outlines all costs involved in operating a business model. It includes fixed costs like rent and salaries, and variable costs such as materials and logistics. Understanding the cost structure is crucial for pricing strategies and financial planning. Businesses must strive for a cost structure that allows them to be competitive yet profitable.

5. Business Processes

Business processes are the collection of activities that produce a product or deliver a service. These can include manufacturing processes, marketing activities, and customer service operations. Efficient and effective business processes are key to delivering on the value proposition and maintaining a competitive advantage. For example, Amazon’s efficient logistics and distribution processes are central to its ability to offer quick delivery services.

6. Resources

Resources are the assets a company needs to create and offer its value proposition, reach its market, and deliver on its business processes. These can be physical (like buildings and machinery), intellectual (like patents and trademarks), human (skills and expertise), or financial. Effective management of these resources is crucial for the success of a business model. For example, a technology startup might rely heavily on human resources in the form of software developers and engineers.

7. Customer Relationships

This aspect defines how a company interacts with its customers throughout the customer journey. It involves not just acquiring and retaining customers but also enhancing customer experiences and engagement. Companies need to establish and maintain positive relationships with their customers, as this can lead to increased customer loyalty and word-of-mouth referrals. For example, a brand like Nike fosters customer relationships through community-building efforts and personalized marketing.

8. Distribution Channels

Distribution channels are the pathways through which a company delivers its products or services to customers. This can include physical channels like retail stores, or digital channels like e-commerce websites or mobile apps. The choice of distribution channels can significantly impact a business’s reach and efficiency. For instance, digital-first brands may rely primarily on e-commerce platforms to reach a global audience.

9. Key Partnerships

Many business models rely on partnerships with other companies to operate effectively. These partnerships can include suppliers, distributors, or even complementary businesses. Collaborations can help businesses expand their capabilities, reach new markets, and share risks. For example, a car manufacturer might partner with technology firms to develop new in-car entertainment systems.

Challenges and Considerations in Developing a Business Model

Developing a successful business model comes with many different challenges and considerations. One of the major challenges is the need to adapt to changing market conditions. This includes consumer preferences changing, technological advancements, and more competition. Businesses must continually innovate to stay ahead, which might involve embracing new technologies or exploring untapped market segments. For example, traditional print media has had to integrate digital platforms into their business models due to the rise of digital media.

Another challenge is maintaining financial sustainability. When selecting a business model, entrepreneurs and leaders need to balance costs with revenue generation. All of this considering fluctuating market demands and pricing pressures. This calls for effective financial management and strategies focused on cost reduction and revenue diversification. Additionally, ethical considerations and social responsibility have become integral to business models. Companies are now expected to operate sustainably, uphold fair labor practices, and engage in corporate social responsibility initiatives.

Globalization introduces complexities in expanding into international markets. A business attempting this would need to have a good understanding of different cultural norms, legal environments, and economic conditions. This requires businesses to adapt their models to various regional contexts while maintaining their core identity and values. Moreover, in an increasingly digital world, ensuring customer data privacy and security has become paramount. Companies must protect customer information, comply with data protection regulations, and maintain customer trust.

Scalability and effective management of growth is another significant challenge. As a business expands, strategies and processes that work on a smaller scale may not work anymore. This takes strategic planning and resource management to continue the growth. Which could possibly mean a rethinking of the business model. 

A business model is more than just an operational plan; it represents how a company does business. Understanding and effectively developing a business model is essential for any business looking to thrive in today’s competitive marketplace.

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Ralph is the Managing Editor at StartUp Mindset. The StartUp Mindset team consists of dedicated individuals and is designed to help new, seasoned, and aspiring entrepreneurs succeed.

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What Is a Business Model? Explained With Types & Examples

Free Business Model Canvas Template

Ayush Jalan

• December 15, 2023

Capital is the lifeblood of any business. From building a startup to sustaining an MNC, your business model affects every decision you take. It’s one thing to have a great business idea and a whole other thing to turn it into a long-term profitable mechanism.

In this article, we’ll see what is a business model, factors to consider when choosing one, and 15 of the most successful business models to look into.

What is a Business Model?

A business model is the DNA of a company. It dictates how you earn profits, price your products, and manage costs. It envelops all the necessary processes that need to happen to convert returns on your investments.

Picking a business model for startups is especially tricky as it greatly influences the funding they raise. Investors study your business model to evaluate its viability, profitability, and sustainability.

A business model answers these six important questions:

• Who is your target audience?
• What are you planning to offer them?
• How are you going to market your offerings?
• What are the costs involved?
• What is your pricing strategy?
• What are your revenue streams?

Which Business Model Should You Choose?

A few things to consider while choosing a business model are:

Consumer buying behavior:

Flexibility:, competitors:, industry leaders:, 15 types of business models with examples, 1. brick and mortar.

Brick and mortar is a traditional business model. Any business that sells its products directly in physical stores or offices uses this business model.

While this business model has been the standard for ages, the rise in internet access has led to an increase in online stores—negatively affecting physical counterparts.

Examples: grocery stores, restaurants, and coffee shops.

2. E-commerce

The polar opposite of the brick-and-mortar model is the e-commerce business model . It is opted for by companies that sell their products or services on the internet via e-stores.

Since these businesses operate virtually, they don’t need a physical outlet. Over the years, e-commerce has transformed how people shop , making it convenient, easy, and seamless for consumers.

Examples: Shopify, Alibaba, PayPal.

3. Bricks and clicks

A hybrid of the above two is the bricks-and-clicks business model. Companies that use this model sell their products online as well as in physical stores.

Many traditional brick-and-mortar businesses have started selling online to steal a piece of the e-commerce pie. Conversely, e-commerce companies are setting up physical stores to increase visibility and brand loyalty .

Examples: Zara, Walmart, Amazon, and Target.

4. Manufacturer

The manufacturer business model refers to the companies that use raw materials to produce goods or assemble parts to create finished products. These companies either sell directly to customers or intermediaries.

Examples: Toyota, General Motors, Samsung, LG, Sony.

5. Wholesale

Wholesalers buy large quantities of finished products from manufacturers and sell them to multiple retailers or distributors in smaller quantities. They are a key intermediary in the supply chain.

Examples: Costco, Walmart, and Johnson & Johnson.

Retailers are the last intermediary in the supply chain. They buy products from wholesalers, distributors, or even directly from manufacturers and sell them to consumers.

Nowadays, there are many businesses and individuals who make money through Amazon, for example, while also using many of its benefits.

Examples: Target, The Home Depot, Best Buy, Casper.

7. Subscription

The increasingly popular subscription business model allows companies to charge their customers a recurring fee for continual benefits. Think SaaS companies and subscription box companies.

Examples: Netflix, Disney+, Amazon Prime Video, FabFitFun, BirchBox, and Dollar Shave Club.

8. Freemium

The freemium business model is quite similar to a subscription model. Except, it includes a free version on top of the paid service. The latter is usually displayed as a premium variant.

For instance, Hulu offers a 7-day free trial while Spotify offers a free version that can be used indefinitely.

Examples: MailChimp, Evernote, LinkedIn, and DropBox.

9. Franchise

In this model, a franchisor company grants the rights over its brand identity, intellectual rights, and resources to a franchisee company in exchange for a fee called royalty.

For instance, McDonald’s permits its franchisees to run their restaurants under its brand name. In exchange, the franchisee pays an initial fee and a cut of the revenue incurred.

Examples: Subway, Domino’s, UPS Store, Coca-Cola, Nestlé, and Hyundai.

10. Razor and blades

The name ‘razor and blades’ comes from the pricing tactic used by the popular Boston-based company Gillette. The company sold its razor handles at a lower price to increase the sales of its razor blades.

In a nutshell, companies sell a primary ‘razor’ product at a low margin to boost the sales of its complementary ‘blade’ products which are sold at a high margin.

Examples: Microsoft Xbox, Sony PlayStation, Nespresso.

11. Reverse razor and blades

Contrary to the above, in the reverse razor and blades business model, companies sell the primary ‘razor’ product at a high margin and sell complementary ‘blade’ products at a bargain.

For instance, Amazon sells the Kindle Paperwhite at a high price because it allows buyers to further purchase ebooks at a discounted price.

Example: Apple sells iPhones at a premium price and allows users access to affordable complementary services like Apple Music and App Store.

12. Advertising

Advertising is one the oldest business models wherein an advertiser pays to get their product promoted on a publisher’s platform. Earlier, this used to be limited to newspapers, magazines, and storefronts.

Today, advertising is a highly saturated business model covering platforms such as social media, video games, job portals, billboards, email, mobile apps, etc.

Examples: Google, YouTube, TikTok, Meta, Twitter, and LinkedIn.

13. Crowdsourcing

In this model, a company solicits contributions like ideas and services from a crowd of unaffiliated providers. These contributions are then pooled into a unified platform controlled by the company to create something of value.

There are multiple types of crowdsourcing but perhaps the most recognizable one is used by Wikipedia. Here, volunteers contribute to creating and adding value to the platform accessible to everyone. The hosting company, Wikimedia Foundation, makes money via donations.

Example: McDonald’s asked fans to create new burger recipes under its “My Burger” campaign. The most acclaimed ones were then added to the menu to try and increase sales.

14. Hidden revenue model

All social media companies use the hidden revenue model. Unlike other models, this business model allows companies to offer their products to consumers for free—concealing their revenue.

Instead, they make money via third parties in the form of advertising. This helps keep the product free to use or subsidized enough to be available at a very low price.

Examples: Google, YouTube, TikTok, Facebook, Twitter, and LinkedIn.

15. Peer-to-peer

In this model, companies provide a platform for two parties to collaborate or make transactions. The company acts as a middleman overseeing the trade by establishing regulations to reduce the risks for both parties.

A perfect example is Airbnb; it allows hosts to rent out their properties to hostees. The company makes money via commissions from both parties.

Examples: Uber, Freelancer, OLX, Craigslist.

Actualize Your Potential with a Tailored Business Model

Choosing the right business model can be quite tricky since there’s so much at stake. However, with adequate research and testing, you can be sure to find a model or combination of models that work best for you.

