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A tech startup without a good business strategy is just a hobby. The primary purpose of a business model is to pull out your idea from your head and transform it into a lead-generation mechanism.
In this post, we’ll discuss five of the most demanded business models for your tech startup and what things to consider to pick the best ones for your business.
Things to Consider Before Selecting a Business Model for a Software Startup
A startup business model is a roadmap for doing a business. It details how the startup companies will produce value to their clients and focuses on reaching the target audience, identifying customers’ problems and solving their problems while generating incomes.
To choose the business model for a startup, you need to go through the following points:
- Target market
- Sales leads
- Competitors
- Income streams
- Cooperation with СTO (if required)
- Target Market
So, you’ve decided to give your idea a start. But, before getting down to choosing the right vendors, platform, or tech stack, take some time to determine whether there is a demand for a product or service you want to create.
That is why, firstly, you need to define the value proposition for your potential customers. Commonly, your product or service should solve real problems. For instance, Uber Eats solves the problem of people that don’t have time to cook, Airbnb is a response to expensive hotel rooms, and so on.
- Sales Leads
Who exactly are you going to generate value for? Maybe you want to create a food delivery app like Postmates to solve the problem of time-pressured people, or you are willing to build an Uber-like app to meet the increasing demand for good-quality taxi service.
If people don’t need a solution to a problem, there is no sense in launching a startup. The same goes for copies. If the users are satisfied with an existing product or service, likely, that they won’t use yours.
- Competitors
When you define an issue worth solving, consider your core competitors. Most likely, all potential niches may already be filled. So, try to think narrower and focus on a preferable niche. For instance, Jeff Bezos, founder of Amazon, had planned to sell books, but now the platform works by “the everything store” principle. Despite everything, your idea seems excellent for you as you have industry-changing intentions. However, the competition may be too high, so try to limit your vision geographically at the initial stage.
- Income Streams
Your startup idea implies the core source of income. For example, if you decide to launch a social media platform, you’ll sell advertising. If you want to build a marketplace website, you’ll take commissions from vendors. Or maybe you’ll provide users with a monthly subscription model. In any case, the type of income stream will depend on the type of your product/service and business approach. For instance, Amazon is based on several sources of income — it sells its goods and enables sellers to offer their own products.
- Hire a CTO
It’s rather a recommendation. Not all tech startup companies need a CTO at the early stage. However, if you have extra money, it’s better to find a CTO to accelerate business growth and get a competitive advantage.
At the initial stages, a tech expert will help you validate the technical feasibility of a startup idea and select the right tech stack for its development with further support of the development process.
Benefits of Canvas Model
To figure out which business model is suitable for your tech startup, you may consider Business Model Canvas made by Alexander Osterwalder. BMC is a tool that’ll help you map, discuss, design, and invent new business models.
The model describes the following basic building blocks:
- Customer Segments
- Value propositions
- Channels to gain customers
- Customer Relationships
- Revenue Streams
- Key Partnerships
- Primary Activities
- Cost Structure
- Core Resources
However, a good business plan requires a massive amount of work. So the canvas came up with a new business plan named Lean Startup Canvas. It helps startups reduce time and efforts on shaping a business plan by replacing a complex business plan with a 1-page model.
5 Powerful Business Model For Successful Start
There are more than 60+ tried and true business models to consider for your tech startup. I will single out the five most profitable business model patterns for startup entrepreneurs planning to build software products.
Freemium
Your service is available for free. But additional premium functions will become available if customers are willing to pay for them. This model is widely used in social gaming startups. The games are made to offer limited playtime or have complex levels that need updates. Players need to pay about $1.99 for upgrades.
Subscription
This model is a good choice for startup companies that deliver software products, or want to provide customers with a couple of options. Instead of one-time purchasing, it’s better to provide users with a monthly subscription. For instance, Netflix and Amazon offer their customers monthly payments.
Besides, subscription models enable entrepreneurs to predict their revenue (within a month or year), track the amount of subscribed users and their plans. On top of that, subscription-based organizations make money over the long term.
Businesses select this model not just to provide customers with the flexibility of choice but to pay for investments.
Reseller
This model is a perfect option if you don’t want to produce any digital products or services. In this case, you generate revenue by offering goods or services of another company to your target users.
Advertising
According to this model, free product or service accessibility is required. You attract customers by making user-generated content or inspire interaction, and then sell space on your website or blog. Your income will depend on the amount and the quality of the client base.
On-Demand Model
Sharing economy model is quite profitable nowadays. The best examples are Airbnb, InstaCart, Uber, Lyft, etc. The on-demand model implies that the platform doesn’t own any of the assets it sells. That’s the way Airbnb works. The landlords provide places to people looking for a flat, and the platform serves as an arbiter. The revenue comes from seller fees.
Wrapping Up
In conclusion, here are some tips to help you select the right business model:
- Use other tech startups as a blueprint;
- Create scalable business model;
- Figure out your cost structure for further selecting of marketing channels and pricing;
- Pick up your revenue model.
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