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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

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The Bottom Line

Learn to understand a company's profit-making plan

traditional business model examples

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

traditional business model examples

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

  • A business model is a company's core strategy for profitably doing business.
  • Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
  • There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
  • The two levers of a business model are pricing and costs.
  • When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

  • Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
  • Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
  • Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
  • Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2023 ."

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21 Different Types of Business Models With Examples

Different Types of Business Models

Having a solid, well-thought-out business model is essential for both new and established companies. These models work to attract new customers and anticipate any upcoming trends or unseen challenges. It also can allow the company to differentiate itself from competitors. Potential investors use business models to quickly and effectively analyze a company’s plans and flesh out information such as how they plan to generate income. Even if you are a small business with no plans of taking on investment, knowing and understanding your business model is crucial to your success.

There are many different types of business models to choose from. It can become overwhelming to decide which model would work best for a company’s individual needs and preferences. This article will analyze and define 21 of the top business models currently used to better understand what each type offers your company.

What is a Business Model?

Through the years, the term business model has had several different definitions. But essentially, a business model is simply an outline of how a company plans to make money with its product or service . Peter Drucker defined the term as “assumptions about what a company gets paid for”. A t their core, they all work to identify revenue sources, the customer base for their products and services, and the expenses the company anticipates to allocate to marketing these products and services.

Understanding your business model is important for many reasons. One of those reasons is that when you understand your business model, you are also closer to answering many other important questions about your business. When your business model is clear you get a better idea of who your customers are. And once you understand that, you also can answer the question “how does our business model add value to our customer”.

Not knowing, understanding, and choosing the right business model can be detrimental to your business. Later in the article, we explain how choosing the wrong business model is costing one company hundreds of millions of dollars. But for now, all you need to know that if your business model does not match up well with your product and what the market demands, you may soon see your profits dwindle as competition increases.

 If you are not sure if you have the right business model for your business, or if your current business model is running out of gas, read our list of 21 business models to see if there is another, better, solution for you.

21 Types of Business Models

1. freemium business model.

Freemium is a combination of the words free and premium. Companies following the freemium business model offer the most basic version of their product or service for free to entice consumers to purchase the more advanced features, capabilities, or add-ons of the product or service in the future. The freemium business model works for new companies by cultivating strong relationships with customers. It also works best for internet-based service companies.

Freemium business model examples:

2. subscription-based model.

traditional business model examples

Image by mjimages from Pixabay

The subscription-based model allows companies to charge consumers monthly or yearly subscription fees to access their product or service. This model depends on these consumers continuing to love and utilize the service. To keep consumers satisfied and paying monthly subscription fees, companies need to continually improve their products or services to keep up with changing trends or competitors. The subscription-based model is popular with streaming services like Hulu, Netflix, and Spotify. It is also popular among monthly subscription boxes for beauty and fashion such as Ipsy or FabFitFun. The ideal profit margin varies depending on the type of subscription.

Physical subscription based businesses should aim for 30%-40% profit margins. Streaming services do not directly report profit margins but the figures can somewhat be figured out by the average revenue per user. Although it may be hard to find those numbers for all services, most services only make between $4-$10 revenue per user.

Subscription-based model examples

  • Streaming services
  • Dollar Shave Club
  • XBox Game Pass

3. Peer-to-Peer Business Model

Peer-to-peer business mode

Image by postcardtrip

In a peer-to-peer business model, a company acts as the go-between businesses and the customers interested in purchasing their products or services. The companies using this model provide the platforms, navigate the regulations, and set pricing for the products or services. A well-known example of this business model would be ride-sharing services such as Lyft and Uber. These platforms allow people to receive rides to and from requested destinations by those who apply to be drivers for the service.

Peer-to-peer business model examples

4. franchise model.

traditional business model examples

Sometimes the franchise model is referred to as a hybrid model. It provides a sense of working for oneself with the added security of having a company’s backing with familiar trademarks and products. There is a legal and commercial relationship between the franchisor, the parent company owner (usually a corporation), and the franchisee. The franchisee (or business owner) is allowed to sell the franchisor’s products or services in exchange for paying a royalty fee. Both parties sign contracts to clarify the specifics, spelling out each side’s role in the business relationship.