Opting for a business model that has a proven track record can be a safer choice if you’re unsure of your startup’s viability. Although, if you’re willing to take some risk, creating a new model or tweaking existing ones can prove to reap more profits eventually

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About the Author

Ayush is a writer with an academic background in business and marketing. Being a tech-enthusiast, he likes to keep a sharp eye on the latest tech gadgets and innovations. When he's not working, you can find him writing poetry, gaming, playing the ukulele, catching up with friends, and indulging in creative philosophies.

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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.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

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.

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Understanding Business Models: Definition, Types, and Examples

Business models are fundamental to any successful business. They define how an organization creates, delivers, and captures value. In this article, we’ll explore what business models are, their different types, and provide examples of successful businesses that have employed them.

What is a Business Model?

A business model describes the way in which an organization creates, delivers, and captures value. It is essentially a blueprint of how a company operates and makes money. A business model typically includes the following components:

• Value Proposition: The unique benefit or advantage that a company offers to its customers. It should address the needs and pain points of the customer.
• Revenue Streams: The different ways a company generates revenue. This can be through product sales, subscriptions, advertising, etc.
• Cost Structure: The costs involved in running a business, including production costs, overhead expenses, and other costs associated with delivering the value proposition.
• Key Activities: The critical tasks that a company must perform to deliver its value proposition.
• Key Resources: The resources that a company needs to deliver its value proposition, including human, financial, and physical resources.
• Key Partnerships: The relationships that a company has with other businesses or organizations to help deliver its value proposition.
• Customer Segments: The different groups of customers that a company serves.
• Find your purpose
• Take breaks & vacations
• Don’t deprive your body
• 10 minutes of meditation every day
• Believe for sure that you will be successful
• Spend time with others
• stop comparing yourself to others

You seem to have burnout issues. Here are a few things you can do:

#1. You don’t regularly get at least seven to eight hours of sleep, and often wake up feeling tired.

Types of business models.

There are several types of business models, each with its unique characteristics. Here are some of the most popular ones:

• Product-Based Business Model

In a product-based business model, a company creates a product and sells it to customers. This can be a physical product, such as a car or a smartphone, or a digital product, such as software. The revenue stream comes from product sales, and the key activity is product development.

Examples: Apple, Nike, and Toyota.

• Service-Based Business Model

In a service-based business model, a company provides a service to customers. The revenue stream comes from the fees charged for the service. The key activity is delivering the service to the customer.

Examples: Uber, Airbnb, and consulting firms.

• Subscription-Based Business Model

In a subscription-based business model, a company provides a product or service to customers on a recurring basis. The revenue stream comes from subscription fees, and the key activity is maintaining customer subscriptions.

Examples: Netflix, Spotify, and gym memberships.

• Marketplace-Based Business Model

In a marketplace-based business model, a company connects buyers and sellers and facilitates transactions. The revenue stream comes from transaction fees, and the key activity is maintaining the marketplace platform.

Examples: Amazon, eBay, and Etsy.

• Freemium-Based Business Model

In a freemium-based business model, a company offers a basic version of a product or service for free, and customers can upgrade to a premium version for a fee. The revenue stream comes from premium subscriptions, and the key activity is converting free users to premium users.

Examples: Dropbox, LinkedIn, and Zoom.

I think it’s time to pivot the business.

A pivot might not be necessary but you need to improve on some of the elements in your business.

#1. Your target market is not responding to your product or service.

Mece framework for business model analysis.

Using the MECE framework, we can analyze the different components of a business model and identify any gaps or opportunities. Here’s how we can use the MECE framework to analyze a business model:

• Value Proposition
• What is the unique benefit or advantage that the company offers to its customers?
• Does the value proposition address the needs and pain points of the customer?
• Is the value proposition clear and concise?
• Revenue Streams
• What are the different ways that the company generates revenue?
• Are the revenue streams diversified, or is the company dependent on a single revenue stream?
• Are the revenue streams sustainable in the long term?
• Cost Structure
• What are the different costs involved in running the business?
• Are the costs optimized and efficient?
• Can the company reduce costs without compromising the quality of its value proposition?
• Key Activities
• What are the critical tasks that the company must perform to deliver its value proposition?
• Are these tasks performed efficiently and effectively?
• Are there any unnecessary activities that can be eliminated?
• Key Resources
• What are the essential resources that the company needs to deliver its value proposition?
• Are these resources optimized and efficient?
• Are there any additional resources that the company needs to acquire to improve its value proposition?
• Key Partnerships
• What are the critical relationships that the company has with other businesses or organizations to help deliver its value proposition?
• Are these partnerships optimized and efficient?
• Are there any additional partnerships that the company needs to establish to improve its value proposition?
• Customer Segments
• Who are the different groups of customers that the company serves?
• Are these customer segments well-defined and targeted?
• Are there any additional customer segments that the company can target to increase revenue?

Examples of Successful Business Models

Let’s take a look at some examples of successful businesses and the business models they have employed:

Amazon has a marketplace-based business model, where it connects buyers and sellers and facilitates transactions. It generates revenue from transaction fees and has diversified revenue streams through services like Amazon Web Services (AWS) and Prime subscriptions. Amazon’s key activity is maintaining its platform, and its key resources include its vast inventory and logistics network.

Netflix has a subscription-based business model, where it provides a streaming service to customers on a recurring basis. It generates revenue from subscription fees and has diversified revenue streams through content licensing and production. Netflix’s key activity is maintaining its streaming platform, and its key resources include its vast library of content and its recommendation algorithm.

Tesla has a product-based business model, where it creates electric vehicles and sells them to customers. It generates revenue from product sales and has diversified revenue streams through services like energy storage and solar panels. Tesla’s key activity is product development, and its key resources include its battery technology and manufacturing capabilities.

Uber has a service-based business model, where it provides transportation services to customers. It generates revenue from fees charged for its services and has diversified revenue streams through services like Uber Eats and Uber Freight. Uber’s key activity is delivering its services to customers, and its key resources include its driver network and its technology platform.

Slack has a freemium-based business model, where it offers a basic version of its communication platform for free and charges for premium features. It generates revenue from premium subscriptions and has diversified revenue streams through services like Slack Connect and Slack Enterprise Grid. Slack’s key activity is converting free users to premium users, and its key resources include its user base and its integrations with other platforms.

A business model is critical to any successful business, as it defines how an organization creates, delivers, and captures value. There are several types of business models, each with its unique characteristics, and using the MECE framework can help analyze and optimize a business model. Examples of successful businesses, such as Amazon, Netflix, Tesla, Uber, and Slack, showcase the importance of a well-defined and optimized business model.

Here are some of our other business model related posts.

• Thrasio – How the Thrasio model is generating a new wave of startups & attracting billions in venture capital
• What is a stealth startup and should your startup be in stealth mode?
• Fractional ownership – A hot business model that is driving disruptive startups
• What is the content to commerce business model?
• Data monetisation as a revenue strategy for apps
• How to build a successful short video app like TikTok?
• How to use the Concierge Service business model to validate your business?
• How to make money with memes?
• How to estimate ad revenues from your mobile app?

Partha Chakraborty

Partha Chakraborty is a venture capitalist turned entrepreneur with 17 years of experience. He has worked across India, China & Singapore. He is the founder of Tactyqal.com, a startup that guides other startup founders to find success. He loves to brainstorm new business ideas, and talk about growth hacking, and venture capital. In his spare time, he mentors young entrepreneurs to build successful startups.

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Business Model

In today’s rapidly evolving business landscape, having a well-defined and adaptable business model is crucial for success. A business model serves as the blueprint for how an organization creates, delivers, and captures value. It outlines the fundamental framework and strategy that drives a company’s operations, revenue generation, and overall sustainability. In this article, we will delve into the concept of business models, provide a step-by-step guide on creating one, address some common FAQs, and explore various examples and strategies to inspire your own entrepreneurial journey.

1. Business Model Example

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What is a Business Model?

A business model refers to the conceptual framework that describes how an organization operates, creates value, and generates revenue. It encompasses the various elements that define the core aspects of a business, such as its target audience, value proposition, distribution channels, revenue streams, and cost structure. A well-designed business model aligns an organization’s resources, activities, and partners to effectively address market needs and deliver a compelling offering. It serves as a strategic tool to guide decision-making and optimize the overall performance and profitability of a company.

How to Create a Business Model

Creating a business model is a systematic process that requires careful analysis, strategic thinking, and a deep understanding of your target market and industry. By following these steps, you can develop a comprehensive business model that sets the stage for long-term success.

Step 1: Identify Your Target Market and Value Proposition:

Before diving into the intricacies of your business model, it is crucial to identify your target market and define the unique value proposition your business will offer. Determine the specific needs and pain points of your target audience, and craft a value proposition that effectively addresses these concerns.

Step 2: Analyze the Competitive Landscape:

Conduct a thorough analysis of your industry and competitors. Identify the key players, their business models, and their strengths and weaknesses. This analysis will help you identify opportunities for differentiation and potential areas for innovation within your business model.

Step 3: Design Revenue Streams and Pricing Strategies:

Consider different revenue streams that align with your value proposition. Explore various pricing models, such as one-time purchases, subscriptions, or freemium offerings, and determine the most suitable approach to monetize your product or service.

Step 4: Define Key Activities and Resources:

Outline the key activities and resources required to deliver your value proposition. This includes determining your core competencies, identifying strategic partnerships, and assessing any external resources needed to support your business operations.

Step 5: Establish Distribution Channels:

Evaluate the most effective distribution channels to reach your target market. Consider both traditional and digital channels, and determine the optimal mix to maximize your reach and accessibility.

Step 6: Evaluate Cost Structure and Profitability:

Analyze the cost structure of your business, including fixed and variable costs, overhead expenses, and potential economies of scale. Ensure that your revenue streams are aligned with your cost structure to achieve sustainable profitability.

What are some examples of business models?

There are various business models, including subscription-based models (e.g., Netflix), marketplace models (e.g., Airbnb), freemium models (e.g., Dropbox), and direct sales models (e.g., Apple).

Where can I find examples of business plans and strategies?

You can find a variety of business plans and strategy examples online. Check out resources such as “ 5+ Remodeling Business Plan Examples ” or “ 10+ Brand Marketing Strategy Examples in PDF | MS Word for your inspiration.”

How can a business model help my company succeed?

A well-designed business model provides a clear roadmap for success by aligning your activities, resources, and revenue streams. It helps you understand your market, differentiate your offering, and maximize profitability.

