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

You have a great idea for a business and even the resources and capital to support it. Before you begin with your business idea, you need a plan that dictates how you can make revenue from it. It should also detail what factors you have to keep in mind to ensure that your business increases profit and stays successful down the road. Such a plan is called a business model.

What is a Business Model?

Before you learn how to design a business model, you need to first understand what it is. A business model is the most basic need of any business that provides an overview of the business's current working and future aims.

Why do you need a business model?

As an entrepreneur, you may have an initial approach regarding your business. However, this is merely a theoretical idea that needs to be tested. To test your approach without implementing it, you will need a business model. Through the model, you will understand whether the foundation on which you are planning to set up your business will provide the desired profit or not.

You also need a set plan and template that helps you track your finances and keep things in check. The template is included in a business plan.

Factors to keep in mind while creating a business model

Here are the essential factors that you need to keep track of while preparing your business model. They will help you identify the core needs of the model and prerequisites for the plan.

1. Customer

The business model defines the path through which you can reach the customer. Thus, the first factor that should decide the way a business model will take shape is the customer. The business model should not be solely targeted at how the start-up can create profit. Rather, it should provide a solution to the problems faced by the customer. The business model should detail how your product or service can add value to the customers' lives. Ask yourself the following questions and base your business model on the answers.

• Who is the customer?
• What is the consumer behaviour or buying patterns displayed by the customer?
• What problem is your business or start-up targeting?
• How can the revenue model be built in a way that is convenient to both the business and the customer?

Ensure that your business model puts the customers' needs first, and the revenue system is based on their needs.

2. Value Proposition

A value proposition is a process through which you define what benefits the customers can get by availing of your services. It should be a clear aim that can fulfil the needs of the customer. You can get various business model examples with their value proposition defined vaguely or not defined at all. Ensure that your business model includes how your product can aid the customer and how you can monetise it. For example, Google's services have one aim: to ensure that the users can get required search results that are quick and accurate. That is its value proposition, and its business model is based on it.

3. Market

Analyse the market. Does it require your product? Are there a large number of people available in the market who are interested in buying your product? Create your business model according to the market. You might notice that during your analysis, the idea that you began with does not fit the current situation of the market. Or your product is better suited for a different kind of market.

Study your competitors. Note the steps that they are taking to stay relevant and afloat in the market. Ponder what you can do with your product to make it stand out against the competitors and attract the consumers. Do not forget to include newcomers and potential customers in your business plan while analysing the market. These will define the future path of your product and business.

4. Capital

While you design a business model, you may find that the capital that you need to put into the start-up is way more than what you can charge your customers for. Thus, you will need to fill the gap through other methods. These may include advertisements, collaboration, funding, etc. Whichever method you choose to meet your capital goals needs to be included in the business model.

5. The scale of the project

A start-up business model needs to include a plan that ensures that in the future, as the market and demands increase, the project can match it. A stagnant business can never be successful. It needs to keep growing to meet the requirements of the customers while staying ahead of its competitors. The business model should provide enough space for improvisation to ensure that the business is always relevant to the current demand of the market.

6. Distribution Path

How are you planning to distribute your product so that it reaches the targeted customers? There are various channels that you can choose from, prominent ones being physical stores, e-retail markets, direct sales force, and numerous others. You need to decide which channel is the one that is affordable for you, suits the product or service that you are offering, along where most of your target audience engages.

7. Relationships

Various businesses need to form strategic relationships with other businesses to ensure that they can perform smoothly. For example, various companies outsource services like employee attendance system, database security and management, etc. Include these relationships in your business model and list the potential leads. The decision should be based on your needs, budget, and how the partnership can help you grow in the future.

Types of Business Models

Now that you have understood the basic factors that you need to include and consider while you design a business model, the next step is to find which type of business model your product or start-up requires. Here are some of the basic business model examples that you can consider as reference.

1. Marketplace

This type of business model is for the start-ups that are acting as a pathway between the sellers and the buyers. You can be physically acting as a go-between, such as a broker or a supermarket, or you can be virtually providing the services, such as Amazon.

Through this business model, you will need to manage the sellers that can use your platform to reach customers. You should also provide a reason regarding why the customers should use your services.

2. On-Demand Model

An on-demand model is one where your start-up provides its services on the demand of the customer. Take various taxi booking apps or food delivery sites as an example. The customers require these services, and they order them at their convenience. You will need the necessary technology and support system to ensure that such a business model is successful.

3. Subscription Model

You provide a service to the user at a definite price for a certain period. You can offer monthly, yearly, and lifetime access plans. There are tons of services that can come under this model, prominent examples including Netflix, Spotify, etc. You can also offer a free trial or free services with ads to promote the business.

Thus, you need a business plan to detail your approach, verify your target market, and ensure that your finances are in order. It gives you a practical vision regarding how your start-up will make a profit, what steps need to be taken to keep the business successful after five years, ten years, and how the product or service needs to be marketed.

Also read:

1) Startups in India: Growth & Other Factors to be Considered for a Startup
2) When does a Startup Stop being a Startup and Become a Normal Company?
3) What Are Some Good Startup Ideas?
4) Startup Ideas: How do you know if your Startup idea already exists?
5) OkCredit: All you need to know about OkCredit & how it works.

FAQs

Q. What business model is the best?

Ans. The best business model depends upon the product of your start-up and your targeted market.

Q. What is the easiest type of business model for a start-up?

Ans. Service-based businesses are the most profitable and easiest business model for start-ups.

Q. What are the most successful business models today?

Ans. Business models based on subscription and marketplace are some of the most successful in today’s date, for example, Netflix and Amazon.

Q. What are the most successful start-ups for 2021?

Ans. Business models, such as online education, child-oriented businesses, etc., are most successful in 2021.