150+ Business Model Examples from Circular Economy to the Metaverse
Choosing a suitable business model to accommodate your company or startup is critical to securing funding and turning a profit. The first step in starting a business is understanding what model offers the maximum opportunity for profit with the least overhead that serves your target market. In this post, we will thoroughly discuss the elements of a business model, different patterns, and some real-world examples to connect the concepts with companies.
What is a Business Model?
A business model defines a company's core (profit-making) strategy. The plan outlines the business's products or services, costs, and target market. Entrepreneurs use their initial model to acquire funding and begin to build the framework of their future company or startup.
4 Elements of a Successful Business Model
While the business model definition is straightforward, experts disagree on the elements that create a successful business strategy and execution. Each market is unique, and new ideas are consistently emerging that breakthrough what has generated profit in the past.
Harvard Business School's Clay Christensen suggests that a new business model should consist of the following key elements, "a customer value proposition, a profit formula, key resources, and key processes." Defining the model in-depth provides executives with a clear structure and identifies areas that aren't sufficient.
The St. Gallen Business Model Navigator by Oliver Gassmann et al. highlights the need to use examples from the past while also focusing on innovation. Incorporating proven models into a new plan can give a business owner the perception needed to succeed. In many cases, a startup will build an innovative solution but fail to achieve long-term success because their model isn't adaptive to current markets. The key to building a successful business requires both new solutions that address problems in a marketplace and a model to accommodate the consumer effectively.
Utilizing the Business Model Canvas
Creating a viable model is an essential part of starting a business or startup, but it can be challenging to construct the proper framework for your idea. Using a template like the Business Model Canvas offers an outline with "shared language for describing, visualizing, assessing, and changing business models." In addition, the business model canvas template offers direction and organization to formulate and build on your new ideas.
Regardless of how you decide to construct the beginning stages of your model, incorporating and meticulously defining these four elements is essential for long-term success. Regarding Gasmann et al. (Business Model Navigator) a business model have four dimensions: customer, value proposition, value creation, revenue model.
Identifying your customer is a critical step in formulating a successful model. Spending the time to define the consumer properly will help gather essential resources, including a marketing strategy.
2. Value Proposition
In simple terms, the value proposition should explain why someone would want to purchase your product or service. The term refers to the worth that a company offers, how it is communicated, and perceived by the consumer.
3. Value Creation
Successful businesses outline how their company or startup plans to create value for consumers in the short term and how the company will continue to add value to the market in the long term. Identifying immediate value creation is essential to selling products and services, while a long-term plan demonstrates the company's potential for additional revenue streams and future growth.
4. Revenue Model
The revenue model is a key component in a successful plan that needs to include offerings of value, future revenue generation strategies, reliable sources of revenue, and the target consumer.
Business Model Patterns
The St. Gallen Business Model Navigator consists of reusable business model patterns, like Dynamic Pricing to help entrepreneurs create a framework for their new idea, product, or service. As we previously mentioned, not all ideas conveniently fit into a model from the past. Utilizing more than one pattern can create a dynamic model to fit a specific marketplace and lead to long-term growth.
Subscription-Based Business Model Pattern
A subscription model is based on recurring payments over a specific period of time rather than selling individual offerings based on a single price point. Meal delivery services are an excellent example, consumers are offered the convenience of receiving an agreed-upon number of meals per month, and they are charged automatically. Subscriptions can help you build customer loyalty and generate a steady flow of predictable revenue.
While the subscription model business strategy has gained popularity with the rise in the e-commerce business model era, you must be cautious when choosing this pattern. The model is only applicable for products, services, and SaaS (e.g. Microsoft 365) that have reoccurring value. The most successful models improve their products over time to keep customers engaged and excited for new product rollouts. However, offering a subscription service doesn't make sense for every type of business. Potential customers might not be ready to commit to an offer long-term, or the demand is shorter than the subscription period.
Lock-In Business Model Pattern
A business model that offers unique products or services with a contract uses a lock-in model. Customers are confined to the vendor's universe and will be penalized financially if they switch to a competitor. The organization incentivizes brand loyalty by offering a better solution and limiting the loss of revenue with their contract.