In conclusion , developing a robust business model is a vital step for any aspiring entrepreneur or existing business owner. By carefully crafting a well-defined value proposition, analyzing the competitive landscape, and designing effective revenue streams and distribution channels, you can create a blueprint that guides your organization toward sustainable growth and success. Remember, a strong business model adapts to changing market dynamics and enables you to seize emerging opportunities. With the right foundation in place, your business can thrive in today’s dynamic business environment.

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Business Models: 40+ Popular Strategies In 2024

Over the past few years, we have analyzed 300+ businesses ranging from communications platforms like WhatsApp all the way to payment giants like PayPal .  

While the reason why these companies are successful is certainly multifaceted, it cannot be denied that the business models they adopted have played a key role in their rise to prominence.

Take, for instance, the investment app Robinhood , which has upended traditional trading platforms by offering commission-free trading. The app’s business model, largely based on payments for order flow, has been a key enabler of its success.

Masayoshi Son, founder of Softbank, reiterated the importance of adopting the correct business model. He stated that “money is available from investors as long as you have a great business model and a talented leader.”

In this article, we list the more than 40 business models that are popular in 2023 and beyond. This list is, furthermore, consistently updated to reflect the business model developments we see across all industries.

But before we get started, let’s set the stage and define what a business model actually is.

So, What The Heck Is a Business Model?

A business model describes how an organization plans to generate revenue. More precisely, it details what products or services a firm aims to sell, how it intends to market and distribute them, and what expenses it will incur in the process.

Those inputs then determine the profit that said company is expected to generate on an ongoing basis.

The term ‘business model’ first appeared in academia in 1957, yet remained scarcely used up until the late 1990s.

However, the turn of the century saw interest in the concept greatly accelerating. Both academics and authors (see graph below) repeatedly began to mention and dissect the concept in their writings.

Numerous internet startups at the time, as writer Michael Lewis pointed out, utilized the term “to glorify all manner of half-baked plans” in an effort to distract from the fact that they were burning through cash left and right. The above-shown graph further underlines the symbiotic relationship between the business model concept and tech-enabled companies.

In fact, many founders used it to their advantage, thus allowing them to raise funding that their businesses didn’t necessarily deserve. And since there wasn’t any historic sales data to judge these companies on, telling a story as Lewis put it became their biggest strength.

But as the internet matured, so did the business models that organizations adopted. Many traditional firms, such as Disney (streaming) or Walmart (Plus), have partially adopted internet-based business model strategies as well.  

Although a unified definition of business models is yet to be established, their importance simply cannot be denied.

Is There a Best Business Model?

To make a long story short: no, there is no best business model . Adopting a winning business model strategy is dependent on a variety of factors including (but not limited to):

• The skills of the founding team
• The capital requirements to get the business off the ground
• The amount of capital at the founders’ current disposal as well as their ability to attract additional funding
• The competitiveness of the industry
• The current and expected size of the market
• The cost of acquiring and retaining customers
• External factors such as the political climate, interest rates, technological advancements, and so forth
• Current laws and regulations
• The availability of skilled labor
• The time it takes to get to market
• Finding a problem worth solving

… and so much more. Traditionally, entrepreneurs have relied on frameworks, such as the Business Model Canvas, to devise winning strategies.

However, with the advent of the internet and associated services, such as cloud storage, no-code tools, collaboration platforms, ad-based promotion platforms, and so forth, this has become increasingly less relevant.

Detailed business plans have been replaced by the rapid testing and iteration of ideas, which have become the dominant form of business model validation among tech-based and many other startups.

It has to be noted, though, that not all industries fall under this premise. For instance, biotech firms or financial services are often subject to regulations that prohibit them from brute-forcing their way into markets.

For the rest, this has become the modus operandi. Eric Ries, author of The Lean Startup, popularized the concept of the Minimum Viable Product (MVP) – a term initially coined by Frank Robinson in 2001.

An MVP is a product with just enough features that can attract the first set of users. Instead of spending exorbitant amounts of cash on developing an idea, founders can get something off the ground in a quick manner and then reiterate based on the feedback they receive.

Lean startups are based on the Build-Measure-Learn (BML) feedback loop. Startups, if not obligated by law, should get a product out as soon as humanly possible.

For example, Dropbox founder Drew Houston thought that people would appreciate a service that offered free hosting. Instead of building out an expensive product, he simply created a 90-second promotion video that described what the product would do. After receiving close to 10,000 signups in the first week or so, he had all the confirmation he needed that this is what people would want.

Once you release your product into the wild, it’s time to measure its adoption, for instance by collecting data on user growth, usage time, bounce-off points, or simply by asking your users what they like and dislike.

At that point, founders should have enough data points to assess whether their idea has legs or not. If it doesn’t, then it advised pivoting to a different idea altogether. 

With that being said, let’s take a deep dive into the 40+ business models that are currently dominating.  

1. Advertising-Based Business Model

Advertising has been the main source of revenue for many media organizations, whether it’s newspapers, TV stations, and radio networks. In fact, productmint itself derives most of its income from display advertising in an effort to keep content free to consume.

While the internet has decimated advertising revenues across traditional media companies, it has also led to the creation of some of the world’s biggest companies such as Google or Facebook (now Meta).

Previously, advertisers lacked reliable data to assess how effective their campaigns on TV or in the newspaper were. Cookie-based technology and sometimes invasive data collection practices now allow advertisers to better target consumers based on characteristics such as their gender, age, location, and so forth. This has vastly improved their return on advertising spend (RoAS).

Advertising on the internet occurs through a variety of mediums. Examples include banner ads on websites, video ads before, after, or in-between content, and native ads that are shown on your social feed have become dominant forms of advertising.

The key to making the advertising model work is to drive huge volumes of eyeballs. After all, most companies that rely on advertising are compensated either when an ad is viewed or clicked on. Demographics and niche play a crucial role as well. For example, a financial ad aimed at American yields substantially more than one in the gaming niche tailored toward citizens in developing countries. This is because advertisers are willing to spend more in certain niches and demographics to acquire customers than they are in others.

2. Affiliate Business Model

Affiliates are companies or individuals that recommend a given product or service. They then receive a percentage-based or fixed commission if the customer ends up purchasing said recommendation. Therefore, affiliates either directly work together with the companies they recommend or join a so-called affiliate network, which aggregates offers on the firms’ behalf.

One of the most prominent examples in the affiliate industry is Wirecutter, which publishes in-depth reviews on almost every product imaginable. Alternatively, YouTube influencers or bloggers have relied on affiliate income for ages as well.

Leading tech companies have adopted the affiliate model, too. Browser extension Honey receives a commission whenever customers redeem a coupon. Meanwhile, Credit Karma has revolutionized the once-questionable credit report industry by allowing consumers to compare financial products such as credit cards or auto loans.

Both Credit Karma and Honey have been acquired for billions of dollars each, thus proving how lucrative the model can potentially be. The single biggest advantage of the affiliate model is that it can be a very high-margin business once the company or influencer reaches the necessary scale.

However, affiliates will need to build up the necessary trust and engagement with their audience, for example by only recommending reputable products and services or conducting in-depth reviews.

• The detailed case study on affiliate business models can be found here .

3. Arbitrage Business Model

An arbitrage business essentially acquires discounted products or services only to sell them for a profit later on. Arbitrage businesses can be found in all types of industries including retail, finance, and even consulting.

For instance, FTX founder Sam Bankman-Fried, before starting the exchange, famously purchased bitcoin on US-based exchanges and resold them for a profit on Japanese exchanges. As seen with this example, the key to operating a successful arbitrage business is taking advantage of information asymmetry , meaning you have access to exclusive data and deals that other parties don’t possess.

While profits are often only limited by your ability to sell, the model becomes obsolete when too many parties gain access to your unique insight. Arbitrage businesses tend to not possess many competitive moats, which means they’re almost solely competing on price.

4. Aggregator Business Model

In essence, aggregators collect information from a wide variety of sources and make it digestible and consumable to consumers. The clearest example of an aggregator is a search engine like Google, which scrapes the very messy web and arranges information based on a customer’s query.

Therefore, any industry that is subject to complexity and vastness of choice is ripe for disruption by aggregators. Airlines work together with aggregators like Skyscanner and restaurants or other venues are normally to be found on Yelp .

Customer demand can then be monetized in a variety of ways. For instance, aggregators generate revenue from clicks (CPC), facilitating sales (CPA), sponsored placements, and by selling access to aggregated data.

And since the marginal cost of distribution over the internet is nearly zero, aggregators can potentially be very profitable. The most powerful ones are even able to amass pricing power as partners become reliant on their traffic.

On the other side, many aggregators are now subject to gatekeepers, more precisely Google. Platforms like Booking, Expedia, and trivago now have to spend billions in advertising to compete against Google’s own products.

• Our detailed description of the aggregator business model can be found here .

5. Auction-Based Business Model

In an auction, a product or service is sold to the highest bidder. While auctions are a tale as old as time, they have certainly been brought to a worldwide audience with the launch of eBay in the mid-1990s.

Ever since, various companies such as DealDash, BidSpotter, and Sotheby’s have all introduced auctions for different types of industries and customers. In most cases, platforms simply collect a commission for every successful auction that they host.

The biggest challenge to establishing a successful auctioning platform is gaining access to valuable goods and services. Consequently, sellers will need to be provided with certainties that their auctions will fetch a satisfying return.

Auctions themselves can be conducted in a variety of ways. The most common method is an open auction where participants bid openly. Descending auctions start with a high asking price, which is lowered until someone is willing to pay the ask. Lastly, sealed auctions allow participants to submit closed bids. Bids are opened at the end and whoever has the highest wins that auction.  

6. Bundling Business Model

Bundling is the act of packaging multiple individual products and selling them as one offering. Customers normally have to pay a lower price for the bundle than if they were to purchase each product individually.

While physical businesses can utilize the strategy, it is most commonly seen among tech companies like Apple or Microsoft. The phone manufacturer offers its One subscription, which entails products such as Apple Music, Apple TV+, Apple Arcade, iCloud+, and more.

Bundling digital products makes sense because the cost of distribution is essentially zero. Both Apple (via its devices) and Microsoft (through Windows) possess a direct gateway to consumers, thus allowing them to heavily market their bundles – sometimes at the cost of competitors. They also have the necessary cash cushion to take a loss on the bundle until it becomes ubiquitous.  

