9 Business Models for Startups

In this blog post, we will discuss 9 business models for startups

Each business has built a different model for generating Revenue for the business. As far as startups are concerned - the model they adopt can be one of the following models:

The Advertising Model

The eCommerce Model

The Enterprise Model

The Hardware Model

The Marketplace Model

The SaaS Model

The Subscription Model

The Usage-Based Model

The Transactional / Payment Model

The Advertising Model 

The advertising model is based on providing customers with a free service (e.g., access to a social network or access to content) and running advertisements on the startup company’s platform. Startups using this model will generate almost all of their revenue through selling advertisements. Examples of such companies may include - Google, Facebook, or Twitter.

The eCommerce Model

The eCommerce model involves the sale of goods through online channels. The eCommerce model is primarily direct-to-consumer (though you can also have B2B). Startups using this model will either manufacture or source products which they then sell to consumers. Examples of such startups include Amazon, AliExpres or Allbirds.

The Enterprise Model

The enterprise model is based on delivering enterprise solutions (typically software but also hardware and services) to enormous companies with equally large spending budgets. Startups engage with sophisticated prospective clients to secure long-term contracts in delivering their solutions. And so, the emphasis of the enterprise model is on complex sales. Given startups in this space may only have a limited list of possible clients, founders need to guarantee that sufficient resources are being deployed to secure these customers. This means a well-established delineation between the marketing team, which will identify target clients, and the sales team, which will manage the closing of deals with target clients.

Marketo, Cohesity, and FrontApp are examples of such companies.

The Hardware Model 

The hardware model is relatively identical to the eCommerce Model. It’s based on the sale of ‘hardware’ either directly to consumers or businesses. Traditional hardware companies often have a “one-and-done” business model, which means there is no recurring revenue beyond the point of the initial sale. In the last few years, companies such as Fitbit have incorporated a subscription (i.e., recurring income) element into their business model. For example — ‘Fitbit Premium’ provides users with a deeper insight into their health, fitness, and sleep.

Garmin and GoPro are two more companies that have adopted the Hardware model.

The Marketplace Model

UpWork, Fiverr, Airbnb, eBay, and AngelList are companies that use the Marketplace Model to generate income. Marketplaces are multi-actor models made up of two different segments, buyers and sellers, with the startup itself facilitating the transaction of goods or services between the two segments. This model is monetized by charging a commission r listing fees. 

The SaaS Model 

The software as a service (SaaS) model enables the delivery of software hosted externally via the cloud on a recurring subscription basis. Customers who sign up for these subscriptions can then approach the software through a web browser or mobile or download it onto their devices. This model doesn’t depend on any single deal closing. Instead, the SaaS strategy is creating and delivering highly innovative solutions that foster long-expression communications among a couple of clients. Only then able to SaaS startups anticipate getting ‘recurring’ Income.

SaaS businesses are Equitest - AI Business Valuation Software, Slack, or MailChimp - are all examples of SaaS models.

The Subscription Model

The subscription model is almost identical to the SaaS model, considering the two charge users routinely. Notwithstanding, the subscription model often operates in the consumer vertical. That is, clients are individual consumers (compared to SaaS startups, which often get businesses as clients). Also, this differential moves across to analyzing growth. SaaS startups will look to calculate income churn (as there’s a large influence if a couple of clients are lost) compared to consumer startups using a subscription model, which will look to calculate ‘user churn’ (as the concentration is on acquiring a large volume of clients).

Examples - are Netflix and DisneyPlus.

The Transactional / Payment Model 

The transactional model is based on processing and enabling payments in exchange for a transaction fee. Startups using the transactional model are usually fintech companies that facilitate online payments by embedding payment solutions within a customer’s website or app. The risk of fraud concerning online payments is mitigated as startups in this space often take full responsibility for transactions. It’s important to note that the crux of this model is transaction volume, that is, the quantum of payments being processed.

Paypal and Stripe are examples of the payment model. 

The Usage-Based Model

As the name implies, a ‘usage-based’ business model involves charging customers based on their consumption of the startup’s products or services over a given period. Keep in mind — the ‘usage-based’ Revenue should not be misunderstood for ‘recurring revenue’ since usage-based Revenue is estimated based on the volume of Usage. Examples are Lob, Twilio and Checkr.

Conclusion

In this article, we discussed 9 business models for startups. Wonder which model can yield the highest value for your startup? In that case, you can try our intuitive ai based business valuation software or our business valuation calculator, or you can contact us for free advice or schedule a demo.