How to Structure Your Startup: 6 Models
It's common for startups to experience growing pains and go through trial and error when getting their ideas off the ground. There are some misconceptions attached to running a startup, too - including the idea that finding the funding to successfully launch your startup is no easy task.
The structure of your startup can play a significant role in your business operation. Many startup organisations outline their structure and how they plan on making money after their launch.
However, there's value in preparing a business plan before engaging in any transactions. It will help guide you through the decisions you'll need to make in the future as a business owner.
You'll need to consider many contributing factors when deciding which business model is right for you and your business. You must consider your competition, the market you're in, industry news, and how much money you plan on budgeting for various business processes, like marketing and employee wages.
In addition, keeping a close eye on the new technology available in your industry will help you as you enter the market.
Let's get into the six types of business models you can use to reach business success.
Difference Between Business and Revenue Models
Some business owners confuse the concepts of business models and revenue models. They're similar, yet different. Before diving into the six types of business models you can apply to your startup, let's explore the two definitions to gain a clearer understanding:
A business model is a broad term used to describe the aspects of a business like supply chain logistics, marketing, managing employees, and opening brick-and-mortar stores.
Contrary to a business model, a revenue model aggregates all of the revenue streams a business can profit from. The model is used to help facilitate transactions between customers and your business.
Now that we've narrowed down those terms, we can discuss some of the various business models you can use to launch your startup business.
6 Business Models to Consider When Launching a Startup
Before choosing a business model to suit your needs, answering the following questions will help you on your journey:
- Can you find a way to acquire customers?
- Can you find a way to monetise your customers without compromising the cost of acquiring them?
Your costs should remain low when monetising your customers if you're looking to achieve a balanced business model. Bringing on customers shouldn't cost an arm and a leg, but for startups, one of the primary challenges during the launch is to find the right customers who benefit most from your product or service. Implementing a business model will help you narrow down your target market and guide future business decisions.
Here are six key business models to consider when you're getting started.
1. Reverse Auction Model
In this type of model, the seller or sellers compete to earn the business of a potential buyer. Due to competition, the price of the product or service tends to drop as more bids are placed on digital auction platforms. Sellers want to offer their products or services for the lowest price to guarantee customer satisfaction and loyalty.
2. Employee Stock Ownership Model
An Employee Stock Ownership plan (ESOP) is a business model that gives employees some ownership interest within the startup. There are many benefits of implementing an ESOP, such as higher employee satisfaction, improved productivity, and specific tax benefits that otherwise would not be available.
3. Marketplace Model
A business model that has proven to be successful for many startups is a marketplace model. It's relatively simple: bringing together supply and demand to leverage your place in the market is the essence of the model. Creating a marketplace where customers' needs are met can be lucrative for businesses of all sizes.
4. On-Demand Model
Like the marketplace model, the on-demand model zeroes in on the customer's demand for a product or service. Services like food delivery and ridesharing applications are using on-demand business models to function. Taking advantage of a consumer's need for instant gratification is the main objective when using this business model.
5. Subscription Model
One of the main concerns of any startup owner is increasing revenue to close in on those profitability margins. A subscription model allows businesses to enjoy a constant revenue stream when customers subscribe to your product or service.
Rather than completing a one-off transaction for a product, enlisting customers to pay a monthly fee for products is a guaranteed way to improve profitability.
6. Freemium Model
The last business model we'll cover is the freemium model, where a business offers a free or inexpensive product or service that can be upgraded for higher prices. Offering free tiers is essentially the bait that catches customers, and the upgraded tiers are the hook. Once a customer's free tier runs out or the trial period is over, the hope is that they'll purchase your next-level products or services to help you earn a profit.
There are plenty more business models that your startup can choose from. No matter which model you choose to implement, understand that the product or service you offer will play a role in how you choose and use one of these six models.
Structuring Your Startup
It may seem like a daunting task at first, but taking the time to understand how these models can positively affect your business will help you in the long run. Although funding plays a crucial role in the success of your business, what you do with your earnings and how much you invest into your company can be a determining factor. Be sure your products or services align with your business model to assist you on your road to success.