However, bundling only works if each of the products in the bundle has some sort of perceived value. Companies can then simply add additional products to that bundle and jack up the price as adoption progresses.

7. Buy Now, Pay Later Business Model

Buy Now, Pay Later (BNPL) companies offer financing to either consumers or businesses by allowing them to pay over multiple installments. The business model innovation comes from not imposing excessive fees on consumers (looking at you credit card and payday loan companies) but offering those services mostly for free. They also don’t affect a consumer’s credit score.

Instead, it is normally the merchants that are footing the bill by paying a small percentage-based fee for every transaction. BNPL companies normally minimize risk by booting off consumers from their service if they fail to make a payment as well as by heavily limiting the amount of money they can borrow.

Klarna , which was the first large-scale BNPL provider, is most certainly the leading company in the industry, followed by the likes of Affirm and Afterpay . Even mobile giant Apple has come out with a BNPL solution.

Apart from merchant fees, BNPL firms also generate income from late payment fees, interest charged to consumers (Affirm), interchange fees from their own credit cards, and advertising via their shopping apps.

It has to be noted, though, that the sector has faced criticism from public officials and consumer advocacy groups alike. They lament that BNPL firms encourage reckless financial behavior and push customers further into debt.

8. Circular (Economy) Business Model

The effects of climate change are undeniable at this point. Companies have since responded by adopting their business models in an effort to cut waste and minimize emissions. Those business models are adopted in the physical world where emissions and waste are created.

For example, Finland-based Swappie has raised close to $170 million to sell refurbished iPhones to consumers. Meanwhile, fashion resale platforms like treet or Vinted encourage people to purchase used fashion items instead of heading to the store.

Established companies themselves have adopted circular services as well. Patagonia, for example, allows you to send in damaged clothing to be repaired. It also launched the Common Threads Initiative back in 2011, which enables customers to purchase already-used items.

While recycling, repair, and reusing have existed for millennia, the internet has certainly enabled consumers to better coordinate with each other. As a result, sharing has become another way through which the strain on the environment is reduced. London-based OLIO , for instance, allows members to share excess food and unused household items with their neighbors. 

Although circular companies are not monetizing consumers in any new way, the business model innovation comes from where the value is captured. Businesses have traditionally ignored the second-hand/used market as the cost of recycling/refurbishing was simply too high while consumer demand wasn’t there, to begin with. Circular businesses have essentially extended that value capture from the point-of-sale to after the point-of-use.  

9. Classifieds Business Model

Newspapers used to make tens of billions of dollars every year from classifieds, which are a specific form of advertising. Businesses and people would pay the newspaper or magazine a fixed fee to appear on their printed pages.

While physical newspapers have since been rendered essentially irrelevant, online classifieds businesses have taken their place. Certainly, the most prominent of the bunch is Craigslist , which has largely remained unchanged in the 25+ years since it was launched. Other prominent players in the space include Adevinta, which acquired eBay’s classifieds group, and OLX. 

Classifieds businesses normally make money by charging a fee to upload listings in high-value categories like real estate or automotive. Some also receive a commission whenever a sale is facilitated through the platform (= affiliate) or by allowing users to advertise on their platforms.

Unlike physical newspapers, which incur cost on each print and the subsequent distribution, classifieds platforms benefit from near-zero marginal cost since distribution over the internet is essentially free. Network effects, as seen with Craigslist, also make it substantially tougher to disrupt established sites.

10. Cost Leadership Business Model

A company following a cost leadership strategy is able to provide products or services at a comparatively lower price without compromising on quality. Harvard professor Michael Porter first identified cost leadership as one of three competitive strategies that organizations use to set themselves apart from the rest.

Retailers like ALDI and Walmart have successfully used cost leadership to differentiate themselves from the pack. To be a cost leader, companies need to reach scale, which in turn grants them bargaining power to keep the cost of acquisition low.

As a result, cost leaders need to drive massive sales volumes because the margin on each sale is extremely low. Point in case: Walmart, with $560 billion in annual revenue (2021), ‘only’ generated $25.8 billion in profits.

11. Crowdsourcing Business Model

Crowdsourcing companies are normally intermediaries that enable their members to source funds or other valuable items and knowledge/skills from users. Wired editors Jeff Howe and Mark Robinson first coined the term in a blog post back in 2006.

By far the most popular example of a crowdsourcing business is Wikipedia , which sources information from independent editors. When it comes to getting an idea funded, innovators normally turn to Kickstarter or Indiegogo. And sourcing funds for noble causes can be done via GoFundMe .

While Wikipedia mostly relies on donations, most other crowdsourcing platforms simply take a percentage-based fee from the amount of money that was raised. That fee is normally paid by the person receiving those funds.

There are a variety of benefits to operating a crowdsourcing platform. First of all, they are highly scalable because the cost of onboarding a new user is essentially zero. Additionally, many have viral loops built into them, namely by having their projects or donations shared across the web (see here or here ).

12. Data-as-a-Service (DaaS) Business Model

At this point you’re probably sick and tired of hearing that data is the new oil, which just means that both the common public and companies themselves have realized how valuable it actually is.

In essence, the DaaS business model is predicated on you collecting valuable data, cleaning it up, and making it digestible for consumption. Companies then either charge a one-time or recurring fee based on the amount and type of data that’s being made available.

One of the most striking examples of the model’s viability is CB Insights, which collects data on company valuations, financing, earnings, patent filings, and so forth. Customers can then access that data via a proprietary platform or through CB Insights’ own reports.

User-driven platforms have also gone on to sell the data their users generate. Running community Strava , for example, sells aggregated user data to urban planners and municipalities to enable cities to create better pathways for runners and bikers.

13. Direct-to-Consumer Business Model

Direct-to-consumer (DTC) businesses sell directly to consumers instead of distributing their items via wholesale middlemen. As a result, DTC brands normally sell over the internet and don’t rely on retailers or brick-and-mortar stores for distribution.

The DTC model has been amplified by a few developments. First, business owners can quickly set up online shops via online platforms like Shopify . They also don’t need to use expensive distribution channels like TV ads but can instead test and promote products via ads on Facebook, Instagram, TikTok, and other social platforms. Sourcing products from countries like China has also become substantially easier.

Lastly, thanks to Amazon, PayPal, and other platforms, consumers have become much more comfortable paying and ordering items online.

Multi-billion-dollar brands like Allbirds, Gymshark , and Warby Parker have since emerged. Even car manufacturer Tesla has decided to forgo dealerships and mostly sells its cars online. Interestingly, some of them have since become so popular that they began to open retail locations of their own.

Those DTC brands that continue to rely on online distribution normally profit from greater margins (because they do not need to rent store space and hire employees to run them), richness of data (as user engagement can be tracked across acquisition channels), and the ability to serve customers much faster (as items don’t need to be sent to the store first).

14. Dropshipping Business Model

Dropshipping businesses do not hold inventory. Instead, they partner with third-party services (like Amazon FBA or AliExpress) that handle shipping and warehousing on their behalf. The goods are purchased from wholesalers or manufacturers.

The dropshipping business essentially acts as a middleman between the consumer and the supplier of the goods. As such, the key to making the model work is the owner’s ability to identify winning products, find suitable suppliers, and market the offers accordingly.

Since the dropshipper does not hold any inventory, the risk is fairly minimal while the operation itself can be run from any location. The business can, furthermore, be scaled as demand grows.

However, due to the simplicity of the model, copycats are a dime a dozen. Additionally, some payment providers may not be comfortable accepting funds on behalf of dropshipping companies (since the owner likely never saw or touched the product, thus posing potential dangers to consumers).

15. EdTech Business Model

EdTech businesses are companies that utilize technology to deliver educational content across the web. The business model innovation comes from democratizing access to high-quality education that has traditionally been reserved for students of renowned institutions like Harvard.

One of the most prominent examples in the space is Coursera , which offers thousands of courses from organizations such as Google or Stanford. Peer-to-peer models like MasterClass or Udemy source knowledge from top-class performers in their respective fields. Even language learning has been disrupted by offering free classes via sites like Duolingo . Lastly, platforms like Udacity promise to upskill employees in relevant fields such as data science.

The EdTech model is in stark contrast to what many renowned universities have decided to do, which is to act like luxury brands that artificially restrict access. Many EdTech platforms offer nearly unlimited scalability (if classes are not accommodated by supervisors), on top of delivering content at a fraction of the cost of traditional university programs.

Challenges remain, though. First of all, platforms need to be able to attract and retain world-class instructors. Furthermore, they need to ensure that the experience is challenging enough while still keeping students engaged.  

16. FinTech Business Model

Much like the above-mentioned EdTech business model, FinTech represents an important category across a variety of industries such as banking, credit scoring, investing, loans, and so forth.

For example, instead of relying on traditional banks, consumers are increasingly using so-called neobanks like Chime , which solely operate online. Payments can now be sent at no cost via P2P services such as Venmo . Meanwhile, Robinhood has revolutionized the world of trading by allowing consumers to purchase stocks free of charge.

Interestingly, many of those companies still rely on traditional revenue streams such as interest from management fees, cash deposits, interchange fees, and so forth. The true innovation often comes from offering services at a fraction of the cost.

Nevertheless, the FinTech (or more specifically financial) industry comes with a set of limitations. More specifically, the regulatory cost of setting up the business as well as the need for hiring skilled labor often requires founders to raise outside funding to get a service established.

• We did a pretty detailed study on the FinTech model and its history, which you can find here .

17. Franchise Business Model

Franchises are contractual arrangements between a large brand, known as the franchisor, and an independent entrepreneur (franchisee). The franchisee pays various fees in exchange for being able to access the franchisor’s brand, intellectual and sometimes physical property, supplier relationships, intellectual property, and more.

Franchises are most commonly found in the food and retail industry. The most dominant players in the space are McDonald’s, 7-Eleven, Burger King, Subway, KFC, Wendy’s, and Dunkin’ Donuts. However, other industries also boast dominant franchisors such as Hilton Hotels or Coca-Cola, which invests in local bottling and manufacturing companies that produce drinks on its behalf.

The franchisor dictates the terms of the operating relationship, meaning franchisees have to create a unified customer experience that is similar to other branches. For example, when McDonald’s introduces a new burger, then all franchisees have to introduce said product.

