A business model is a framework for finding a systematic way to unlock long-term value for an organization while delivering value to customers and capturing value through monetization strategies. A business model is a holistic framework to understand, design, and test your business assumptions in the marketplace.
List of business models
In this guide, we’ll see also 53 business model types identified by the FourWeekMBA research. Ever since, this list started to be published, back in 2018, many copycats around the web have started to duplicate it without understanding the meaning of each model referenced here.
Thus, if you need our feedback, feel free to reach out.
You can jump directly to any of them below or read the guide in order:
What is a business model and why is it important?
A business model is a critical element for any startup success as it is what unlocks value in the long-term. In a way, developing a business model isn’t only about monetization strategies.
Indeed, that is way more holistic. To develop a business model companies need to create value for several stakeholders. Thus, a business model is about what makes users go back to your app, service, or product. It is about how businesses can get value from your solution. It is about how suppliers grow their business through it.
A business model is all those things together. In short, when those pieces come together, that is when you can say to have a business model.
A quick history of business models
“business model” and “business models” in millions of books according to Google Ngram
While the Internet worked as a catalyzer for business model innovation, the term itself was born way before that. However, it stayed asleep for a while, until the Internet proved commercially viable.
The rise of the Internet and the dot-com fell awakened the need for innovative business models:
Indeed, while many companies were born during the dot-com era. Those companies used the Internet as a new distribution channel but they still played with an old business playbook.
When the dot-com bubble fell. That left the room to a few companies which not only would prove commercially viable. They would also become among the tech giants that dominated the web.
Companies like Amazon, Google, and eBay built, tweaked, and consolidated their business playbook during that era.
A business model is not a business plan
Among the top results, Google suggests “How to write a business model” when typing “how to … business model. When you click on the result that Google suggested, see what happens.
When you click on the Google suggested result for “How to write a business model,” you get “how to write a business plan.”
A common misunderstanding is to think of business modeling as a one-page business plan. However, a business plan is a document with a specific aim. It contains a bunch of assumptions about your business.
It also contains financial projections about the business for the next 3-5 years. However, those assumptions can be hardly tested. The business plan thus remains a document that lives in the imaginary world.
Drafted beautifully to impress friends and potential investors; hardly of any use for experimentation. Instead, as we will see business modeling is primarily about experimentation.
As reported by Google Ngram, by 2008, business model picked up as a key concept, compared to business plan. This shows how in the last decade business modeling has become a key concept in the business world.
A business model is not a revenue generation strategy
An example of how Airbnb “confused” its business model for its monetization strategy (Slideshare)
How WeWork described its business model in the report before the IPO. You might notice that what they’re talking about is their revenue generation strategy. (WeWork Financials)
Another misconception around business models is to confuse them with the monetization strategy or the revenue model of a company. While this is an essential piece of the puzzle, it is just one of the components of a successful business model.
In this blog, we’ve discussed at great length how companies make money as a way to start the discussion of a business model. However, a business model implies the understanding of operations, customer acquisition, retention, supply chain management, besides monetization.
According to the business model you designed over the years for your organization there will be a piece that plays a more critical role compared to others. For instance, a vital component of the Coca-Cola business model is its distribution strategy.
For other companies like McDonald’s, the key to its business model success is the heavily franchised restaurants that helped the company scale up all over the world.
Each company will develop a unique model among the many types of business models which is what makes your company robust in the long-run!
The importance of business model design
Strategic analysis is a process to understand the organization’s environment and competitive landscape to formulate informed business decisions, to plan for the organizational structure and long-term direction. Strategic planning is also useful to experiment with business model design and assess the fit with the long-term vision of the business.
The primary aim of a business model is to create a sustainable chain, able to unlock value for several players in a market, industry or niche.
Therefore, this value chain will start from a value proposition, a promise you make to the key players and partners in that market, industry or niche depending on where you start.
For instance, when PayPal started it didn’t look to dominate the whole market. It started from a niche. As Pether Thiel put it in his book, Zero to One:
The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.
Indeed, PayPal began identifying its most valuable partner, what at the time they called “power user.” That was a choice driven by its business model design.
Therefore, instead of focusing on generically offering a service for everyone, PayPal focused on acquiring and attracting as many power users as possible.
Those power users were mostly on another platform that had already scaled up: eBay. Thus, PayPal focused all its effort on acquiring those power users from eBay, fast!
Only after PayPal had drafted, tested, and validated a clear value proposition for a small, yet a critical group of power users, it could move on to take larger and larger segments of that market.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Business modeling is about experimentation
Where scientists have labs where they can manufacture and run experiments. Entrepreneurs have the real world as a way to measure their assumptions. Designing and executing business models for an entrepreneur is like designing and running experiments for scientists.
However, where a scientist might be looking for lasting truth, an entrepreneur searches for a business model that will work in the marketplace at that particular point in time. Indeed, one of the common beliefs is that business models can be sketched on a piece of paper and they will work in the real world.
That (almost) never happens. Before a business model does work in the real world that will require a lot of strategic and deliberate thinking, experimentation, and tinkering. Thus, a successful business model is usually the fruit of this process.
That implies that often an entrepreneur has to design multiple variations of the same business model and test those in the marketplace. For instance, if you’ve built a company that offers software but you positioned yourself with a freemium model.
You might realize that the model won’t work in your case, so you will need to move the revenue generation back to a premium model, where your target customers willing to pay more and you move the needle from B2C to B2B.
Thus, cutting yourself space within a specific niche. That will, of course, limit the number of customers you might be able to reach; at the same time, it will enable you to find product/market fit.
Technological innovation vs. business model innovation
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The misconception starts from the fact that nowadays, technological advancement is pushing toward new ways of doing business.
The Internet is still enabling new, untested models to pick up. For instance, business models of companies like Netflix would not be possible if the Internet didn’t allow new ways of content delivery, and so also of how those same companies make money.
However, technological innovation is wholly different from business innovation. That’s because technological innovation often happens in labs or research centers (take the internet) rather than just companies, or in a business context.
In short, technological innovation requires a massive amount of resources upfront and researchers, which might not follow business objectives, but rather experiment freely with ideas that take time to work out.
In addition, even when a specific technology becomes commercially viable that might also be soon commoditized.
Thus, technology itself hardly becomes a competitive advantage. Technology coupled with new ways of serving customers, a powerful distribution strategy, and creative monetization strategies might create lasting competitive advantages.
That is when the business model innovation kicks in.
Why business model innovation matters so much
One of the people that I like to follow the most in the business world, venture capitalist, Fred Wilson, in a post, highlighted something that many are still missing today:
I believe business model innovation is more disruptive than technical innovation.
As Fred Wilson further explained:
The move from desktop computing to the web. We saw massive disruption as we went from a licensed software business model to an advertising-supported business model, which has evolved into an advertising/subscription freemium business model.
When new, revolutionary technology finally is widely adopted, that is when a massive phase of business model innovation happens. For instance, we’re still looking at how the Internet-enabled digital economy still an ongoing explosion.
We might be looking at a similar change and blossoming of new business models with the advent of the Blockchain and crypto-based business models.