Entrepreneurs have a tough decision to make when they launch their business. They need a business model that will fit their big idea, quickly attract clients, and turn their business into a profitable one as soon as possible.
These are some of the business models new startup companies in the tech world can consider before their launch. Each has its own pros and cons, and not all models will fit all businesses.
The subscription model is a tried-and-true business model for any recurring service. From Netflix to productivity software, the subscription model provides a steady revenue stream for access to a recurring service or product.
Not all tech solutions are optimal for a subscription model. Products or services that are one-off or irregular investments may be better off with another model.
The digital marketplace is one of the most powerful business models for shaking up an industry. A digital marketplace is a third-party platform that creates a new way for product or service providers to connect with customers.
The key to a successful digital marketplace is creating value for the consumer. Once they see the benefits of turning to the platform, providers follow suit.
Look no further than Nobul, an open digital marketplace where home buyers and sellers can find real estate agents. The platform turns the usual model on its head by having real estate agents compete for clients.
Founder and CEO Regan McGee explains how the digital marketplace model is what consumers want in the real estate industry in an interview with BNN Bloomberg:
“You have full transparency. This is what people are demanding these days, especially Millennials. They want information, they want transparency, they want it tech-enabled.”
The “Razor Blade” Model
The razor blade model gets its name from its most iconic product. It’s a model where a company offers a dependent product at a loss which is paired with a consumable that generates a profit. The name comes from the fact that razor blades are often more expensive than the razor themselves.
In tech, the reverse razor blade has become more popular. Tech companies like Apple offer a high-margin item (like the iPhone) with a ton of additional, free or low-cost products (like apps) that accompany it.
Hidden Revenue Generation
In the technology world, being able to offer a free product is the path to ubiquity, but revenue has to come from somewhere. Given the challenges involved in generating ad-based revenue online, some companies use hidden revenue generation.
Some companies use data collection and analysis to create novel revenue streams. This can come with backlash if customers are unaware of what’s happening, so it’s a model that comes with a degree of risk.
The freemium model balances the best of both worlds, offering a free version of a product that can quickly gain users while a smaller proportion of dedicated users pay for a premium version that unlocks a better experience, more tools, or other perks that make it worthwhile. The freemium model balances rapid growth with generating revenue.
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