A lock-in model can also use technological methods or limited interdependence to promote brand loyalty. Apple's ecosystem is an example of a successful lock-in model that leans on offing value rather than relying on penalties to capture customer reliability and long-term revenue.
Circular Economy Business Model Pattern
The circular economy is a production and consumption model in which existing materials and products are shared, refurbished, and recycled for as long as possible. The goal is to extend the life cycle of products promoting sustainable manufacturing and consumption. Environmentally friendly businesses are increasingly attractive to consumers, especially younger generations. Sustainable brands aren't limited to not-for-profit companies. The model also limits waste by extending materials' life, increasing favorability and revenue for a for-profit business.
When a product reaches the end of its life, the consumer is incentivized to return the product keeping the materials in the economy as long as practicable. The model is based on a closed-loop and relies on large quantities of cheap, easily accessible materials and energy.
Prosumer Business Model Pattern
The term prosumer refers to a consumer that is actively producing and consuming in the business. The consumer is incorporated into the value chain and benefits from the resulting product, while the company incurs lower manufacturing and overhead costs. Social media platforms are reliant on the consumer to upload original content and engage with other users. In a prosumer model, the business provides the resources and infrastructure necessary to directly produce and consumer; because the consumer is involved in the manufacturing process, the product's perceived value grows.
White Label Business Model Pattern
A white label producer permits other businesses to market and distribute its products. Manufacturers will produce a wide range of products in a particular niche and offer wholesale prices to help retailers increase gross profit. Retailers can purchase unlabeled or white label products ready to be marketed, sold, and consumed. The CBD industry is full of white-label producers in the supply chain. Frequently, the same CBD product is sold at a high-margin by many retailers under various brand names.
Direct Selling Business Model Pattern
Direct selling refers to a situation in which a company's products are offered low-touch, directly from the manufacturer or service provider, rather than through intermediary channels. The firm avoids the retail margin and any additional costs connected with the intermediaries in this manner. These savings may be passed on to the client, establishing a consistent sales experience. Furthermore, such intimate touch can help to strengthen client connections.
Multi-level marketing companies use the direct sales model to reduce advertising costs. The company employs people to push their products rather than paid marketing and gives them a percentage of its revenue.
Explore All 108 Patterns
Business Model Examples
To strengthen your understanding of each type of business pattern, we've provided many of the most successful companies in each category. Many of the following companies followed the framework of past models and incorporated their unique products or service to fulfill an unmet need in their market.
Netflix's Subscription Model and LinkedIn's Freemium Business Model
The streaming service Netflix has always offered a subscription model; however, the company could adjust in the shift from DVDs to on-demand streaming. Netflix was so successful in providing TV and movie content digitally; it shifted its pay-per-use model to include producing original content.
Today Netflix is one of the leading studios in Hollywood, and other legacy production companies are forced to mimic its business plan. HBO Max, Paramount Plus, and NBC's Peacock have all rolled out new streaming platforms in the past five years to compete with Netflix. Traditional studios are currently scrambling to purchase as much intellectual property and produce as much original content as possible to offer value and justify monthly subscription fees.
While Netflix only permits access to pay-as-you-go subscribers, many companies offer their services or platform for free but incentivize users to pay a monthly fee for added value, also known as a freemium model. For example, LinkedIn gives premium subscribers access to a Sales Navigator to generate leads, a recruiter tool to help hire talent, detailed business insights, and a library of educational services.
Nespresso, Facebook, Thermomix, and Apple's Lock-in Business Models
The lock-in model is demonstrated with luxury coffee and espresso machine manufacture Nespresso. When a consumer buys a Nespresso machine, they are locked into future purchases because the company exclusively produces the pods required to make coffee and espresso. Nestle saw the value in competing coffee brand Keurig's lock-in model but identified a need in the marketplace for premium quality. Since Nespresso's launch of machines, flavored pods, syrups, accessories, and brick-and-mortar locations, Keurig has released a line of high-end, single-serve coffee makers to stay competitive and retain its revenue streams.
The interactive kitchen appliance brand Thermomix locks customers into their ecosystem of products starting with the initial unit. However, to fully enjoy the Thermomix experience, customers must purchase recipes, additional cooking accessories, parts and book time with a personal kitchen consultant.