Franchisees normally pay an upfront fee to set up the business. Additionally, they have to share a percentage of their profits with the franchisor. In exchange, franchisees benefit from the franchisor’s brand recognition, receive operational and financial guidance, get to access proprietary technology and supplier relationships (and sometimes can tap into a network of other franchisees to share best practices), can tap into an existing and loyal customer base, and generally need less time to get the business running.

Franchisors, on the other hand, can grow their business substantially faster because most of the groundwork is being conducted by franchisees. However, some franchisors like Subway have also abused their market power to establish highly unfavorable terms in an effort to squeeze out even more revenue.

18. Freemium Business Model

A company that relies on the freemium model offers its products at no cost. If users want a more sophisticated experience, they can pay for premium features, which is how freemium-based normally businesses make money.

Venture capitalist Fred Wilson first coined the term in a blog post back in 2006. A diverse set of businesses, whether it’s in gaming, cloud storage, social, music, and education have since emerged.

The single biggest advantage to the freemium model is that growth, because of the free nature of the product, is much easier to come by. Users then act as a quasi-marketing channel by recommending the product to their friends and family.

Another big perk is the fact that freemium businesses can be monetized in a variety of ways. Companies can charge for access to premium features, display advertising, offer merchandise, and monetize (hopefully anonymized) user data.

However, depending on the vertical, freemium businesses may also be hard to monetize and take a long time to amass the necessary number of users to be profitable. For example, ‘only’ around a fourth of all Spotify users pay for its premium subscription while the number is likely much lower for music platforms like SoundCloud . 

• Check out our detailed description of the freemium model here .

19. iBuyer Business Model

An iBuyer (short for Instant Buyer) is a real estate company that uses technology to make almost immediate cash offers for homes. Those homes are then hopefully flipped for a profit if no refurbishment is required.

To maximize profits, iBuyers tend to invest in properties that have a large pool of comparable data points. Common property characteristics are single-family homes located in suburban areas, built after 1960, valued between $125,000 and $500,000, all while not possessing any major damages.

The iBuyer industry was initially popularized by Opendoor . Copycats like Offerpad or Knock have since emerged. There is great financial risk baked into the iBuyer model as well. Real estate technology platform Zillow had to shut down its iBuying division just two years after launching it while incurring billions of dollars in losses.  

As a result, companies need to raise hundreds of millions of dollars to make the model work to properly train their home assessment algorithms, build up a sufficient supply in each location, and hire both real estate and technology experts alike.

• Check out our detailed guide on iBuyers here .

20. Leasing Business Model

Firms can generate revenue through leasing by renting out goods and services for a limited period of time. Customers, also called lessees, pay a fee for the duration of the leasing period.

Leasing occurs on both the B2C and B2B sides. Car rental companies like Hertz are the most commonly seen examples. Businesses, on the other hand, can rent expensive production equipment, containers, and even chemicals.

Interestingly, startups and tech companies have now entered the leasing space as well. For example, computer manufacturer Dell allows businesses to lease their laptops while California-based startup Fernish allows you to rent furniture for a limited time.

The cost of acquiring and maintaining the products that one leases out makes this an endeavor most suitable for established businesses. They often can acquire those products at scale, which means that the per-unit cost is substantially lower and thus allows them to break even much faster on the investment.   

21. Licensing Business Model

Companies (called licensors) can generate revenue from licensing copyrighted or patented material to other individuals and businesses. A licensing fee (or royalty) is paid whenever the licensee utilizes said material. Licensing most commonly takes place in the fields of content as well as technology.

Getty Images, for example, receives a royalty fee whenever you use one of their images. Similarly, sports leagues like the NBA make money whenever apparel vendors or video game creators use the likeness of one of their players or teams. 

Technology companies can also derive significant revenue from patent licensing. For decades, IBM has generated over $1 billion in licensing revenue alone . Big tech companies like Apple, Google, Intel, Meta, and others offer employees and researchers thousands of dollars to call those patents their own.

While licensing revenue can certainly be very lucrative, it normally requires a lot of upfront investment to amortize. Companies sometimes spend billions of dollars to acquire IP or build up internal R&D departments – not always with certainty of appropriate returns.  

22. Long-Tail Business Model

Businesses focusing on the long tail sell small quantities of many different (niche) products instead of distributing large quantities of a selected few. Therefore, the key to making the strategy work is to feature the greatest variety of goods possible.

For example, focusing on the long tail is what allowed Amazon to generate hundreds of millions in revenue within a few years of launching. Back then, customers had to spend ludicrous amounts of money and wait for weeks to have niche books delivered by local bookstores. Since Amazon wasn’t limited by store space, it could store a much greater variety of books and ship significantly faster and cheaper.

Satisfying niche demand normally allows companies to generate greater margins on a per-unit basis because of lower competition and thus significantly fewer marketing dollars being spent. Customers also tend to be more loyal since they know that almost any demand they have can be satisfied.

However, scale and product variety are the names of the game here. Since the business will likely only sell a few units of every item, it needs to make up for the comparatively low demand by creating a rich catalog. Reaching that scale, as seen with Amazon, can be quite a costly endeavor.

23. Loss Leader Business Model

Loss leader pricing is a strategy in which a firm sells a product that it turns a loss on in hopes of upselling the customer into other (more profitable) offerings.

For instance, supermarket chains like Walmart promote heavily discounted offers to lure customers into their stores. Cable and credit card companies may utilize temporary introductory pricing to create a customer lock-in. And in other instances, brands simply hand out free samples to get consumers acquainted with the product. 

However, pricing needs to be in alignment with the company’s overall strategy. Offering heavily discounted products would be detrimental to more upscale brands like Apple or luxury brands like Gucci.

Establishing a loss-leading pricing strategy can be particularly useful to break into markets dominated by monopolistic incumbents. Businesses need to be aware of so-called cherry pickers, though. These are consumers who only hunt for deals and never go for full-price items.

24. Market Maker Business Model

Market makers are normally found in the financial world where they act as intermediaries between the market participants, namely the buyer and seller. Nearly all modern-day market makers are automated, meaning trades are executed algorithmically and without any human involvement.

Trading platforms like E*Trade work together with external market makers who provide liquidity to participants. Meanwhile, exchanges like Binance , which have accrued sufficient buy- and sell-side demand, can act as market makers themselves.

Consequently, the market maker turns a profit on the bid-ask spread, that is the difference between the price a given security was purchased and then sold for (to a different trader). The bid-ask spread is normally so minuscule that market makers rely on algorithmic trading to execute thousands of trades at any given second.

However, not everyone can become a market maker. In the United States, for example, one needs to get approved by the Securities and Exchange Commission (SEC). The type of regulations they fall under will ultimately depend on the securities that they trade.  

25. Marketplace Business Model

Online marketplaces connect buyers and sellers on a proprietary and centralized platform. While vertical marketplaces focus on one category (e.g., clothing and houses), horizontal ones sell products across different domains (eBay, for instance).

In order to create a thriving marketplace, one needs to create enough liquidity, meaning any given customer query can be satisfied at the time it arises. Marketplaces thus need to solve the chicken-and-egg problem, which requires them to either focus on the demand or supply side.

Consequently, the more sellers you can attract, the greater value you can provide to your customers. A higher value leads to more buyers, which in turn increases the value for sellers.

The biggest advantage of the marketplace model is its defensibility. Once the network is built, users will most likely stick to the platform. Marketplaces can then monetize their user base in a variety of ways, for instance through commissions, advertising, subscriptions, selling access to data, and so forth.

Marketplaces ensure a satisfying user experience by including ratings, authenticating products, services and sometimes even users, utilizing artificial intelligence for product assortment and discovery, adding moderation and customer support, training sellers, and more. 

• Check out our detailed study on online marketplaces here .

26. Multilevel Marketing Business Model

Multilevel marketing (MLM) businesses (also called network marketing) are organized in a hierarchical structure where existing members are incentivized to attract new ones. Members in the network then receive a percentage of the sales that their recruitees generate.

Although MLM companies are perfectly legal, there are various examples where their ethics can be questioned. These setups, dubbed pyramid schemes, rely on the promise of unrealistic returns. While early investors normally generate the bulk of returns, members in the lower levels end up footing the bill, oftentimes losing thousands of dollars in the process.

Luckily, there are plenty of companies that remain ethical. Firms like Amway and Herbalife rely on a hierarchical sales workforce to distribute their products, which bring in billions of dollars in revenue on an annual basis. Nevertheless, even these businesses do attract scrutiny. Amway, in 2010, paid a $56 million fine to settle a class-action lawsuit that alleged it was operating as a pyramid scheme.

Whether we are talking about MLMs or pyramid schemes – the guys on top of the hierarchy are normally the ones that benefit the most. And the company itself benefits from an engaged workforce, which is financially incentivized to sell its products.

27. On-Demand / Rapid Delivery Business Model

Delivering goods on demand isn’t particularly novel. During the dot-com era, Webvan tried to establish the world’s first internet-powered grocery delivery company but went bankrupt within 3 years after its cost base ballooned to fatal levels.

The proliferation of smartphones has since led to the emergence of various on-demand services. DoorDash and Uber Eats allow you to order from restaurants nearby while Instacart does the same for groceries. Services like Getir and GoPuff have taken this up a notch by using their own warehouses to deliver essentials and other goods to consumers.

Many of those firms continue to burn through cash and are thus reliant on venture funding. It remains to be seen whether reaching scale, for instance through mergers, allows these services to reach profitability.  

Apart from the steep capital requirements, potential downsides also include the comparatively low margins and competitive nature of the industry. For example, retail chain Target acquired the delivery service Shipt back in 2017. Meanwhile, Walmart can leverage its existing network of stores to offer grocery delivery, which it does via its premium subscription.

• You can find our deep dive into the food delivery business model here .

28. Open-Source Business Model

Open-source businesses are enhanced and maintained by a group of developers, which collectively and simultaneously contribute to a given project. The openness aspect comes from the source code being available for anyone to read and contribute towards.

World-renowned companies such as Android, MongoDB, Mozilla, and Databricks rely on open-source standards. Companies like GitHub , which provide the picks and shovels, have amassed multi-billion-dollar valuations themselves.

While freely accessible in nature, most commercially successful open-source projects are still led by a single entity. Those businesses monetize their open-source projects in a variety of ways.

RedHat offers services around its products, Mozilla (vis-à-vis Firefox) charges licensing fees to search engines, Android takes fees as an intermediary from the app store, MongoDB charges usage-based fees on hosting, and GitHub offers a premium subscription.

