What is your business model? (2 of 2)

Startups often use catchy one-liners to describe what they do. Uber for X, for example. Referring to well-known business models is an efficient way to explain your startup. They can be a helpful reference point for investors. 

Bill Aulet outlined some common business models in his book Disciplined Entrepreneurship: 24 Steps to a Successful Startup. Step 15 is “Design a Business Model”. According to Bill Aulet, “It is a good idea to look at business models in industries other than your own; such lateral innovation often results in creative, effective business models.”

Here a few of the most common models outlined in the book:

1. One-time up-front charge. Single sale to purchase a product directly. In this case, the entire purchase price for the product is considered revenue for the startup. Peru startups Freshmart and Anku Bars use this model to sell food. This model is also used by direct-to-consumer startups like Casper in the U.S. or Ben&Frank in Mexico.
2. Subscription. Payment for usage of over a specific period of time. This model often results in a predictable revenue stream for startups. Global startups like Netflix and Spotify use this model. A Peruvian startup, Karaoke Smart, has payment plans in which users can sign up to us the product for a few days, a month or a year. MiMediaManzana also uses a subscription model.
3. Transaction fee. Commission for a sale or referral. In this business model the overall amount of the transaction is considered Gross Merchandise Value and the commission or fee is the startup’s revenue. Peru startups Culqi and Joinnus charge a percentage of a total transaction amount or a fixed amount of each purchase.
4. Advertising. Usage of the product is free and advertisers pay to share content with a specific target audience. Many media and content startups including Altavoz use this model.
5. Consumables. The model used by Gillete and HP.  Users pay a small amount, often below cost for a product, like razors and printers, then charge high margins for inputs, like razor blades and ink.

Other business models outlined by Bill Aulet are Upsell, Microtransactions, Usage-Based, Penalty Charges, “Cell phone” plan, Licensing, Franchising, Operating and Maintenance, Cost Plus and Hourly Rates.

Disciplined Entrepreneurship: 24 Steps to a Successful Startup is an excellent guide for founders as they work through the various phases of a startups.

Founders don’t need to invent new business models or terms for how their startup make money. It is OK to adapt a well-known business model to the realities of a local market. Using well known terms for your business model will help investors quickly understand how you make money.