Business is a beautiful, complicated and diverse habitat. One of the most comprehensive lists Joseph has ever seen, courtesy of 4weekmba breaks down over 50 business models, and Joseph has endeavoured to share that list with you.
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Good to have you here, I want to give a big shout out today to fourweekmba.com for this absolute treasure of a list. I have here a list of business models you might want to think about adopting. Some of these are more related to our world than others, but every last one of these is a valuable insight. I also want to go on record and say I think it’d be a bit beneath our standards for me to just rattle these off all from one site, so I did look to cross reference this information with other sites if I can, will relate a company to one if I can find one, and of course weighing in from my perspective. The one counterweight to that sentiment is that fourweekmba has gone on record to state other websites have been copying their resource, so if they say they’re the go to source, I believe them. It’s not like I can’t take another 20 seconds and pull up another 10 tabs. We’re going to do 20 today with another set down the line, there;s a lot to do today so let’s jump in.
The core of a business model is all about value; it’s how you provide value to your customers both in the short and long term, to your own growth, your stakeholders and yourself. It’s speculative, while based on your research and experience in the field, is a projection of what value you’ll attain over the course of it’s lifespan, which if all goes well, would be indefinite. As with branding (episode 11) We can find some pretty simple definitions for it; such as according to Harvard Business Review, or HBR.com they quote Michael Lewis, the writer of The New, New Thing says “All it really meant was how you planned to make money” a quote from 1999 right before the dot.com bubble popped. HBR also references another simplified definition in his “theory of business” which is “assumptions about what a company gets paid for” In an ironic way, there could be as many definitions for the business model as there are models, with a ten point differential. So let’s go with our patented (patent pending) Ecomonics approach; your business model is how you solve the most amount of problems for others while also solving the most amount of problems for you and your business.” There are some key takeaways you should know about business models in general, but we’re going to save that til the end because I want to start getting you thinking about what model you’re doing and could improve on, what you didn’t realise you were doing: I’ve already said let’s go once but this time I mean it… Hey did you know you can customize your own paint by numbers. Kidding.
A blend of Chain and Franchise. This is a model I know all too well, Starbucks and McDonald’s rely on this and I’ve worked for a business that was under this system as well. According to fourweekmba.com, Starbucks revenue from 2017 was 79% from company owned, McDonald’s is statistically the opposite, relying on franchising. The franchise I worked for was a watch store, not quite luxury, more of a down to earth vibe, and the franchise owner wasn’t enjoying it so much. Here’s the tradeoff, you buy a franchise like McDonalds, and it has a ton of built up brand recognition, so you can safely expect lots of customers to come just on that alone. All you really need to not fail cataclysmically is to find an area with good traffic. I met with a friend for lunch at one once, and he noticed how good the area was, traffic all ways, streetcar, a complex of popular retail chains, many of which were also franchised out. He told me that while the McDonald’s franchise itself wasn’t a huge cash cow, it led to gentrification of the area. Eventually, the land would transform into somewhere you’d expect to find people like me, and then the franchisee could sell the property at a massive profit. But getting back to my story about the watch store, the owner was not happy with it at all, because he had to order in the product, hoping he got the products people wanted. He had insane bills and overhead, being right in the heart of the downtown core. And on top of that, the corporate took a cut of his earnings. All in all, profitability was far too difficult, and eventually corporate took over. The benefit of being a franchisee was minimal, because the brand had so little recognition, he wound up doing more for the corporation by exposing it to foot traffic than the corporation did for him.
Next we have Ad-Supported and subsidized This is a mixture of a service that provides something for free as well as something premium. The example fourweekmba.com cites is Spotify, of the 6.7 billion Euros (which translates to 7 billion USD, ish) 10% was from ad revenue, which supports the free users. The other 90% are premium users, but the platform does have value propositions such as a Family Plan which, like Netflix, lets users share the cost under one package. For spotify, there’s some drawbacks, as they are a music platform, they pay royalties out to artists, so as the user base grows, so do the royalty payments. When I saw this model, the first service that sprung to mind is Youtube, and I’ve got a little issue with Youtube. I’ve been using them consistently for years, and some time ago, back when I used my Blackberry Passport, I had the ability to lock my screen so I could just listen to the audio and not burn screen time. Well, I don’t recall exactly when it happened but this feature, which may have just been a happy accident, stopped working. And then some time after that, Youtube started advertising it’s premium service which would allow me to keep playing the media like I did before. Now, for me the reason why I’m reluctant to use Youtube Premium is because it was a feature I used freely, and then it was taken away, which didn’t solve a problem, it caused a problem, from there it was offered back to me as a service I could pay for. That aside, there is a fair logic to this, if I were Youtube the case I’d make is: we are a video platform and as such, our intended experience is a video one, we do not feel it is right to let users stream video only to listen to the audio, nor is it fair to creators who set out to make video content. However if you choose to become a premium member, you offset this cost. Little details like that do add up when they’re relevant on a day to day basis.