29. Peer-to-Peer Business Model

Although peer-to-peer (P2P) models are structurally similar to marketplaces, one key differentiator is that they have individuals and not businesses (or firms and customers) interact with each other. The platform thereby acts as an intermediary that connects the person offering a product or service with customers willing to pay for those offerings.

Ridesharing platforms like Lyft or Uber remain some of the purest examples of P2P services. Meanwhile, platforms like TaskRabbit or Thumbtack connect service professionals with people in need. You can also get rid of your old clothing through sites like Vinted or even temporarily rent out your vehicle to someone else on Turo .

Marketplace dynamics, namely ensuring sufficient liquidity, remain key. And once network effects kick in, P2P platforms often benefit from user-led and sometimes even viral growth loops. Monetization can then occur in a variety of ways, namely by charging a commission, through value-added services like fulfillment or premium features, and by allowing participants to advertise on the platform.

However, the P2P economy in particular continues to navigate murky legal waters. The classification of employment, especially in the case of on-demand platforms like DoorDash or Uber, remains an unanswered question to this day.

30. Platform Business Model

Platforms promote the interaction between large numbers of users, namely consumers and producers. Those interactions can be multifaceted and entail things such as quick payments or even continuous social exchanges. The platform itself is therefore responsible for governing its ecosystem and setting boundaries for how those transactions are to be conducted.  

Some of the world’s largest companies now operate under a platform business model. Apple, for instance, has created a platform around its hardware products (iPhone, iPad, Watch). It then layered various services, such as the Apple Store, Apple Pay , Arcade, iCloud, and many more, on top of that ecosystem. Each of those services then generate income via transaction fees, subscriptions, and so forth.

Most platforms, often under the auspices of privacy and security, have created enclosed ecosystems. As a result, they can act as gatekeepers and determine what is and what isn’t acceptable behavior.

Platforms, once they have amassed network effects, are extremely hard to disrupt. This is also the reason why regulators across the globe have grown increasingly wary of their power while working on laws on how to combat their invasive reach.

31. Play-To-Earn Business Model

Play-to-earn games allow users to earn digital assets, namely cryptocurrencies and NFTs, for playing blockchain-based games. Generally speaking, players can earn tokens by completing tasks, winning tournaments, staking, lending their assets to other players (within so-called guilds), and simply flipping them for a profit.

Released by Dapper Labs back in 2017, Cryptokitties became the first commercially successful play-to-earn game. Games like Axie Infinity have since taken it up a notch by allowing players to form guilds. While Axie resembles Pokémon-like game mechanics, titles like Decentraland or The Sandbox try to build all-encompassing virtual worlds. Lastly, the real world is being replicated by games such as NBA Top Shot (also run by Dapper Labs) and Sorare , which enable players to trade tokenized cards of athletes and utilize them in tournaments to earn additional income.

Challenges remain, though. The value of a token can plummet rapidly if players decide to abandon the game. Questions remain about whether players are truly engaged or just access games for the sake of earning money.

Furthermore, publishers do need to not only create engaging experiences but also monitor the game’s internal economy. An oversupply of tokens could lead to a substantial decrease in the price of a currency.

On the other hand, the issuance of tokens does provide developers with greater financial leeway. Players owning those tokens are also more engaged as they bank on an increase in value. Additionally, many games like Axie Infinity are partially moderated by DAOs, thus boosting the sense of ownership players have.

32. Razor and Blades Business Model

The razor and blades model, sometimes also called the bait and hook model, leads companies to turn a profit by selling add-ons to an existing product line. It was popularized by razor blade manufacturer Gillette (hence the name), which made most of its money by selling replacement blades. Its razor handles would essentially be handed out for free.

Modern-day businesses continue to adopt the strategy as well. Sony, for instance, sold most of its PlayStation models at a loss while turning a profit on fees from games sales ( this has changed for the PS5 , though). Similarly, Nespresso loses money on its coffee machines while making money on the pods.    

As seen with these examples, the razor and blades model does require significant upfront investments as well as the willingness to sustain losses for a long time. However, the model does create great lock-in effects as customers are keen on recouping their initial investment.

33. Service-Based Business Model

A service-based business, as the name suggests, collects money in exchange for a service that a company or an individual provides. Service businesses are mostly compensated on a per-hour or fixed fee basis.

Almost any company function, whether it’s product design or customer service, can be turned into a service-based business. In fact, companies like Accenture, Deloitte, McKinsey, and Ernst & Young have created multi-billion-dollar businesses around the services they provide.

Some businesses also choose to productize their services, meaning that they create software around certain processes, which they then sell on top of their human manpower. For example, tech giants like Microsoft, Oracle, and Salesforce not only charge companies for access to their products but also require them to pay for the implementation and maintenance of the software. 

Obviously, the biggest limitations to the service business model are scalability (as you need trained humans to perform that service) and, depending on the type of service, low barriers to entry, thus making certain markets highly competitive.

34. Sponsorship Business Model

Sponsorships are a sub-category of advertising in which companies and individuals receive a fee for (actively) promoting another brand. A brand normally sponsors someone else in hopes of raising awareness for its own products and services.

Your favorite sports team likely derives a majority of its revenue from sponsorship deals in their stadium or on jerseys. The proliferation of the internet has now allowed individuals, commonly referred to as influencers, to generate substantial revenue from sponsorships.

In fact, there’s a whole ecosystem that has been built around sponsoring other people. Platforms like Buy Me A Coffee or Patreon allow fans to sponsor their favorite creators. Even adult content creators can now make a great living via services like OnlyFans .

To derive substantial income from sponsorships, companies and influencers need to have enough dedicated and thus engaged followers. While earning potential is ultimately dependent on the niche, income does tend to increase proportional to the number of eyeballs and clicks an influencer can generate.

35. Subscription Business Model

Subscriptions have now become a commonality among many tech businesses. They are not necessarily a revolutionary business model, though. Customers have paid for more traditional subscriptions like gym memberships or electricity bills for decades.

Today, all kinds of companies, ranging from streaming platforms all the way to software providers are monetizing their products via subscriptions. Subscriptions are normally paid on a monthly or yearly basis, with the latter granting customers access to a discounted rate.

The subscription-based business model offers a variety of benefits, namely predictable revenues (especially if customers pay on an annual basis), greater lock-in effects (particularly true for B2B software companies), higher customer loyalty, and thus lower churn.

However, especially consumer-facing subscriptions, which can often be canceled at any time, require a service to constantly provide value. Netflix, for example, both lost and gained millions of subscribers in 2022 due to the varying quality of its releases.

• Our detailed guide on the subscription business model can be found here .

36. Super App Business Model

The concept of super apps first originated in China where companies like Alipay and WeChat have revolutionized the consumer market. Super apps essentially combine multiple products and services into one single application.

In the case of WeChat, which is owned and operated by tech giant Tencent, users can chat with each other (duh!), order groceries, hail cabs, purchase movie tickets, and even invest in stocks. Due to their proximity to China, super apps continue to be popular across Asia. Examples include Grab (Singapore), Gojek (Indonesia), and Paytm (India), among others.

In recent times, Western companies have begun to create super apps of their own as well. Uber is currently testing the concept in the U.K. while Block’s Cash App is aiming to create one for the financial sector.

Super apps are not only extremely costly to build but also require strong network effects to be a viable business model (similar to marketplaces, which super apps technically are as well). Yet, once those network effects are established, the business becomes extremely hard to disrupt. Moreover, super apps benefit from substantially lower customer acquisition costs because they can direct their existing user base toward any new offering they launch.

• Our case study on super apps can be found here .

37. Sweepstakes Business Model

Sweepstakes allow consumers to enter contests in which they can win prizes such as cash, items, and experiences. The most common ones are bingo, lottery, or raffle games, which, depending on the country of operation, may require licenses to be operated.

Interestingly, startups have begun to utilize sweepstakes as a quasi-marketing channel. Neobank Yotta hosts weekly sweepstakes that encourage users to save money. Omaze hands prizes such as cars or houses in exchange for facilitating donations on behalf of an organization such as the Red Cross.

Many of those companies utilize sweepstakes to grow awareness for their products. Many of them have viral loops built into them, namely members sharing their prizes with the public and news outlets who pick on those stories:

The biggest challenge, apart from legal hurdles, is to create enticing enough offers for customers to participate in. Donation-based sweepstake platforms like CharityBuzz solved this by partnering with celebrities who get to promote noble causes of their own choice.

38. Three-Sided Online Marketplace

A three-sided marketplace, as the name suggests, does not connect to parties (like the one I mentioned in #27).

One powerful example I recently covered is Headway , which connects patients with not just therapists but also health care providers. And it solves a huge pain point for the latter two with the help of software, which actually enables therapists to accept insurance claims (feel free to check out the case study for more detail).

By connecting three separate entities, those marketplaces can thus create even greater moats. After all, you are often building up two supply sides (therapists and health care providers in the case of Headway) that are both incentivized to remain with the marketplace due to the existing demand.

On the other hand, this also means that three-sided marketplaces are more complex to build up. After all, you have to hire employees to manage each separate side of the marketplace, on top of added software requirements.

39. Tokenization Business Model

The advent of blockchains has led to the emergence of tokenization, which is the act of creating digital assets that represent a unit of value and can be owned by the platform’s participants. Scarcity is one of the ways in which tokens then retain their value. 

The Initial Coin Offering (ICO) boom of 2017 was the first time the wider public came in touch with cryptocurrencies, which are now omnipresent and span across a variety of use cases. Ever since, various concepts such as DAOs, NFTs, Play-to-Earn, and DeFi all have tokenization baked into their concepts.  

Now, the crypto industry is too diverse to group all of these use cases into one bucket. However, there are clear advantages to tokenization across all of them, primarily the ability for founders to access capital much faster and the incentivization of users to promote your project (hoping that the token appreciates in value).

Interestingly, non-blockchain-based companies have also taken advantage of tokenization. Sweatcoin , for example, enables its users to earn digital coins in exchange for walking. Those coins can then be redeemed for gift cards and other items.

40. Unbundling Business Model

Unbundling is the opposite of the previously-mentioned bundling strategy. Here, companies sell individual products to customers instead of offering them collectively. The assumption is that customers will only want to purchase one product instead of the whole bundle, oftentimes because there’s no usage for the other ones.

