Asset-light business model: All you need to know about this

All you need to know about Asset-light business model

Are you an entrepreneur who wants to scale up his business across the country? In today’s business environment a company has to be agile and nimble to survive. An asset-light business model will help you to grow by investing only one-fourth to one-third of the capital that would usually be required.

Let us take the example of a kite. If you put a weight on it, will it be able to fly? The answer is surely no. The same holds true for asset-heavy businesses. Though the overall level of control in such businesses may be greater than asset-light businesses, they eventually get pulled down by higher costs.

The competitive advantage of a business is determined by the higher return of capital invested in it. Around eighty per cent of new businesses fail because they start with high fixed costs and no revenue. The idea of an asset-light and investment-friendly business model is to keep the capital assets less in comparison to the operations. It is the key to the success of most start-ups, because of its ability to scale them up, compared to other methods.

Every entrepreneur wants to start his company with as few assets as possible. The asset-light business model does not require a lot of tangible assets like buildings, machines, warehouses, etc., or anything which requires heavy investment. But one thing that they cannot do without is the adoption of technology. From manufacturing and packaging to marketing and distribution, any company that integrates technology at all stages of its operations will succeed in today’s competitive market place.

Uber is a cab company but with no cars! It is an example of an asset-light business model. Uber uses data connectivity and coordinates with the owner of the car and the user, to mediate the deal. The asset-light model helped Uber to scale at an exponential rate than other ride-sharing companies. Other successful examples are Airbnb and Apple.

Advantages of asset-light business model

An asset-light company can expand its reach to a new location at the simple click-of-a-button and increase the number of partners in its network. Some of the other advantages of the asset light business model are:

The costs of investment and running the business is less, and revenue and profits would be more.
Start-ups can own the operational part of the company and outsource any other assets needed.
They confer greater flexibility to tech-enabled new age businesses to scale up much faster than traditional asset-heavy industries. This quick scalability gives them a definite edge over others in the market.
You can grow new assets and sell them later at a profit. For example, L and T developed the Bangalore airport and then later sold it to GVK at a premium.
Businesses with high scalability and lower capital requirements are more attractive to equity investors. So, it will help you to get your company listed.

How does the asset-light business model work?

Asset-light companies can focus their time and resources on R & D and forming strategic alliances for greater synergies, by asset sharing, franchising and outsourcing non-critical functions. In this article, we will describe some asset-light businesses that have great potential for scalability, that you can start.

1. Healthcare services

The asset-light strategy is becoming popular among many hospital chains. In this model, you can provide the manpower and management, and bring in a partner who will put the capital for the hospital infrastructure and medical equipment.

You can also form a business trust, and sell some of the hospital assets to the trust. It would provide you with additional capital and also be relieved of the asset burden in your books.

Adopting an asset-light business model can help you focus on operational efficiency and value creation. You can expand into community-based asset-light chains offering innovative healthcare financing options.

2. Online grocery delivery

You can start an online delivery business of daily grocery and home essentials. Nowadays busy professionals don’t have the time to go shopping daily, so this business will have a lot of demand. You can launch an app-based supermarket, where customers will contact you for the delivery of their groceries.

This is an asset-light business model in which you don’t have to own retail outlets but will control the supply chain, and stock goods in warehouses. You can buy packaged goods at wholesale rates from suppliers, and sell to the customers at M.R.P., thus earning a neat profit.

3. Hospitality services

Airbnb has shown the way how hotel companies do not need to own their properties but utilise private, third-party, spare capacities. Such an asset-light model reduces the need for capital while allowing your brand to scale up rapidly. This results in cost savings, because the properties are stand-alone legal units, and will help you to get tax benefits.

If you are a start-up, this will help you to avoid heavy losses, in case your business does not do well. Another asset-light business option is to start a co-living business in cities, where land is scarce and expensive. You can take a property on lease, and rent it out, managing the service part.

4. Automobile Repairs

You can rent a shop and start an automobile repair business. The best part is that you need not have to take a costly place in a high-traffic area. You will only need a few simple tools for minor repairs and tire changes.

You can also go mobile and go to customer’s homes to tend to their cars, or offer roadside assistance. It is an asset-light business and you won’t have to heavily invest in inventory.

Shift to an asset-light business model in logistics

Asset light logistics services can help companies to serve multiple customer segments through several logistics networks that are based on shared assets. It will reduce capital spending on logistics and also reduce costs. Logistics providers do not need to have large capital investment in equipment because the asset required is subcontracted to a smaller transport company.

In an asset-light model, the logistics company can maintain its core capabilities to meet only those requirements of the customer, that will be most profitable to it. Those functions which it can’t handle effectively, it can subcontract them to third-party service providers, like for example, warehousing, or last-mile delivery.

Asset-light business model: the scene in India

The asset-light business model has been adopted by several companies in India, both large and small. Many large companies in India like engineering and infrastructure businesses are stripping assets and separating businesses into subsidiaries. It is popular with start-ups also. Oyo Rooms has disrupted the asset-heavy hospitality sector by marketing various hotel properties, without constructing anything. The Indian hotel industry, in general, is going asset-light, in light of the pandemic which greatly affected the hospitality sector.

Another asset-light start-up which is doing very well in Grofers. It is an on-demand grocery delivery app which works in a unique way. When a customer orders a product, Grofers connects to the nearest delivery boy, who picks up the product from the vendor. It then delivers it at a time scheduled by the customer.

Asset light vs asset-heavy

The difference between an asset-light and an asset-heavy company is like comparing ‘new school’ with ‘old school’. They have a lot of differences, some of which are listed below.

Asset light business model	Asset heavy business model
Less capital expenditure is required to start the business.	Large capital expenditure is required to start the business.
They own fewer capital assets compared to their operational assets.	They own more capital assets.
They are usually not vertically integrated	They are usually vertically integrated.
They are more flexible in a fast-changing environment.	They are less flexible.
They do a lot of outsourcing.	Most operations are done in-house
This model is ideal for scaling up.	It is a bottleneck that will hamper your pace when scaling up.

It is important to be nimble and on-your-feet so you can either lead the change in a dynamic market environment or be able to respond to it quickly. An asset-light business model is being widely used in manufacturing, product development and technology. It will help you to sail through these turbulent times.

Also read:

1) Online Business Ideas You Can Start Quickly
2) What online business can I do to make money? Here are the top-6 ideas for you.
3) Where Do the Best Business Ideas Come From?
4) Best Home Business Ideas in 2020

Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.

We hope our article turned out to be useful for you. For more such informative content, you can visit these linked articles as well:
Best Clothing Franchises In India	Best Low Cost Franchise Options	Solar Panel Business Ideas
Hindustan Unilever Distributorship Cost	Best Free Reseller Apps	What Is Roi?