Affiliate Business model: This is for people who have a popular website but aren’t necessarily looking to earn money through direct transactions. While you can sell products, no ones stopping you, affiliate marketing is a means to generate revenue by letting interested companies advertise to your audience on your platform. According to affilorama, 16% of all ecommerce sales in the US are the result of affiliate marketing, as of 2016. This is ideal if you’re into something exceedingly niche, and have a lot of passion for it. The more energetic you are about the content the more dedicated and trustworthy you are perceived. It’s also worth mentioning you’re likely to attract companies who are also carving a path in their niche. I’m pretty passionate about video games, but I suspect due to competition, I’d have to get pretty big to appeal to Nintendo. I took a shot in the dark to see if I could find information on their program, there is one but it’s not as easy as the first page on Google and therefore is beyond my scope. One of my missions on the show is to try and lift up small businesses as well as big ones, so thankfully affilorama.com has a few websites that use this program. There is “this is why I’m broke” which scours the net for innovative gift ideas, their affiliate products being sold through Amazon Associates and Etsy, “dating advice.com” which keeps the advice relatively clean, dating apps can lead down a dark path, and in doing so earned the trust of Zoosk, eHarmony and other dating sites, Nerdwallet.com which provides financial advice and reviews for credit cards, loans, bank accounts, they receive income from financial products and service vendors. I noticed as I was looking through this, reviews are a common theme here. It makes sense, in order to gain the trust of your readers you have to be able to form opinions, consistent ones. The downside is that it’s not like if I review cell phone cases, I’ll be selling dog food through affiliate marketing, one can run in to friction reviewing products and services that may also be a source of income. I’m not saying anyone is doing anything, but it’s clear to me it could be an issue so keep it in mind. I also want to wrap this model up by pointing out affilorama sells services directly, rather than doing affiliate marketing of their own. Interesting choice.
In case you haven’t noticed we’ve been doing this in Alphabetical Order. Next on the list is an aggregator: which fourweekmba refers to as a form of platform business model, so let’s define that now. A Platform model can be something like Uber or AirBNB, where it connects the users with the service providers. One very interesting way it’s described is that it’s a state, which collects a tax for allowing others to conduct business. The issue with it is that the value is self reliant, by that I mean I could run a moving company, or move a running company, haven’t decided, and I have my truck and my movers, so the value is all set, it’s just a matter of getting business. A service like Uber depends on the popularity of it’s platform to be in business at all. Otherwise the infrastructure can’t sustain itself. No point in booking a ride if 100 other people are waiting for it, that point you might as well just get on a bus. So that said, an aggregator pulls in information from a wide array of sources and condenses that information to the audience. In a way, this podcast functions as an aggregator, I go all over the net to find information valuable to you, and in doing so condense that information into one resource that you can go on to iTunes and leave a positive review on. It’s income is generated through advertising, the more popular the aggregator the more the advertisers compete for top spots. I should mention that a business model is not 1 to 1 with a brand, company or service, Google for instance as a search engine has a number of services, but because their search engine is an aggregation of information, advertisers mesh their services within that.
Next We have Agency-Based, the upfront value of a website, such as the one by Neil Patel is that as he grows in popularity he attracts a greater user base, who are then directed to his marketing agency. Scalability is considered an issue here, in that you do need people in the agency to handle the clientele, but they’re quick to point out the revenue can still arrive in the billions. So, taking a different approach, the scalability inherent in this model is not so much in scope as it is stature. A business scales because it attracts higher paying clients, who are more likely to sign up as the reputation and quality of work advances. Next is Asymmetric models. This is where google and facebook fall in to most prominently. While users are not paying any money to use the bulk of their services, the user data is collected and disseminated to advertisers, of which many of us rely on that information to sell our services. Put simply, an asymmetric model treats it’s users as the asset, and the advertisers as the customers. Google and Facebook also qualify for the Attention merchant business model. In this model, the merchant is the one out to capture the attention of users, which is the asset. Although Google and Facebook have secured their place in the market, and then some, FWMBA points to a rather unfortunate incident where a Kylie Jenner tweeted out that she wasn’t using snapchat, a tweet like that could do billions of dollars in damages. I wanted to find some other examples of attention merchants, and an online search yielded only a book called Attention Merchants by a Tim Wu, a rather scathing expose on the pervasive advertising in our lives, as big tech companies collect our data to sell back to us. Me, I’d have to be invited on to another show so I can talk about it at length, but let me just say I understand that I’m as much an asset as the next user. But if you really want to know what I have a problem with, it’s not the dopamine rush of being online. I’ve found ways to distract myself four hours the moment I had a Sega Genesis. We’re all in charge of our own discipline. I don’t have a problem with my data being collected so I can be shown products I might find useful. I have a problem with the way other people can easily enter my mind while I’m supposed to be in the comfort of my own home. I had to switch off most of my notifications because I was tired of being bothered constantly, they don’t know how long I might spend thinking about what they say, and I treasure the time I can spend with my own thoughts. Heck, I’d love to hear what he has to say, but remember the internet is a resource that can transmute into anything you want or need, it’s boundless in its potential and infinite in scope, it’s given me a life to live. I’m in control of what I get out of the internet and what it gets out of me, don’t be scared, be in control.
