“Business Model Innovation does not come from creatives only. It comes from understanding other business models and learning from it.” -Patrik van der Piji, CEO of Business Models Inc.
According to a report, almost 90% of the startups get failed to generate revenue in millions. Of course, so many reasons are hidden behind this much high failure rate, but one reason is very common. An expert can predict the future of your startup by just studying the business model you are following. Thus, it is not only important to come up with a unique business idea, but it is also not a denying fact that a business model is the only thing which defines the difference between market
However, there are few startup companies which have created small turbulence in the market with their unique way of creating social, cultural and most importantly, the economic value of their businesses. From the on-demand service business to the online trading platform provider business, these are those companies which have tasted success with unique ideas and unique business models.
1. Robinhood – An online trading platform
Robinhood lets traders to trade stock online without charging a single penny, but that doesn’t mean it is completely free. There is a major catch here!
Until May 2018, There were 4 million investors who have been using Robinhood trading platform. Thanks to a high number of users, the company was valued at $5.6 Billion. Impressed ? … Wait! Let me give you one more reason to be impressed. There are only 200 employees who are responsible for running this big organization. In a more specific way, the company has one employee per 20000 users!
Why Robinhood becomes so popular? The answer is hidden in the business model they follow. Robinhood is making money through user’s money. Whenever a user trade through the app, top trading firms like apex clearing and two sigma, pay money to the Robinhood. That means, the user is not buying stock from the stock exchange, but there are these trading firms between a user and stock exchange. Apart from this, Robinhood earns a decent amount of its revenue from the interest on the unused amount a user is holding in his trading account.
Key Learning: Use user’s asset, in a legal and profitable way!
2. Zillow – a marketplace for property
Zillow is the company which provides a platform for the potential home buyers to search the homes. Zillow connects the real estate agents with the buyers. It also lets people to rent a property. Zillow helps people to find house based on the different categories like areas have less crime rate, number of schools nearby and commute time.
Zillow generated $1.3 billion of revenue in 2018. It has 111 million houses in the database and 195 million unique users.
Zillow uses a very traditional business model but with the twist. Zillow sells its online space to the other property management company for advertising. That advertise must be related to rental property. Now, Zillow takes a closure look on the prospective rentals and gives that data to the property management company. Then, when that company locks a deal with rental, Zillow gets paid.
Apart from this, Zillow has premier services too. But Zillow knows the potential buyers of its subscription service and thus, it is only for the Real Estate agent, not for all users. Basically, by paying a little amount, the real estate agents are listed on a few properties directly for a buyer to contact.
Key Learning: Use online space wisely. Keep the control of ads with you.
GoGoVan is a Hong-Kong based company which provides on-demand transportation solution of goods. It provides the platform for transporters. They can list themselves on the platform, and they can earn from the users who make a request to use a transport service to transport the goods. And GoGoVan makes money from it in the form of commission. It follows the same business model Uber and other on-demand service providers are following. However, not all things are the same!
GoGoVan knew that they would get very fewer users who need to transfer their goods on the regular bases. Thus, they targeted the businesses which need regular transportation of the goods. They named it GoGoVan business where a business needs to register itself to start utilizing the transportation service of the GoGoVan. At the end of every month, GoGoVan sends the invoice which includes the cost of the transportation service that business has used in the month.
Key Learning: From the GoGoVan strategy, a thing you can learn for your startup is, sometimes targeting an industry for generating revenue is more profitable rather than targeting a particular user group.
4. DoorPort – making your front door smarter
DoorPort is the startup company which has developed a small smart chip with the app to make building’s front door more secure. They have created a business model of their business with a little more preciously as the company is providing hardware and software both type of solution.
The hardware part is, very small size of the chip which can be installed in the traditional intercom system of the building, and the software part is the mobile app. This is why DoorPort charges 350$ for the installation and giving access code of the app to the residents of the building. Also, the company charges 1.50$ per apartment unit per month to cover the maintenance cost.
Key Learning: If your startup is providing a product based solution, define your business model in two parts. One part of the business model generates the cash flow to cover the cost of the physical product. And another part of the business model generates the cash flow to cover the maintenance cost of the product.
5. Dine Out – restaurant table reservation platform
Dine Out is the online platform to book a table in the restaurant. Apart from the users, restaurant owners are the major stakeholder of this kind of business. They are the one who lists their website on the platform so they will get more visibility. While listing their website on the platform, they don’t have to pay a single amount to the company DineOut.
However, when a restaurant gets the reservation of a table from the user, the restaurant needs to pay DineOut. But wait … don’t judge too quickly. DineOut has used a lot of brain while developing a business model. It charges restaurant not on the bases of how many tables have been booked, but on the bases of how many people one booked table is occupied.
In a calculation, suppose DineOut is charging $1 for a single table booking.
Suppose, a restaurant gets a table booking request of the 5 people, a restaurant needs to pay 5 dollars (1$ * 5 people) to DineOut, not 1$ as it is charging on the number of people, not on the number of tables.
Thus, Dineout is making more than 1$ (Except a table of only 1 person has been booked) whenever a restaurant gets a booking request for one table!
Key Learning: If your service is being utilized by a group of people, make sure you treat them and also charge them as a separate user.
After knowing a few industry-defined business models, let me share something more interesting.
Few simple rules to never end up making a wrong business model for your startup!
- Don’t think people will buy a ‘unique’ service even if it is ‘costly.’ So, always remain cheap.
- Know the target market and target audience well.
- Be extra conscious if you are a product provider, not a service. Because as compared to service, a product attracts fewer people and costs you more in development and maintenance.
- Keep the cost of acquiring a single customer always low. For example, if you are spending total $1 million in marketing, salary, and travel in a year, and you are attracting 1000 customers, then the cost of acquiring a customer is $1000. Keep it as low as possible.
In a nutshell
It is very hard to start a startup, but it is harder to define the right business model for that startup. A simple mistake in it can lead the whole startup towards the big disaster. But by doing some simple practices, any entrepreneur can be a business tycoon. Also, sometimes you will get so many great lessons related to business model by learning business models of other startups.
Keeping a thought of earning money and not satisfying users while developing business model will never show your startup a path of success. Always, make your users a number one priority, but to maintain the cash flow, be a bit ‘economical selfish’ at the same time.