Every software startup company requires a good business model. It shows how the business operates and how the company generates revenue while delivering a product or service.
After you’ve decided to launch a startup, the first step is to define what business model will be right for you.
Let’s consider the five in-demand startup business models and what you should know before choosing ones.
Things to Know Before Selecting a Business Model for a Software Startup
A startup business model is a company roadmap for getting money. It displays the information about the goods or services you’re planning to sell, target audiences, and any costs connected with business activity.
Having a business plan, you get an answer to the following question:
- What is the purpose of our product or service?
- How do we provide customers value?
- How will we make a profit?
- How can we receive money?
The core purpose of every company is money. While the business model covers the whole spectrum of startup activity, the revenue model focuses on creating incomes.
For instance, Facebook’s business model is a communication platform that allows users to chat and deal with advertisers. Its revenue model is paid to advertise.
Uber Eats business model is a food ordering platform that enables people to order food from restaurants and get it delivered directly to the doorstep. The platform charges fees for the order from users and sends the rest to the restaurants — revenue model.
What business model to choose? Unfortunately, there is no standard answer, as each software startup is unique and requires a personal approach. Even if both offer similar products. For example, the well-known “Uber for X” model, seemingly the universal option, won’t work for each startup.
Now, let’s discuss what you need to consider before selecting a business model for your startup.
Before you bring your idea to life, define if there is a need for your product/services? For example, when Uber came, there was a need for better-quality taxi service. Thus, Uber could get its tidbit from the market share.
And the more clients Uber attracted, the better services it provided. For instance, the company gathers information from both riders and drivers to simplify the payments for drivers, track illegal activity, and fix client bugs.
Who exactly do you build your product for?
To create a successful startup, you should conduct research to figure out if there’s a problem that you want to solve with your project. If people who have that problem don’t actually want a solution, maybe you don’t need to launch a project at all.
The same things if there’s a good copy of the product/services users are satisfied with. In this case, you won’t be able to provide a unique solution.
Before food ordering and delivery platforms (Uber Eats, Postmates), people had to prepare meals at home or eat at restaurants. Both activities require a lot of time and effort, and not all restaurants can hire couriers.
So the potential customers of food marketplaces are:
- Entrepreneurs that don’t have time to deal with food preparation
- Tech-savvy millennials
Busy people just don’t have time for cooking or eating out. That’s why it’s more convenient for them to use a solution on the go and pay via a mobile app.
Many brilliant ideas have already been launched. Most likely, you won’t be able to bring something new. So your core task is to understand your potential competitors (what they do, how they do it, single out their weak and strong sides, and where you need to move as a newcomer to deliver better product or service)
For instance, if you want to create a food delivery website, you need to follow your core competitors — Uber Eats, Glove, and Just Eat. Each of the platforms offers an individual customer approach you can consider.
Let’s take a brief look at their proposals:
- Just Eat offers order service only. People can just order food in the app. The restaurants will be responsible for the delivery.
- Uber Eats provides both order and delivery services. Users make an order in the app, pay for it, and it’s delivered by Uber’s couriers.
- Glovo is similar to Uber Eats. But, you choose the food from the store as well, and the couriers will deliver it.
The greatest way to overcome competitors is to provide a top-quality service or product. Pay close attention to customer service. Want your clients to connect with you, fall in love with service/product, and be willing to stay with you? Then customize their experience.
Your business plan is already a source of income. If you launch a social network, you’ll get paid for ads. If you build a marketplace app, you will get fees from sellers.
Most business startup models insert several income sources. For example, Amazon’s business model includes different revenue streams.
Amazon is a mix of eCommerce websites and marketplace. The company offers its own products to customers and allows sellers to sell their goods too.
Amazon price policy:
- It takes $40.99 + 15% per money transaction from experienced sellers (those who sells more than 40 items in a month)
- $0.99 + referral commissions and changeable closing commissions from individual vendors (those who sells up to 40 items monthly)
I’ve prepared a picture showing an Amazon source of income by segments to make it clear for you.
In order to determine what types of revenue stream will work for you best, you can examine competitors’ pricing policies.
Examples of Profitable Business Models for Your Startups
There are a vast amount of time-tested business models to use for a great start. I will focus on the five popular business models that will work best with software startups.
The freemium model implies that users get basic features for free. In case they want to get access to additional services, they need to pay a certain fee.
It’s worth mentioning that the freemium model differs from the subscription one. For instance, YouTube or Spotify is free of charge. You don’t need to pay for watching videos or listening to podcasts if you’re okay with advertising. But if you forget to pay a subscription on Netflix, you won’t be able to watch the series there.
The subscription model is a good choice if you sell software products and want your users to have several options. Instead of offering a one-time deal, you can attach your customers to your product/service by providing monthly subscriptions. For example, Netflix, Adobe, Amazon Prime, New York Times already use this approach.
Using this model, you know exactly how much money you get in advance. Moreover, you can monitor the number of subscriptions and users’ tariff plans.
However, to generate good revenue every month or year, you need to have an impressive client base.
According to this model, you don’t produce anything. You get paid for the promotion of business partners’ products or services to your potential customers.
That’s how eBay and Amazon run their businesses. Platforms cooperate with partners to promote and sell their services/products. The sellers’ income consists of the differences in the price they sell products for and the price they buy the goods for.
An advertising-based model means that you provide advertising space for sellers and get paid for it. But in this case, you need to invest a lot of time and energy in creating engaging content. The more loyal users you get, the higher your revenue will be.
Sharing Economy Model
Today we hear about on-demand services like Uber or Airbnb.
This model implies that you get access to the assets without being an owner. That’s the way Airbnb works. The landlords offer rooms for people, and the platform matches these people. The platform does not own rooms. It serves as a mediator and charges fees from users.
Each of the business models I’ve described above has both ins and outs. If you’re a startup, there is a sense to start with a simple business model or combine a few. Still, the final choice will depend on your personal preferences and requirements.