Salesforce, for example, has adopted an unbundling strategy. It offers separate CRM solutions to different industries, on top of individual products such as MuleSoft or Tableau (which both work independently of its core CRM software).

The biggest advantage to unbundling your product suite is that you can generate more income on a per-product basis. Additionally, businesses can upsell related solutions. In the case of Salesforce, Tableau natively integrates with all of its different CRM solutions.

41. Usage-Based Business Model

Also dubbed consumption-based or pay-as-you-go, usage-based businesses normally charge customers based on how often a given product or service is being accessed.

Pricing is determined by the amount of data being transferred, how many users are being onboarded, the time a service is being used, and what kinds of features are accessed. Alternatively, some providers also offer credit-based systems in which access to the product is purchased upfront.

Cloud storage providers like AWS or Azure are commonly utilizing consumption-based pricing. In fact, over 25 percent of all software companies are now offering usage-based pricing to their customers, which are predominantly other businesses.

Customers, compared to subscriptions, benefit from pricing flexibility and lower fixed costs. Additionally, many providers offer nearly unlimited scalability.

Simultaneously, companies offering usage-based products often benefit from partial lock-in effects. For instance, Plaid , which allows startups to tap into bank account data, is now the backbone that powers many modern-day FinTech applications.

42. User-Driven Business Model

User-driven business models, as the name suggests, take advantage of their members’ collective ability to create engaging content. That content then attracts new users, which in turn prompts more content creators to join, and so forth – leading to a continuous flywheel effect where creators and users onboard each other.

Decreasing hosting and bandwidth cost have led to the widespread emergence of multiple user-driven platforms. The two biggest players in the space are TikTok and YouTube. Social platforms like Instagram or Pinterest also heavily lean into user content. Lastly, Reddit and Quora are two text-based platforms that rely on content from members.    

The key to making the model work is to reward creators for their content. YouTubers, for example, can potentially generate millions of dollars from ads, sponsorships, affiliates, and other sources of revenue. And on Reddit users are given awards and upvotes for stellar content.

Content velocity is the name of the game, though. The more world-class content is being created, the better the platform becomes. This poses risk as well, though. Harmful content needs to be moderated, thus requiring platforms to hire armies of content moderators. Significant investments also have to be made in hiring world-class engineers who can create ranking and moderation systems. 

43. Wholesale Business Model

Wholesalers are companies that sell products in bulk and at discounted rates to other businesses. Manufacturers producing the product may act as bulk sellers or hire intermediaries to distribute items on their behalf.

Whether it’s the intermediary or manufacturer – both parties make money by turning a profit on the items they sell. While traditionally analog, platforms have since digitized the buying process. In China, sites like AliExpress allow small businesses to purchase goods in bulk. Meanwhile, Faire has created a wholesale marketplace that connects manufacturers with retailers.

A wholesaler normally works together with smaller retailers who don’t have the negotiation power and supply chain capabilities to purchase directly from manufacturers. As such, wholesalers are often involved in the shipment process as well by dealing with distributors and warehousing providers.

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Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.

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6 Common Leadership Styles — and How to Decide Which to Use When

• Rebecca Knight

Being a great leader means recognizing that different circumstances call for different approaches.

Research suggests that the most effective leaders adapt their style to different circumstances — be it a change in setting, a shift in organizational dynamics, or a turn in the business cycle. But what if you feel like you’re not equipped to take on a new and different leadership style — let alone more than one? In this article, the author outlines the six leadership styles Daniel Goleman first introduced in his 2000 HBR article, “Leadership That Gets Results,” and explains when to use each one. The good news is that personality is not destiny. Even if you’re naturally introverted or you tend to be driven by data and analysis rather than emotion, you can still learn how to adapt different leadership styles to organize, motivate, and direct your team.

Much has been written about common leadership styles and how to identify the right style for you, whether it’s transactional or transformational, bureaucratic or laissez-faire. But according to Daniel Goleman, a psychologist best known for his work on emotional intelligence, “Being a great leader means recognizing that different circumstances may call for different approaches.”

• RK Rebecca Knight is a journalist who writes about all things related to the changing nature of careers and the workplace. Her essays and reported stories have been featured in The Boston Globe, Business Insider, The New York Times, BBC, and The Christian Science Monitor. She was shortlisted as a Reuters Institute Fellow at Oxford University in 2023. Earlier in her career, she spent a decade as an editor and reporter at the Financial Times in New York, London, and Boston.

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What is Ethical Leadership and Why is it Important?

Ethical leadership is not only the right thing to do, it is key to driving an organization's success.

Valerie Kirk

Errors, bad behavior, and poor judgment in leadership can negatively impact a company’s brand and reputation. For business success, it’s critical for organizations to fill their C-suite with ethical leaders.

Ethical leadership involves leaders and managers making decisions based on the right thing to do for the common good, not just based on what is best for themselves or for the bottom line. While profits are important, ethical leaders take into consideration the needs of customers, communities, and employees in addition to company growth and revenue when making business decisions. 

Ethical leaders encourage their team members to model this behavior, too. They help to build a workplace culture that values transparency, collaboration and inclusion, and where everyone feels safe to share their voice.

They can also help organizations recruit and retain top talent. Professionals are increasingly seeking out companies whose leaders strive to do the right thing. Generation Z, who will make up 25 percent of the workforce by 2025, demands leadership ethics more than generations that came before them. 

“Gen Z is not going to negotiate. They have really strong values and ethics, and they don’t bend them because of intimidation or because they are just getting a paycheck,” said Michael McCarthy, instructor at Harvard Division of Continuing Education’s Professional & Executive Development and host of the “ Happy at Work ” podcast. “The idea of letting harmful or hurtful behavior slide is not acceptable.”

Leaders who weigh ethical considerations before making key business decisions drive a company’s long-term success. 

The 6 Main Principles of Ethical Leadership

Having ethical leaders isn’t as simple as hiring “good” people. Companies should strive to fill their leadership ranks with people who embody the principles of ethical leadership. The six main principles include: 

Respect includes valuing others’ skills and contributions. While historically respect in the workplace may have been one-way (leaders demanding respect from employees), in an ethical work environment, respect is mutual. 

Mutual respect leads to healthier workplace relationships where both sides appreciate and support what the other is doing and feel secure in talking through issues and challenges. Healthy relationships create positive work environments, which drives increased productivity.

Current and upcoming business leaders should take mutual respect into account as workforce expectations continue to shift.  

“I tell current leadership to respect Gen Z. They have values and morals, and you’re going to have a better organization because of them,” McCarthy said. “They aren’t going to put up with the old hierarchy that doesn’t offer mutual respect.” 

2. Accountability

Ethical leaders hold themselves accountable for their actions. They make decisions based on integrity and stand behind their work. They also lead by example, communicate openly about challenges, and don’t look to place blame on others for any shortfalls.

Leaders make ethical decisions based on doing what is right for employees, customers, and the community. Because these constituents are always top of mind for ethical leaders, they often have a strong sense of service. They engage in activities such as charitable giving and volunteer work to give  back to their communities — and encourage their teams to do the same. 

Leaders who are transparent build trust amongst their organizations and amongst customers. 

To build and maintain trust, leaders must be good communicators who speak openly and honestly about issues. Regardless of the issue’s severity or unpopularity, leaders’ responsibility to be clear and candid  empowers others to make the right decisions with the information they have. 

Honesty and transparency also help to build a brand’s reputation, leading to long-term customer loyalty.

Justice is not just about following the law, but about ensuring that everyone is getting what they deserve. Ethical leaders approach situations with a focus on treating everyone fairly, and they expect their teams to treat each other and customers the same way. Through their actions, they build equitable work environments where everyone feels respected. 

6. Community

Ethical leaders view their companies as communities and consider everyone involved when evaluating situations and making decisions. By viewing their organizations this way, they build equity and inclusion into their decision-making process and create work environments that encourage collaboration across teams. 

Learn more about Harvard DCE’s Ethical Leadership program

Examples of Positive and Negative Ethical Leadership

The following three examples are of companies that were faced with ethical dilemmas and how different leadership styles led to vastly different outcomes. 

Johnson & Johnson

One of the most famous examples of ethical leadership was the case of the Tylenol cyanide poisonings in the early 1980s. Seven people died of cyanide poisoning, and the only connecting factor was that they had all taken extra-strength Tylenol. During investigation, it was discovered that the tablets were laced with cyanide.

Johnson & Johnson’s leaders acted quickly and pulled all Tylenol products off the shelves — 31 million bottles, worth over $100 million — and stopped all production and advertising. The swiftness of their decision, although costly, put customers’ well-being first and saved lives.

They partnered with law enforcement to find the perpetrator and subsequently developed the first-ever tamper-resistant packaging. They were transparent with the public about what they were doing to ensure this tragedy never happened again. 

The Tylenol brand recovered from the incident, largely because of Johnson & Johnson’s ethical leadership team’s swift action and transparent care for customers.

In 2008, JetBlue left passengers stranded on the tarmac at the John F. Kennedy International Airport for more than five hours during a snowstorm. The delay had a ripple effect — JetBlue had to cancel more than 1,000 flights over the following five days.

In response, JetBlue’s CEO wrote a letter of apology to customers. He also directed his team to draft a customer bill of rights, which outlined customers’ rights to information about flights and information about compensation in the event of delays or cancellations.

The CEO also participated in a public apology tour, taking full responsibility for the incident rather than blaming it on the weather.

His transparency and accountability created trust with customers, who stayed loyal to the airline.

Wells Fargo

In September 2016 , it was revealed that employees of Wells Fargo, one of the largest banks in the United States, opened millions of unauthorized accounts in order to meet aggressive sales targets. This widespread fraudulent activity was the result of a work culture that prioritized quantity over quality and pushed employees to engage in unethical practices.

Company leaders denied knowledge of fraudulent practices. The bank was hit with significant financial penalties, but because of the lack of accountability, they damaged the trust of their customers and investors. They reported a 50 percent profit loss in the quarter following the scandal.

Meeting the Ethical Challenges of Leadership

Companies cannot underestimate the power of different leadership styles on their growth and long term success. Those who practice ethical leadership have positive corporate cultures where employees are engaged, motivated, and feel good about coming to work. Companies without ethical leadership face lower productivity and high turnover rates, impacting the organization’s bottom line.

Ethical leaders aren’t just born with these skills — they develop them over years of experience and training. 