Speaking of which, we now go to the Blockchain Business model. You can refer back to our crypto currency episode for a refresher on blockchain (10) but what’s going on here is a counterweight to what I was just talking about. Feel free to check out steemit.com, that's two Es. To quote their FAW “Steemit has redefined social media by building a living, breathing social economy, a community where users are rewarded for sharing their voice. It’s a new kind of attention economy.” Rather than post something on Facebook and be rewarded with self satisfaction, which is valuable of course no doubt… Steemit provides it’s own digital currency to users based on how well received the content is, rewarding the big players big and the small players small, encouraging them to gain in stature. The core value of the ecoins is speculative at this time, but as more energy is invested into the content the value of those coins can increase. Next up is Bundling, This is where a manufacturer can create unbeatable incentive by providing several products/services in a single package. The example cited here is Microsoft, where you can buy the whole suite of Office products. Adobe offers the creative cloud suite, which is of tremendous value if you can use all the programs, and is pretty darn good value if you can use half of them. I could at best use three and it was mediocre value. I can also think of our communications provider Bell, who offers us a bundle of home phone, internet and television. We opted for the second two because (snickers) who has a home phone anymore? Write in and let me know, email@example.com.
Next up is Cash Conversion Cycle or Cash Machine Model, Which is what Amazon’s marketplace falls under, for more on that we give Amazon the rundown on our Backend Episode (13) to sum it up briefly, Amazon has a window of about a month to use the money the make to expand their business before having to pay back the suppliers. Next up is Discount Business Model with priority on quality (#12 so far) It seems a bit puzzling, how does one generate decent revenue while also offering a good product while also offering that product cheaply. Well the founders of Aldi, a German supermarket have been very open about this, according to dw.com, who interviewed the brother’s who took the supermarket over from their late mother, they offer low prices through a limited range, which means they can buy in bulk to save but not need to buy different items by the thousands. They also relate this thought process to say, an airline that doesn’t serve drinks. I also observe that, with a grocery store, there isn’t a great deal of pressure to constantly revise a product, yes most of it will expire but by focusing on the core needs of consumers, there’s less time invested in figuring out the next thing to sell. A few other key insights to this model, according to oliverwyman.com include High performing private labels that meet the needs of customers; are GMO free, additive free and organic, Store efficiency; where product is well marked so it’s easy to scan and shopping carts are the same height as conveyors so they’re easy to load, and lastly Store Location, where by taking up residence near a large supermarket or hypermarket, customers can maximise their shopping trip by figuring out which of the two would better serve the needs of their list.
Next is Distribution Based Business Model. As stated on the list, a lot of businesses fall under this model, distribution is a key asset to nearly every company’s success. So naturally Google gets brought up. But a few key takeaways from the site that indicate whether or not this is made out to succeed is if A. The distribution channel is sustainable, meaning the money spent to maintain it can’t forever outpace the money it generates, B to have a main channel but also secondary and tertiary channels in case there’s an issue with the main one and C if it can handle scaling. To give you a sense of how Google pulls it off, consider when a web browser or site uses the Google search engine as default. This next one would relate to us pretty highly, Direct-to-consumer. In this, the brand/company is directly involved in having a dialogue with the customer through marketing, the example sites Unilever, who controls nearly 400 brands in over 190 countries. Having such a broad scope on the operation the company can adjust their portfolio based on the economic situation of it’s customers. The company also has full control over how the products are perceived, the downside is that it heavily relies on marketing to make sure competing products aren’t taking over the customer’s mindset. As ecommerce platforms, we can do this on a smaller scale, atleast at first, don't want you to think you’ll never move on to a bigger pond. But you as a single seller are one company, and you have the ability to control multiple sites/brands that you can adjust on the fly.
