Business Insight

Choosing a business model for your startup

Startups are primarily born out of big, contemporary, bright ideas. However, even the most bright idea will quickly neutralize and die out, if executed inappropriately. It is for this reason that at the core of every successful startup, there needs to be a sound, profitable business model.

 The idea itself is just the first step in the business-building process. Essentially, you must also build a robust framework which will enable you to turn your idea into a profitable and sustainable business. Proper marketing strategies and channels needed to reach potential customers effectively needs to be put in place. Additionally, the mode of presenting the offers to the customers must be pegged. The framework that will guide and largely influence all your marketing and advertising efforts, thereby ultimately determining the success of your new venture, is the cataloged in the business model you opt for.


The next logical question to ask will be – How Do You Decide Which Business Model To Adopt?

The Business Model Canvas, a handy tool you can leverage when choosing your business model, is the Business Model Canvas. The concept was first developed in the book Business Model Generation by Alexander Osterwalder and Yves Pigneur.

The canvas highlights the vital aspects of any business: ·

The Infrastructure: comprising of your principal business activities, indispensable resources necessary for initiating and producing value to the customers, and your business partners ·

 The Offer: your value proposition, or in other words, the products and services you’re offering to the customers. Here, you can also include the price point, the main benefits they receive, as well as add feedback later on that will help you refine and perfect your offer. ·

 Customers: Here, you should combine everything you know about your target audience, market, potential, and existing customers. This information will be of immense help when determining which marketing strategies and channels to utilize to maximize your results.


Successful Startup Business Models To Consider

 There are quite a few startups business models that have proven lucrative; however, it’s your job to carefully review all the different options laid out in front of you. Gauge their functionality and compare the advantages different models provide, and select the one that best fits your business idea

1. Product/Service Model: this model is also known as hook & bait. When most people think of a “business,” they envision a company selling products or services. So, it’s no surprise that creating and selling your products is the approach most people lean towards. This model is quite broad, and in reality, can encompass one or more other business models. The main advantage of this model is the flexibility, or rather, lack of restrictions. You can, in theory, create whichever product or service you want, and promote it through any marketing channel of your choosing. When executed correctly, this business model has huge potential and can generate substantial return on your investment.

2. Reseller Model: This model is the polar opposite of the previous one. Here, you don’t create or even own any of the products that you sell to your customer. Instead, this business model revolves around representing a company/brand and turning a profit by promoting their offers to your target audience. There are a few different variants of this model. Many E-commerce shop owners are Amazon and eBay resellers. They set up a website where they promote and sell the products. The revenue comes from the difference in the selling price, and the price they acquire the products from. Of course, most retail shops can also be categorized under this business model, as well.

2. Ad-Based Model: Although extremely effective, to be successful and profitable, this business model requires you to have a large customer base or audience. At the core of this model is the idea of providing a free product or service, and relying on ad revenue. Essentially, the profits in this model come from advertising services you provide to other companies/brands. This can either be in forms of clicks or views you provide, or by having their ads placed on your website. The prime example of this model is Facebook. The platform is completely free to use, and the millions they pull income solely from advertising revenue.

3. Subscription-Based Model: Software companies and app-based businesses consistently employ this business model. Rather than offering their product as a one-off purchase, companies using this model enjoy recurring revenue in forms of monthly payments. Instead of asking for a bulky up-front investment, the buying decision is expedited with a relatively low initial cost. Most people will decide to invest N1,500a month more easily than investing N20,000 on the spot.The cue here is that you need to provide a premium quality product and service that provides the customers their exact need, which can pose to be a possible drawback of this model. You need a large customer base to continuously pull in substantial revenue on a monthly/yearly basis. A great example of this model is Netflix.

4. On-Demand: The on-demand business model was extensively derived out of our need for instant gratification. In a world influenced by technology, we’ve gotten quite used to having all information at our fingertips, basically a click away. So, why should services be treated any differently? Companies that have recognized this behavior pattern are offering a myriad of different services on-demand. The main advantage of this model is the ease of use and convenience. This business model immensely curtailed the costs of operating a business. It also effectually removes the risk factor by providing the service when the customers request it. Among the most popular examples of this model are Uber and Bolt.

5. Broker model: The broker business model exploits the physical distance between the sellers their customers. It orbits around providing a platform where buyers and sellers can congregate and facilitating their interactions. Their transactions are handles, and the company ensures security. The revenue is generated by applying small fees to these transactions. Some of the best-known examples of this model are Amazon and PayPal.

6. Freemium model: This business model applies a brilliant strategy of drawing the customers in with a free product, while making certain features exclusively available to premium (paid) users. Even though the core product is free, it’s also limited in functionality, or the premium license offers quite a few advantages. For example, Viva video allows you to edit videos on their platform completely free of charge, but limits the length of the video you can edit and preserves some effects for the premium (paid) users. The appeal of this model is that the customers can see and get acquainted with your service for free, without any risk. Hence, a lot more people will be predisposed to check out what you have to offer. extreme persuasiveness will be needed to convince users of the advantages of upgrading to a premium user.

Note that choosing the right business model for your startup is a process. There are quite a few ways to go about starting your business. A careful evaluation of these models is essential. For the sustainability and profitability of your startup, you must conduct research and ensure the model you opt for is compatible with your idea and target market.

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