90% of business managers do not question the business model of their companies. Rethink how to develop innovative business models or investigate other types of business models for your company is one of the main tasks that anyone with responsibility in Startups, SMEs or consolidated companies should carry out.
“Questioning” my business model involves thinking about how our company or entrepreneurial business project adds value to customers and how they pay for the value they receive. In addition, it is important to know the type of market in which we operate and what other factors influence it.
At the beginning of the 20th century, the business model of a company was generally rather simple; A company manufactured a product or performed a service and charged for it.
The evolution of society, uncertainty, the speed of change, the Internet, technological advances and the birth of new needs and therefore new opportunities, have forced companies to generate new innovative business models , as alternative ways of generating income. .
In this post, we are going to see what a business model is for, as well as some examples of innovative projects in the world, which are so because, starting from innovative ideas, they have been able to find a market niche , a target customer , a problem to solve . and an innovative business model.
A few examples of companies that have developed innovative types of business models
If we look back, there are some examples of innovative business projects in Spain, introduced by large companies worldwide, who dared to innovate, to rise from the ashes. Examples of innovation such as IBM or Gillette illustrate this “resurgence” when their positions in the market were threatened.
Others, however, failed to see what was coming their way from their privileged position, as is the case with Kodak. In its day, it was one of the innovative businesses in the world, which fell apart with the arrival of digital photography.
Definition of business model
The business model refers to the way in which the company creates, captures and offers value to its customers. In other words, it is the way in which the company creates value for itself and for its customers by transforming raw materials into a finished product and selling that final product to the customer.
Description of innovative business models
In 2003, IBM changed its business model and its model of generating business, moving from the manufacture and sale of computers and hardware, to a business based on offering innovative services and information technology (IT) solutions. It sold its PC development unit to Lenovo , its hard drive unit to Cisco , and its printer unit to Lexmark .
With this example of an innovative idea, at the time, IBM became the world’s largest enterprise data recovery outsourcing, consulting and services company, upending the types of business model known until then.
Gillette modified its business model of selling quality razors, lowering the price to make them accessible to almost everyone, with the aim of generating income from the sale of refills; razor blades. That simple change brought one of the most innovative business models to the market and is a case study in many schools.
The great competitiveness, the Internet, and the speed of birth, evolution and disappearance of startups, has generated a whole list of new business models, business models and pure innovative business ideas or a mixture of several existing ones.
Let’s review the most interesting:
long tail business model
Term coined by Chris Anderson in 2004, it is one of the most innovative business models that have emerged in recent times. The innovation of the long tail business model is characterized by the fact that it offers a wide range of items with little demand, but which can become profitable businesses and generate profits due to a large volume of small sales .
In the traditional model, the one governed by the Pareto Principle , 80% of the population bought 20% of the items. This fact made the least sold products unprofitable, due to the high costs of development, storage, distribution and marketing.
To save costs, companies limited their production and marketing only to the best-selling items, that is, 20%.
But with the arrival of the Internet , new innovative business models have been generated, which consist of having a huge range of products with little demand, but which become profitable businesses by managing to sell worldwide, which together generates a high turnover .
This type of business model is especially interesting when it comes to selling software products ( Google Play ), digital products ( Itunes, Grooveshark ) and even for physical products ( Amazon or Ebay ). Surely you can think of other innovative business ideas.
Bait and hook or tied products
The novelty introduced by the innovative idea of Bait and hook consists of offering a basic product at a very low price , often at a loss for the company that offers it (bait) and then charging high prices for the associated product, spare parts, or services (hook).
Examples of this type of business model are the telephone companies that “give away” the mobile phone (bait) in exchange for a permanence contract for a certain time (hook). The user feels that they are giving him the phone, but the company recovers the investment and earns money on the monthly billing of the service during the contracted period.
Another example of this type of business model are the companies that develop almost free software (SAGE) and later you must pay for updates, maintenance and even queries for technical incidents.
As Alex Osterwalder explains in his book Building Business Models , multi-sided platforms are based on business models that bring together two or more distinct but interdependent customer groups. .
In this type of business model, there is only interest if all the actors involved find a value proposition and therefore everyone is present. Multilateral platforms provide the channel that allows interaction between groups, and therefore its value increases as the number of users that use it increases.
Google is another example of an innovative business model, where the vast majority are users who do not pay, but generate profits thanks to a percentage of companies or people who pay for some services such as Google Adwords . These companies pay because behind it there are a lot of free users, who are the target audience of the advertising companies.
Free as a disruptive business model
In this model, at least one of the actors involved benefits from a free offer. To do this, another part of the customer segment must finance the products or services that are offered free of charge to the other party or segment. In recent years, the offers of products and services, especially on the Internet, have grown exponentially. Advertising or the Freemium model are some of the mechanisms that support being able to offer free services to part of the users.
The Freemium business model consists of offering basic services for free, charging for Premium services a monthly fee or a payment for use. On the Internet there are countless examples of this type of business model; Unbounce, Dropbox, Linkedin or Spotify .
affiliate business model
In this business model, the company that wants to sell a product or service establishes some type of reward for suppliers, companies or people that attract customers or orders for their products. These types of business models are based on a commission or reward.
An example of an offline affiliate business model is organized trips, which take tourists to eat at this or that restaurant, or to visit this or that craft factory, because they receive a commission for each person who eats in the restaurant or buys in the factory.
With the arrival of the Internet, innovation in the business model has also arrived and has moved to the online field. The owner of a website rents space for third parties to place their ads. They are based on the amount of traffic that they are able to derive to the client’s website. Hence, the company that needs to attract traffic offers gifts to agents (people, companies or websites) that can get those new visitors.
A very clear example of this affiliate business model is blogs of any subject that publish third-party ads.
For example, in this blog we can include an affiliate banner to test the social sharing plugin that we use or one of the hosting providers that we also use in our projects. If you click on the banner and buy, we get a commission (small ;-))
In these business models it is important to measure 2 ratios :
- Number of people who register with respect to the number of people who visit the website.
- Number of people who buy compared to the number of people who register.
Both data are important and will allow us to make decisions to refocus the web strategy or redesign our business model.
In any case, it is essential for the business model to be profitable that the cost of acquiring a new customer is less than the benefit obtained by that customer . Otherwise, affiliate business models are doomed to failure. Some examples of company projects are Bonusralia or Ono .
Franchise or license business model
It is a business model where a company or individual that has successful and recognized products or services in the market, allows other people or companies to exploit their brand image, products or services, under the supervision of the business owner. , in exchange for Royalties .
This type of business model, franchise, allows entrepreneurs or investors to bet on running a business that is already proven, that works and that is “only” replicated in a place where it does not yet exist. The clearest advantage is to take advantage of the brand image that already exists and is positioned in the market, to have clients almost before opening the business and, above all, to have the help and support of the franchise in the first steps.
The disadvantages are: the royalty that must be paid to operate the franchise, the fact that the franchisee is more limited in decision-making and naturally because a franchise does not guarantee success, however they are booming businesses and especially, they can turn into profitable businesses in times of crisis.