Facebook's newly rebranded parent company Meta Platforms Inc. has achieved a technological lock-in model without a transaction or financial penalty. Users can create an account for free to network with other users on the company's social media apps, Facebook, Instagram, and WhatsApp. If you decided you didn't want to support the company's arguably unethical and monopolistic practices by deleting your account, you would lose contact with countless people in your network who don't have the same feelings. Persuading others to adopt new forms of communication isn't viable, especially if you have an extensive network on one or more apps. As a result, you are locked into communicating with friends and family even though you may have issues with the parent company.
Apple performs a similar technologic lock-in with their video communication app, Facetime. While you aren't entirely shut out from contacts if you switch to Android, you would have to convince friends and family to adopt new technology if you want to continue communicating with live video from your phones.
The technology giant also locks in consumers with the ecosystem of products. Once you adopt an Apple iPhone, purchasing products from other companies is more difficult if you want to seamlessly access media, subscriptions, apps, payments, and contacts across all your devices. Your Apple products are connected to the same servers and linked with a unique ID making operating other devices more enjoyable. Consequently, you are voluntarily locking yourself into an ecosystem of technology products joined together by the cloud-based peer-to-peer network.
Circular Economy Business Model from ON Running
A company with a circular economy business model recycles materials from used products and incorporates them into new products. The Swiss running shoe producer ON offers one of their shoes, the Cyclon, as a subscription service. For a $29.99 (€25) per month transaction, you can run in the shoes and return them to ON twice per year. Each pair of Cyclons is made from beans and 100% recyclable and sustainable. When a pair of shoes are returned to the manufacturer, the materials are reused to produce new shoes.
ON uses business model innovation to accommodate their revolutionary idea. A subscription model is needed to ensure their customers continue to use the sustainable product. The company also operates the circulation model because it keeps the materials in the value chain.
YouTube and Tinder Prosumer Models
User-generated content is dominating the internet in 2021. Technology companies like YouTube and Tinder rely on its consumers to create value within the multisided platform. All social media companies rely on the prosumer model to keep users engaged. User-generated content has dramatically evolved due to technology companies harnessing the power of algorithms. YouTube doesn't produce videos, but it provides the infrastructure to upload content and the algorithms to keep users on the platform.
Google and Foxconn White Label Models
While white-label models are common in manufacturing, tech companies like Google also offer their SaaS to other companies. For example, the electric car company Tesla has revolutionized the car industry by making EVs attractive to consumers looking for more than a more sustainable solution to get from A to B. While many consider Tesla more of a software company than anything else, building its own maps would be counterproductive and a waste of valuable resources. Instead, Tesla white labels the base software from Google Maps and navigation data and routing engine from MapBox.
Uber paid Google 58 million over three years for mapping services. Google's open-source solution to mapping is so effective it would take decades to replicate. So, other software companies, SaaS, and web developers license or use the API to incorporate the Google product in their code.
Foxconn is another example of white labeling in the technology sector. The Taiwanese manufacturing company is responsible for producing Apple, Microsoft, Belkin, and Sharp products. As consumers, we are entirely disconnected from Foxconn even though many of our favorite tech is made by the company. The disconnect is purposeful; white-label manufacturers focus on producing rather than marketing and branding. While most of the iPhone are produced in Foxconn factories, the end-user is presented with an engraving stating 'Designed in California'.
Tesla's Direct Selling Business Model
The innovative software and battery consumption technology isn't the only way Tesla has revolutionized the auto industry. Every Tesla customer avoids the traditional purchasing process involving a dealership and salesperson. Instead, Tesla owners buy their cars online, and when their vehicle is ready, it's delivered by a Tesla employee. The direct selling model reduces the cost structure for the customer because there isn't a dealership involved and the headache of negotiating with a commission-based salesperson.
Tesla customers choose their model, color, interior, battery, and motor all online. Cars are made after the order is completed and delivered once the vehicle is ready to drive, simplifying the distribution channels and supply chain. The process is advantageous to the consumer as well as Tesla. The manufacturing process is completed only after a car is purchased. The payment transaction and loan applications are finalized online. Tesla is even rolling out insurance to achieve its domination of the automobile purchasing process.
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Our Business Model Database – Business Model Ideas
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