Franchise model examples

  • Merry Maids Residential Cleaning

5. Direct Sales Business Model

In the direct sales model, a company’s employees will be the ones who demonstrate and sell the products or services being offered directly to the intended consumers. This effectively eliminates steps within the distribution process, such as wholesalers and the regional distribution centers. Direct sales is a great way to build strong, lasting customer relationships. One common direct selling types is single-level marketing (SLM). This is when a salesperson is compensated for their sales. Another second type is called multilevel marketing (MLM). This model is when a person is compensated for sales made by salespersons recruited by them and under their authority.

Direct sales business model examples:

  • Stella & Dot

6. Affiliate Marketing Business Model

People using the affiliate marketing business model promote and sell products from other companies online to get paid a percentage of the sales they make. This business model is common with “influencers” on Instagram or other leading social media apps. They will post about a company’s product to entice their followers to buy it through them. Many of their followers will buy the product through the supplied link. It is a win-win situation for both the influencer marketing the product and the company selling it. Affiliate business models are also popular among bloggers and online publishers.

There are 4 primary ways an affiliate can earn money from an affiliate program.

  • Pay Per Sale (PPS) – Affiliate earns a commission when a sale is made.
  • Pay Per Click (PPC) – Affiliate earns a commission whenever an affiliate link is clicked.
  • Pay Per Impression (PPI) – Affiliate earns a commission when a visitor lands on the merchant’s site.
  • Pay Per Lead (PPL) – Affiliate earns a commission when someone clicks on affiliate link and then takes an action such signing up for a free trial or completing a form.

Affiliate marketing business model examples:

  • Amazon Affiliates
  • Commission Junction (CJ Affiliate)

7. E-Commerce Business Model

e-commerce

Photo by PhotoMIX Company

Electronic commerce, or “e-commerce,” is a business model in which companies and individuals buy and sell products and services online. Because the business is entirely online, the products and services offered are nearly limitless. An e-commerce business offers companies the extra convenience of not needing a physical store. This increases the selection of products available to consumers. A business might combine the e-commerce model with the drop-shipping model.

Types of E-commerce business models

  • B2B: Business to Business Ecommerce- The B2B model focuses on providing products from one business to another.
  • B2c: Business to Consumer Ecommerce- B2C model focuses on businesses providing products to the consumer base
  • C2C: Consumer to Consumer Ecommerce- C2C model focuses on consumers selling directly to other consumers. Sites like eBay and Craigslist are examples of C2C companies.
  • C2B: Consumer to Business Ecommerce- This model is when a consumer sells products or services to businesses. Those in this line of work will often times be freelancers and sole proprietors.

8. Drop-Shipping Business Model

Companies using the drop-shipping business model sell various products on their websites, but supplying and shipping these products is done by a third-party wholesaler. The significant upside to this business model is that you do not need to pay for or maintain inventory for any of the products you sell. It can be costly to store, package, and mail out orders. In the drop-shipping model, a third party (which is typically the wholesaler) will handle the logistics of shipping and making sure the customers receive the products they ordered. The individual who marketed the products gets a percentage of the sales.

9. Vertically Integrated Business Model

The vertically integrated supply chain business model is when the company controls both supply and distribution.   The company controls all costs of production, inventory stocked, marketing, and pricing. Because the company has complete control of the product from start to finish, it can decrease transportation costs and improve sales and profitability.

Vertically integrated business model examples

10. consulting business model.

traditional business model examples

There are two parts to the consulting business model. First, hiring experts or developing a list of freelancing consultants, and second, charging a fee to provide access to these experts by your clients. Typically, your experts will provide a service that speaks to the consumer’s needs. Hopefully, the customer will return to you as further needs arise. Common examples of this could be online tutoring, mentoring, and freelance work in several different fields.

