By | Craig Middleton
A business model defines the problems solved by your business, why your solution is the most viable option, and how much more you can charge over what customers are ready to pay. Having the right business model is, therefore, vital. To help you make the right choice, here’s an overview of six interesting and effective business models for startups.
- The reverse auction
In reverse auctions, it is price-sensitive purchasers who quote how much they can pay for a service. But there’s a catch. Committing to the trader’s terms is a must if the price proposed by the buyer is accepted. When a service provider holds a reverse auction, desperate, price-sensitive consumers will often forfeit convenience and comfort for the lowest price possible. In such cases, consumers tend to feel they’re getting the better deal. What they don’t know is that their bids are high enough to profit the trader.
Stage-manage demand aggregation
Assembling sellers and buyers in the same virtual location will give each of these two groups the deepest pool of the other. With more options, sellers and buyers will give each other tough ratings, increasing both demand and quality. This is the idea behind eBay although the company uses PayPal for added security just in case things do not work out. A look at the financial results for eBay shows that this business model is effective.
- Lower pricing
You can increase your market share and gain significant profits later on by cutting your prices. This model is often successful when a huge market is offered a product at the lowest price possible with great service and fast delivery. Besides negotiating with your suppliers for volume discounts and expanding the product line as your business grows, you should integrate technology to help eliminate inefficiencies and enhance customer-response. As a result, you will be able to offer lower prices. This is the idea behind Amazon and it has allowed the company to grow at an incredible rate over the years.
Compared to other business models, setting up a modern franchise might be a much easier option for many companies. As a young entrepreneur, it’s amazing how much knowledge you can amass from running a local retailer. You can turn this wisdom into a system or idea that can be sold to other business-minded people from any part of the world. It is, however, good to work with hungry entrepreneurs who share your vision. Once you’ve sold them a business handbook and trained them, let them bear the burden of identifying new market locations and target audiences. This simple concept is what NuSkin turned into a gold mine. The company is marketing its products in 54 different markets via a network of about 1.2 million independent distributors.
- Sell at the highest price possible
Though this seems counter to the prior advice to create a business model using lower pricing, different business models thrive in different industries. For this model, start by identifying an audience whose survival relies on a product or service that is offered by very few companies if any. Charge these customers the highest possible price for the product or service. In the United States, for instance, more than 8,000 people suffer from a medical condition that triggers the immune system to wipe out a patient’s red blood cells every night.
Companies like Alexion Pharmaceuticals have taken full advantage of the situation, putting this great business model to effective use. In this case, some of the patients who need Alexion’s Soliris to stay alive are charged as much as half a million dollars per year for the medication. When all is said and done, Alexion Pharmaceuticals reaps unimaginable profits. As a result, the company’s revenues have spiked significantly over the last few years.
- Set up person-to-person exchanges
If you have a number of company cars that sit idle for all but five days every month, this business model can help you turn idle vehicles into income-generating assets. There are people within your community who need a car every day of the week to commute and run errands. Finding trustworthy individuals who will pay to use your company vehicles is bound to benefit both sides. Young professionals are the most likely candidates for such services. The person-to-person business model seems to be working for companies like Airbnb, which was valued at $10 billion just recently.
These business models are just a few examples of what you as an entrepreneur can model your business after. Though this is only a list of six business models, these business models have been very successful and can help you get started in defining what your business model will be. After all, the right business model could be the key to quickly becoming a successful entrepreneur.