What is a business model?

A business model is how a business makes money. It includes important activities around the three areas of strategy, where the business chooses to play (market or customer segment), its logical position, and its emotional brand.

Here are some of the most popular types of business models. 

This page gives an overview of each of these.

Bonus information - Payment models


Independent Traditional Business Model

This model allows you to keep all your profits, but you have to figure out the profit thing on your own. The word 'traditional' means a business in a mature or competitive industry, people are familiar with it. Some of the popular types of independent traditional businesses that don't require a lot of experience include your coffee shops, cafes, child day care, gym, food truck, or cleaning service. Find links to some example plans for some of these businesses on the Business Plans page. Want to support independent businesses... National Federation of Independent Businesses (Small Business Association).

Franchise Business Model

Most people think of a franchise as very expensive to start. If you are considering a McDonald's, yes, I've heard they are around a million dollars to start. However, there are some that won't require a loan. Click here to find the 13 best affordable frachises. The beauty of a franchise is that they have proven their business model and have the people and resources to help you get started, and it's in their best interest that you succeed, because you will be sharing some of your profits with them every year for the franchise. Want to learn more check the Franchise Business Review

Entrepreneurial "Startup" Business Model

This model also allows you to keep all your profits, but instead of a mature competitive industry it starts a new market that has not been done before. This is often thought of when using the word entrepreneur. These are also referred to as "blue ocean" business, with the previous type, traditional competitive business, referred to as a "red ocean" business. This comes from the idea of sharks feeding in the ocean. One of the best startup articles I've found online is the Startup Playbook from Sam Altman of Y Combinator. This includes an mp3 of each topic so you can listen while you drive or work. The topics include the idea, a great team, a great product, and great execution.  

Example 'unicorn' startups include Google, Facebook, and AirBnB. The term 'unicorn' is a business that is valued over $1 billion. CB Insights has an interesting unicorn world map that shows all the unicorn businesses in the world, but it will cost you an email.

 

Business Model Canvas  

The Business Model Canvas is a one page document for designing a new business model, or to clarify and improve the one you currently have. Putting all the parts on the same page allow a better view of how they all interact and how changing one part will affect the others. You can get 30+ free downloads and videos including the Business Model Canvas after you register with Strategyzer. The parts of the Busines Model Canvas are...  

Key Partners - Strategic alliances, coopetition, joint ventures, or buyer-supplier.  

Key Activities - "The most important actions a company must take to operate successfully."  

Key Resources - Physical, financial, intellectual, or human.  

Value Propositions - "Our ____ help(s) ____ who want to ____ by ____ and ____ (unlike ____)."  

Customer Segments - "The business model should be designed around a strong understanding of customer needs."  

Customer Relationships - How will the business get, keep, and grow customers?  

Channels - "Channels are customer touch points that play an important role in the customer experience."  

Revenue Streams - There are many types of revenue streams, which one(s) will the business focus on?  

Cost Structure - "The most important costs incurred while operating under a particular business model."  

Independent Sales Agent or Manufacturer's Representative Business Model

These positions are often 100% commission and pay their own expenses in exchange to be an exclusive agent for a specific area. This allows companies to use such reps with a low risk and overhead. These positions are usually filled with experienced sales people. Interested in this, find out more at the Manufacturers & Agents website.

Network Marketing or Direct Sales Business Model

Also referred to as Multi-Level Marketing. This model provides commissions from sales you make and from sales other people (that you brought into the business). In other words, imagine you started selling MLM product X, and you convinced someone to also sell the same stuff. You would get a small commission from what you sell and a slightly smaller commission from what they sell. Be careful of a company that pays you to actually recruit others, that's where it gets illegal, like a pyramid scheme. The majority of MLM businesses sell products for women. The big ones are Amway, Avon, Mary Kay, Primerica, and Advocare. 

Find a list of the best MLM companies at MLMCompanies.org. Find a list of the best MLMs including a profile with thier industry, years in business, compensation type, and reviews.

Ecommerce Business Model

Some of the more popular online business models include selling on Amazon, ebay, and Etsy. You can also create your own store with a Shopify account that provides a website and blog, or if you are a fan of open source software consider Magento, the Shopify open source alternative. Printify can help you start selling T shirts online fairly quick. Find a great article on this business model at the Ecommerce CEO. How to start an ecommerce business from scratch

Blogging and Affiliate Marketing Business Model

This allows you to spend some time sharing information about your experience and interests to help others looking for that information. Affiliate sales is like social responsibility or giving back to society. It's when a business provides their products or services to others to sell for them and provide them with a commission. Example, if you are a creative photographer and you blog about photography, consider being an affiliate for Adobe and sell their products for a commission. If you blog about social media consider being an affiliate for a social media management business like Social Pilot and a visual creative site like Canva. Learn all about affliliate marketing and sales from Pat Flynn's Epic Affiliate Marketing Guide or Neil Patel's affiliate marketing page

Payment Models

A quick note on payment models, the basic ones include one-time transaction, consumables (printer cartridges & utilities), use of hardware (rental or lease), use of service (bandwidth & cell phone minutes), franchising (resources & systems), licensing (IP), sharing (Uber & Airbnb), subscription (SaaS), retainer (consulting), membership (community), maintenance, insurance, warranty, advertising, or penalties. This paragraph was based on the book The Disciplined Entrepreneurship by Bill Aulet 

It would be great to see a future where it is more common for businesses with payment models of usage, licensing, subscription, and membership to provide affiliate/partner sales with recurring revenue for each customer they brought in (like insurance and payment processing). Affiliate sales is a win/win/win. The business gets free independent "sales agents," and it would provide recurring income for people that match the business service with customers that need it.  

Find great resources to discover more about customers and competition on the Digital Marketing Solutions page.

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