Strategic Business Models
“True disruption means threatening your existing product line and your past investments. Breakthrough products disrupt current lines of businesses.” – Peter Diamandis
One trap many new start businesses fall into is to simply start competing in an existing market in the same way that all the other competitors already do! Sure, they might be cheaper or have a slight difference with their delivery but many lack a genuine unique selling point (USP) and fail to trade with a genuinely unique point of difference to their competitors.
Clearly there are opportunities for this approach to work, but the risk is that you are simply creating more supply in the market. Any 1st year economics student will work out that more supply will reduce the market price and thus, squeeze every supplier including yourself!
Different isn’t necessarily better, but hopefully the following Strategic Business Models might make you think differently. Sometimes described as ‘disruptive’ … think about some of the more renowned disruptors that have become common place in the last few years:
- Uber – founded 2009, revenue $6.5bn in 2016
- Airbnb – founded 2008, revenue $1bn in last 3 months of 2017
- Amazon – founded 1994, revenue $136bn in 2016
- Facebook – founded 2004, revenue $27.6bn in 2016
- Red Bull – founded 1987, 6bn cans sold in 2016, $6bn in 2016
- Netflix – founded 1997, $8.8bn in 2016
- Apple – founded in 1976, $229bn in 2017
- Google – founded 1998, $27.4bn in last 3 months!
- Ebay – founded 1995, $19.8bn in 2016 (including PayPal – another disruptor)
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Examples of Strategic Business Models
Scan through the following descriptions of different strategic business models and you’ll start recognising some that you’re already familiar with:
Add-on model / The Low-cost model
Think airlines where the £20 ticket price becomes £60-70 once you’ve added everything else on. Their marketing is ‘low cost’ but the end price is rarely that!
Bait & Hook model
Think about buying an office or home printer where the printer itself is extremely low cost but the cartridges or ink subscriptions end up creating the profit.
The Advertising model
This is effectively the Yorkshire Powerhouse model – advertisers help to fund the promotion. In the ‘normal model’ used elsewhere, the business keeps a percentage of the advertising revenue to form the profit.
Think Ebay – although in recent years, the Ebay model has been changing towards a fixed price approach. Variations on the auction model include the sealed bid model used by buyers now.
The Affiliate model
The ‘old version’ of this was a ‘commission only’ sales person, but with the internet, affiliate schemes are now trackable. Anyone can list Amazon links with a potential to earn from them.
The multi-level marketing model
Seen regularly through networking meetings, the modern solution to pyramid scheme selling where you build a network of resellers, normally on the back of the ‘opportunity to build you own business’. These models often revolve around selling a consumer product (skincare, healthcare, utilities, etc) and pushing this product out to your immediate friends and family, luring them into the business to become resellers for you and benefit from a small income as a result.
The Franchise model
Only dating back to 1880, although it’s now a well proven business model, it still has some critics. Sales licences operate in a similar way too. The most famous franchise being McDonalds – the premise of a franchise business model is that you are buying into a proven and systemised business where you gain additional support from the franchisor.
The Subscription model
See our book review on The Automatic Customer by John Warrilow who goes on to describe over 10 different versions of subscription business model – but they all contain the same beautiful thing … recurring regular income.
The Freemium model
Frequently used in software applications (eg. LinkedIn, Spotify, Insightly, etc) where you get high levels of access but generally with annoying adverts or a limitation of service and then to continue without the limitations or ads you pay a premium.
The Premium model
Think ‘reassuringly expensive’ … essentially the model where you offer the best levels of service or quality and you charge accordingly, justifying the cost based on the premium standards you operate on.
The pay-as-you-go model
Think phone contracts as an example – the business model where you simply pay for what you use as and when you use it!
Disrupting a marketing place can be fun and exciting but you need to truly understand the market first and have absolute clarity in your strategy – seek expert guidance from an experienced coach or mentor to benefit from an independent view
Blunt thinking on Strategic Business Models from Yorkshire Powerhouse
Setting out the clearly defined business goals then needs an action plan as to how they will be implemented – a strategy. Read >