Next up is Direct Sales business model This is one of the oldest models out there, it’s good old fashioned person to person selling. Not an easy task to scale with, so it depends on whether or not you’ll be dropshipping your way to glory. However I sincerely hope you’ve had a chance to experience being a seller. You learn some key skills, like understanding how to take questions you’ve been asked before and answering them in a way that’s fresh and unique to the person you’re speaking to. FWMBA however points out that in our era, AI, machine learning and automation may make this seem irrelevant, but instead it’s actually giving it a whole new appreciation. Sure, at one point customers would get annoyed having person after person try to sell them something, but the more AI takes the job over, the more people appreciate having someone to talk to. When I was doing remote sales and service, this was a pretty common thread among customers who appreciated that I was a person and not an AI, to which I would say “oh no sorry, I am an AI, we have advanced the technology substantially the last five years.” Feel free to use that one. One of the other characteristics I appreciated over time was that I had a chance to practice my technique and although the first wave of phone calls weren’t spectacular, I would learn what not to say, and be able to deftly handle conversations with ease. I’ll give you another skill in case you’re in this position, say you’re talking to someone from France, and they are trying their best to speak in English, if they apologize about it just say “It’s alright, your English is a lot better than my French.” Worked every time. Anyways, one key takeaway in regards to Direct Sales is that you have to curate potential customers and leads, the more broad you go, the more it comes across as more spam. Next up, we have the E Commerce marketplace, which I’m going to skip since it’s literally our whole show. I didn't count it towards the 20.
Let’s move on to Educational niche and I quote the list “Built by one of the smartest persons on earth, Stephen Wolfram, Wolfram Alpha is a computational engine,) I’ll also say the man has one of the coolest last names on earth. His business is targeted towards teachers and students, with three levels, apps, a pro version and an Enterprise option, with pricing from .99 to 5.99, 4.75 to 7.99 and 25 to 100 respectively. Although search engines have rapidly caught up in terms of computational power, the wolfram search model differs from a search engine in that a search engine looks through an index of web pages, whereas the wolfram uses it’s algorithm to answer the question itself. This leads to information that prioritizes answering the question, while search engines are chock full of information as well, in an educational setting I can see why teachers would value an unbiased information source. Moving on, we have Family owned technically, my business enterprise is family owned, since I’m in a family. But the example found here is Prada, where the owners, the original founders control 80% of the company. This is a highly hands on approach, but the extra time it takes being the boss means the company will always reflect your vision, even as you’re bringing in over three billion Euros. I’ve worked for a number of family owned businesses as well, and one major takeaway from my experience is that meeting someone who owns a business, even a small business, make me see them in a unique way, theres an aura about them.
Feeding is next up on the list, this is a business model that supports other businesses models. By providing an asset other industries and markets need, it improves both supply and demand thus creating more opportunities to continue feeding. It could lean more towards business to business, so for instance HyreCar lets owners of cars rent them out to drivers of Uber and Lyft. For drivers, if it’s more economical to rent and do uber shifts for blocks of time rather than own a car and have to use it constantly, this is an option. I’m a non driver myself, so interestingly, this would be a way to incentivize purchasing a vehicle that I don’t need to use myself, I could just let Uber and Lyft drivers use it while I earn passive income. Coming round the bend, we get into the “free” model section Freemium which is considered more of a growth and branding strategy rather than a business model, whereas I see it as more of a funnel. This is where a company provides a service for free, which helps boost the user base and the company’s popularity. Some news websites, as I’ve learned in trying to read certain articles for my work, somewhat fall under this category, where they limit a certain number of articles for free and I can pay if I want more access. Google Drive might be another good example, as the 15 gigs of data are free, and I can open as many gmail accounts as I like, but for 3 bucks a month I can get access to 100 gigs of data instead, which I have done because if I’m trying to organize a large project, 15 gigs can be burnt through pretty quick. Free to play is next on the list, but it’s a which I'm going to talk about as a bonus because it has very little to do with us. This is the video game version of freemium, the example cited is Fortnite which needs to be free to play, because it needs a high population of players to keep the 100-player lobby filled without taking too long. I think we could in the future stand to study gaming business models, the reason being players want to have fun but also want to win, and the conditions for winning are in the hands of the developers. Some games sell access to something you can’t get for free, such as additional playable characters in a fighting game, putting players playing for free or who bought the base game at a disadvantage, other games give you everything for free, but if you want something sooner you have to pay. Me, I draw the line at paying to access something other players could never get unless they pay as well. And then I disregard that line because I have no spine.
The last on today’s list belongs to Freeterprise, the B2B version of freemium. Where customers become professionals in the eyes of the business, and thus sales agents are tasked with channeling free users into paying ones. We at Debutify fall under this model, we offer four services one of which is free. Just remember, when it’s freemium, it means you’re essentially using the same service the paying customers are, another example of this would be Slack, which we can use for free and evaluate if it’s worth upgrading from there. Freemium and Freeterprise have a lot in common, so for my perspective I draw a distinction between a free service someone could use as a business like a blog as freemium, vs something clearly made for business like slack. Although friends could get together and use slack for socializing, I just.. Don't see why you would.
Anyways, that’s the first part of this list, you can expect a second, and possibly a third on it’s way down the pipe. Any business models stick out to you? Anything you might integrate into your business empire? Drop us a line, firstname.lastname@example.org!