Harvard DCE Professional & Executive Development offers a two-day Ethical Leadership program that helps leaders develop skills to make ethical choices and lead companies through challenging dilemmas. 

Topics covered include: 

• Making ethical decisions with conflicting responsibilities 
• Building a moral framework within yourself and the organization
• Understanding the role of employees in both their professional and personal lives 
• Navigating a slippery slope when seemingly good people do bad things
• Building a corporate culture that values moral behavior

Learn more about the ethical leadership program, including how to register.  

Leaders looking to expand their ethical leadership skills should also consider the two-day Authentic Leadership program , where they will learn how to develop mindfulness and authenticity to build trust, create engagement, and promote productivity. 

Explore all Executive Leadership and Management courses

About the Author

Valerie Kirk is a freelance writer and corporate storyteller specializing in customer and community outreach and topics and trends in education, technology, and healthcare. Based in Maryland near the Chesapeake Bay, she spends her free time exploring nature by bike, paddle board, or on long hikes with her family.

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Meta, in Its Biggest A.I. Push, Places Smart Assistants Across Its Apps

Users of Instagram, Facebook, WhatsApp and Messenger will be able to turn to the new technology, powered by Meta’s latest artificial intelligence model, to obtain information and complete tasks.

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By Mike Isaac and Cade Metz

Mike Isaac covers Meta and Silicon Valley. Cade Metz writes about artificial intelligence.

On a call with investors last spring, Mark Zuckerberg, the chief executive of Meta, said he believed that he had an opportunity to introduce artificially intelligent assistants “to billions of people in ways that will be useful and meaningful.”

A year later, he is making good on his statement.

On Thursday, Meta will begin incorporating new versions of its A.I.-powered smart assistant software across its apps, which include Instagram, WhatsApp, Messenger and Facebook. The latest technology will be rolled out in more than a dozen countries, including Australia, Canada, Singapore and the United States.

The A.I. software will become practically omnipresent — inside the news feed, in search bars and in chats with friends. People will be able to ask the assistant, Meta A.I., for help in completing tasks and getting information, such as what concerts might be occurring in San Francisco on a Saturday night or the best options for vegan enchiladas in New York.

Meta A.I. is powered by LLaMA 3, the company’s newest and most powerful large language model, an A.I. technology that can generate prose, conduct conversations and create images.

“With LLaMA 3, Meta A.I. will now be the most intelligent freely available assistant,” Mr. Zuckerberg said in an interview. “And because we’ve reached the quality level we want, we’re now going to make it much more prominent and easier to use across all our apps.”

The effort is Meta’s biggest rollout of products that include powerful A.I. technology. The social networking giant started weaving generative A.I. into its apps last year in a limited capacity, debuting a series of A.I.-powered chatbots and characters that could conduct conversations with users in September. But this new initiative exceeds that in scope and aim, placing A.I. products into the most visible and most used parts of Meta’s apps.

Other tech giants are also plugging A.I. into their products, as Silicon Valley start-ups raise billions of dollars to build A.I.-powered apps and services that they believe will define the next phase of computing.

Last year, Microsoft incorporated OpenAI’s ChatGPT into the software giant’s Bing search engine. Google has integrated A.I. into products like Docs, Gmail and Google Search. Start-ups such as Perplexity and Anthropic are also aiming to get more A.I.-powered products and services to consumers.

Meta’s efforts stand out because of the sheer scale of its products, which are used by nearly four billion people globally every month. It is also one of the few companies to “open source” most of the A.I. technology they are building, which means that anyone can look at the underlying tech and use it to build products or services for free.

• Meta A.I.'s new group chat features. Meta
• Meta A.I.'s new WhatsApp features. Meta
• Meta A.I.'s new Facebook features. Meta

Mr. Zuckerberg said the new A.I. rollout was part of Meta’s historical “playbook” of adding a feature to its apps “when we felt it was ready.” He pointed to products like Stories and Reels, two video and image products that appeared in Instagram, and how those were later amalgamated into Facebook and WhatsApp.

When ChatGPT arrived in late 2022 , wowing people with the way it answered questions, wrote term papers and generated computer code, the tech industry raced to build similar technology — even as the tools sometimes made mistakes and generated untruths.

Because of such flaws, OpenAI and other leading A.I. companies said they would not open source the underlying technology that powered these chatbots. (The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems.)

Meta took a different tack. It open sourced the first version of LLaMA in February 2023, before releasing a more powerful version less than six months later. Other companies have followed, including Google and a prominent French start-up, Mistral . By open sourcing the technology, independent researchers and engineers everywhere can help spot problems in the technology and improve it, the companies have said.

“We have always believed in this principle and are happy to see that the industry is embracing the power of open source and the positive possibilities it can create,” Ahmad Al-Dahle, Meta’s vice president of generative A.I., said in an interview.

Mr. Dahle said LLaMA 3 had shown vast improvements over Meta’s previous large language models, calling it “significantly better” than what people were used to.

Meta has also fine-tuned the A.I. model to make it slightly less conservative in the type of questions Meta A.I. will answer, meaning the assistant will be less likely to refuse to answer some questions. In the past, Meta, Microsoft and others aimed to limit their chatbots from discussing third-rail topics like politics, religion and medical advice, fearing repercussions from political or interest groups.

To attract users, Meta will also add a faster image-generation technology into the A.I. assistant, and later plans to incorporate the A.I. tech into its Ray-Ban Meta smart glasses.

The challenge will be to convince people that the new assistants can be useful. Meta is working on helping people learn what kind of questions they can ask the assistants to bring them to life, Mr. Dahle said.

“Despite how prevalent these A.I. have become, there’s still an education factor on how to interact with an A.I.,” he said.

Like most of Meta’s products, the new assistants are free to use — and likely difficult to avoid if you are a regular user of the company’s apps.

Meta’s executives don’t appear worried about A.I. saturation. “We’re excited to share our next-generation assistant with even more people and can’t wait to see how it enhances people’s lives,” the company said.

Mike Isaac is a technology correspondent for The Times based in San Francisco. He regularly covers Facebook and Silicon Valley. More about Mike Isaac

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

Explore Our Coverage of Artificial Intelligence

News  and Analysis

A new flood of child sexual abuse material created by A.I. is threatening to overwhelm the authorities  already held back by antiquated technology and laws. As a result, legislators are working on bills  to combat A.I.-generated sexually explicit images of minors.

Users of Instagram, Facebook, WhatsApp and Messenger will soon be able to use newly added smart assistants , powered by Meta’s latest artificial intelligence model, to obtain information and complete tasks.

Microsoft said that it would make a $1.5 billion investment in G42 , an A.I. giant in the United Arab Emirates, in a deal largely orchestrated by the Biden administration to box out China.

The Age of A.I.

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

Could A.I. change India’s elections? Avatars are addressing voters by name, in whichever of India’s many languages they speak. Experts see potential for misuse  in a country already rife with disinformation.

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 .

U.S. clinics are starting to offer patients a new service: having their mammograms read not just by a radiologist, but also by an A.I. model .

A.I. tools can replace much of Wall Street’s entry-level white-collar work , raising tough questions about the future of finance.

Analyzing the Organizational Behaviors Model of Intel (M) Corporation

This essay about the organizational behaviors of Intel (M) Corporation explores how the company integrates key principles of organizational behavior to drive innovation, productivity, and employee satisfaction. It examines Intel’s leadership style, team dynamics, motivational strategies, and corporate culture, highlighting how these elements contribute to its status as a leader in the semiconductor industry. The analysis reveals that Intel emphasizes a culture of innovation supported by transparent leadership, collaborative teams, competitive rewards, and opportunities for personal and professional growth. Furthermore, the essay discusses the challenges Intel faces, including diversity and inclusion, suggesting areas for ongoing improvement. Through this examination, the essay provides a comprehensive view of how effective organizational behavior can significantly impact a company’s operational success and strategic goals.

How it works

Intel (M) Corporation, a titan in the semiconductor industry, stands as a case study for exploring the application of organizational behavior models in a real-world business setting. At Intel, the integration of core principles of organizational behavior into its operations has been pivotal in driving its success and sustainability. This deep dive into Intel’s organizational strategies and practices offers insights into how large tech companies can foster innovation, productivity, and employee satisfaction.

Intel’s organizational behavior can be viewed through several lenses, including its approach to leadership, team dynamics, motivation, and corporate culture.

The company has historically emphasized a culture of innovation and excellence, which permeates every level of its operations. This culture is supported by a leadership style that values transparency and accountability, encouraging managers to act as role models, promoting trust and integrity across the organization.

In terms of team dynamics, Intel fosters a collaborative environment where cross-functional teams are common. This structure facilitates information flow across different parts of the organization, enhancing innovation and efficiency. Intel’s teams are often project-based, with a clear focus on objectives and results. This approach aligns with contemporary organizational behavior theories that suggest well-defined team roles and shared goals are crucial for effective collaboration.

Motivation at Intel is driven by both intrinsic and extrinsic factors. The company not only offers competitive financial rewards but also invests in the personal and professional growth of its employees. Training and development programs are widespread, providing employees with the opportunity to upskill and advance in their careers. Moreover, Intel recognizes the value of intrinsic motivators, such as job satisfaction and a sense of purpose. The company’s commitment to cutting-edge technology development offers employees a sense of pride and accomplishment, knowing their work contributes to technological advancements.

Intel’s organizational culture is another key element. It promotes an open-door policy and a flat hierarchy where ideas can be shared freely across levels. The culture encourages risk-taking and innovation while maintaining a strong emphasis on ethical standards and corporate responsibility. This environment not only attracts talent but also nurtures it, contributing to high levels of employee engagement and loyalty.

However, no organization is without its challenges. Intel has faced criticism over diversity issues and has had to actively work towards creating a more inclusive workplace. This reflects an ongoing commitment to evolving its organizational behaviors in response to internal and external pressures.

In conclusion, Intel (M) Corporation’s application of organizational behavior principles provides a robust framework for other companies aiming to enhance their productivity and workplace culture. By balancing strong leadership, effective team dynamics, motivation, and a healthy corporate culture, Intel has maintained its position as a leader in the highly competitive tech industry. This analysis not only highlights the successes but also the areas of potential improvement, offering a comprehensive view of how organizational behavior impacts both day-to-day operations and long-term strategic goals.

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