From cloud-based file storage startups to international fast-food chains, all businesses tackle a slight variant of the same overarching concept: supply and demand. All successful businesses offer either a product or service that solves various problems for its user. With that in mind, your business model—the backbone of any sustainable startup idea—plays an enormous role in determining who you’ll end up appealing to and how you’ll acquire users.
Without a solid business model from the get-go, every idea will fail—regardless of how good it is. If you want to start a sustainable business, you need a viable way of generating cash flow outlined from day one. Releasing a product and figuring out how you’re going to bring revenue in later simply doesn’t work. Whether you decide to bootstrap, crowdfund, or seek outside investors for your idea, everyone wants to see a legitimate business model before they will offer you their support.
As we approach 2018, startups are continuing to evolve rapidly, and their business models are no different. Here are five popular business models to consider for your next startup idea.
The Services On-Demand Model
Need to know how to get to the airport? Just check your phone. Need a ride? Just a few taps away.
Nowadays, unlimited access to services, social networks, and information via a small screen in our pockets has accustomed the world to instant gratification.
Startups like Lyft, Postmates, and JetSmarter have all disrupted their industries by providing instant access to cumbersome services. Lyft and Uber both make it easy to hail rides at an affordable price without having to wait. By providing a network of drivers, users can instantly hail a ride from every major city in the US.
Postmates helps busy people stay less busy by providing an enormous network of delivery drivers ready to pick up your groceries, morning coffee, or even meals from your favorite restaurants.
Similar to Lyft, JetSmarter provides a ride-sharing network for people who want to fly private. This makes it exponentially cheaper to book private flights without having to foot the cost of purchasing and maintaining your own jet or signup for expensive chartering plans.
The appeal with on-demand services is a combination of instant gratification and ease of use. The more inconvenient the task, the more likely it is people would be interested in outsourcing it to someone else. In this industry, the major theme is disruption. This business model works because it’s cost effective and requires no inventory—two things that make it easy to scale. This allows startups to continuously adopt new technology while maintaining their existing infrastructure and overall strategy.
Everyone loves a bit of personalization in their lives. Over the past few years, users have become increasingly interested in customizing their favorite goods—even if it means paying a slight premium.
Nike ID, Indochino, and Lumosity are all great examples of successful businesses that drive sales by offering their customers a personalized product.
Indochino makes tailoring more accessible to those without a sartorial background, and Lumosity customizes brain games specifically designed help you improve where you need it most.
Despite the fact that customizable goods have been around for quite a while, they still offer a ton of unique marketing opportunities. Remember, don’t care about your product; they’re interested in its benefits. Appealing to individuality is how you make yourself stand out.
The Subscription Model
After being popularized by the media industry, subscription-based pricing models have quickly become one of the most used revenue streams for startups across a variety of verticals. Finding new customers is always harder than generating additional revenue from your existing customers. Living in a world where autofilling credit card details with a single tap is the norm has made people significantly more likely to make digital purchases.
From consumables like Dollar Shave Club and monthly clothing packs to cloud services and music streaming, subscription models are best for targeting users that want a “hands-off” purchasing experience.
Becoming Your Own Marketplace
A successful business opportunity can be as simple as uniting a unique supply with an equally unique demand. For example, Airbnb unites people who want to share their housing for extra money with those who need a place to stay. If you’ve traveled in the last year, you probably already know that Airbnb is rapidly disrupting the vacation industry. Airbnb lets people stay in incredibly lux accommodations for a fraction of the price associated with booking hotels.
While everyone thought the idea of renting cheap rooms over the internet was creepy at first, Airbnb now has over 36 million users in the US alone.
Ridesharing apps like Uber and Lyft further validate the marketplace business model. With both services, strangers rent rides from other strangers. While you may use the companies’ apps to book the ride, both Uber and Lyft have no overhead and maintain zero inventory.
Believe it or not, Amazon is also another great example of a marketplace business. Despite the fact that you’d be hard-pressed to find an item you can’t find on Amazon, the company itself keeps no inventory. Amazon supplies a large marketplace for sellers while simultaneously giving buyers the opportunity to purchase for a better price.
For early-stage startups, being able to pivot is crucial—and that’s pretty hard to do if you have a ton of money and resources tied up in inventory.
The Freemium Model
Combining both free and premium business models is quite popular among startups today—especially among those who sell digital products. This model allows businesses to increase initial engagement by providing basic services free and generate revenue by offering upgrades down the road.
This model is especially useful for apps and web services, as it’s hard to convince someone to pay for something without allowing them to try it first.
Headspace is a great example: when you sign up, you immediately begin a 10 meditation course designed to get beginners hooked. You can still do basic mediations daily without paying for the upgrade, but becoming a premium member gives you access to a massive library of various courses.
YouTube, Trello, and MailChimp are all great examples of solid freemium models.
- YouTube Red grants access to exclusive content and ad-free viewing
- Trello Gold gives users increased attachment limits and the ability to use extra power-ups
- MailChimp’s paid plans grant unlimited sending, customized delivery times based on timezone, and a whole host of other more advanced features
This business model works because it’s easier to convert existing users into paid customers than it is to convert paid customers from scratch.