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How to Choose the Right Business Model for Your Start-up

 

photo credit: guilhembertholet via photopin cc

Lots of people talk about business models these days, but what does it really mean? When it comes to starting or planning for business success your model is essentially your decision about how you intend to add value – which is another way of saying – how you intend to make money.

Business is a pretty simple thing really, but I think people planning to start one or even those engaged in running one can over think it.

Every business does basically four things:

The basic business models to consider:

Product/service – A business can make and sell its own products and services. This is probably the most common approach. Evernote makes a great software product and distributes it through a free to upgrade approach. A marketing consultant sells a consulting engagement for a monthly retainer fee.

Products and services can be packaged and distributed through a multitude of channels and delivered in physical form, digital form and as one time purchases or ongoing subscriptions.

Reseller – Resellers don’t necessarily make or even warehouse what they sell. They find products or represent brands and generally make profit based on the difference between the price they sell a product for and the price they must pay to acquire or sell the product.

Affiliate marketers fall into this category as do what are commonly referred to as value added resellers (VARs). Microsoft partners, for example, sell and install Microsoft products and add services, such as customization and training, to enhance the basic product.

Many straight up eCommerce companies, such as JustBats.com, fall into this category as do many eBay and Amazon sellers. Most retail establishments also fit this model.

Broker – The broker essentially brings buyer and seller together and takes a transaction fee. They may also provided services that make a transaction happen more smoothly, such as the case of a real estate agent.

This category has exploded with the growth of online platforms that make bringing buyers and sellers together from anywhere in the world much easier. In many cases this business model includes the creation of a marketplace, handling transactions and ensuring security. Clarity.fm is a great example of the new breed of broker as they bring experts and those seeking advice together.

PayPal is another example of brokering services between a buyer and seller. In this case, it’s the actual exchange of money.

Aggregator – An aggregator builds a community and then charges for access to the community. In many ways publications and news sites fit this model as they build a subscriber base and then charge advertisers a fee to gain access, by way of a positioned ad, to their community.

Comparison shopping sites, like Shopzilla, and daily deal sites, like Woot are prime examples of how the Internet has grown this category.

So, how does an entrepreneur decide what business model to adopt?

If you have an idea for a business then you should consider the following elements to help determine your best approach

So, the process for determining a business model is really an exercise in understanding the classic models and determining the best fit for your idea through a process of elimination.

3 Books for startups – each of these books come at this idea from different angles and make great reading for startups and season owners alike.