11. Ad-Supported Business Model

Advertising is a significant component in why some companies are incredibly profitable and why some will financially fail. Failure to advertise a product or service can lead to people not even knowing a company exists. The ad-supported business model emphasizes the importance of advertising and the sales generated from it. Popular platforms to advertise products or services include print media, online media, and television.

Ad-supported business model examples

12. enterprise business model.

In the enterprise business model, specific aspects of a business are modeled, such as infrastructures and asset groups. The company leaders will see what needs to be altered within the business to maximize profits. The enterprise model is more about evaluating how the business is functioning than it is about the overall structure of the business.

13. Lock-In Business Model or Lock-In Strategy

The lock-in business model takes customer loyalty and kicks it up a notch. This is done by essentially locking customers into a company’s product or service by making it difficult to abandon the company without dealing with negative consequences. Some of these consequences include increased costs or making it difficult to switch. For example, Apple compels customers to stick with them by making it extremely simple to sync every Apple product. But, also make it challenging to use their products alongside competitors. For example, the Apple watch is nearly impossible to use with an Android phone. A lock-in business model ideally leads to customers sticking with one company for the long haul.

Lock-in examples:

  • Apple utilizes this strategy
  • Some major banks utilize this strategy as well
  • Microsoft Office Suite

14. Multi-Brand Business Mod el

traditional business model examples

Old Spice has done a brilliant job marketing their multi-brand business with clever and hilarious advertisements.

With the multi-brand business model, a parent company will offer similar products with different brand names to increase their market share. By doing this, the company effectively reduces any potential competition. A company with many similar products at different price points will appeal to a significant number of customers.

Multi-brand companies examples:

  • Procter & Gamble

15. Razor and Blade Model

The razor and blade model works by selling products or services to consumers at a lower price. Then later selling a related product or service to the consumer for increased profits. The name razor and blade comes from King Gillette. Gillette effectively worked to overtake the men’s razor market by offering a sturdy and reliable razor that required the use of blades only sold by Gillette. As a result, the company cornered the market on razors for a time and is still dominate today.

Examples of razor and blade business model:

  • Playstation
  • Computer printer manufactures

16. Distribution Based Business Model

The distribution-based business model facilitates the distribution of products or services offered from the manufacturers to the consumers. With this model, the business ensures that the mode of distribution chosen to get the product or service to the consumer is the most direct, and more importantly, the most cost-efficient manner possible. No one distribution method is universal for all companies. The chosen methods depend on such factors as your product’s perishability, target market, and geographic area covered by your company.

17. Direct-to-Consumers Business Model

traditional business model examples

With the direct-to-consumer business model, consumers buy products or services directly from a company’s website, eliminating the middle-man. The model not only saves the company money but can be convenient for the customer as well. Consumers would have to physically visit a store to purchase the product they desire but know they can order the product directly from the company or manufacturer. There is no longer a need for a brick-and-mortar store, saving the company money. The company tends to have greater control over their branding and stronger relationships with their customers with this model, leading them to buy from the company again.

In recent years, however, the DTC model has struggled to scale on its own for many larger companies. One of the pioneer companies in this type of business model was the DTC mattress company Casper. This company was once seen as a unicorn startup a decade ago but has seen its market share and valuation plummet. The company’s IPO attempt in 2020 was nothing short of a disaster. At one point, Casper was valued at more than $1 billion. But, at the time of its regulatory filing, it had cut its IPO target share price to $12 to $13 from $17 to $19. That valued the company at around $500 million. A lawsuit was even filed accusing Casper of misleading investors into pouring $100 million into its IPO, knowing its financial prospects were far dimmer than it promised.

Examples of direct-to-customers business model:

  • Apple Store
  • Warby Parker
  • Casper Mattresses

18. Low-Touch Business Model

Some customers want the least amount of interaction with the company possible. Businesses that want to meet that need should adopt a low-touch business model. Products sold using this model can be consumed or used with little interference from salespersons or customer service. Due to the pandemic of 2020, many businesses learned to adapt to the threat. These businesses adopted low-touch strategies to help keep their doors open. For example, more take out restaurants began using kiosks for ordering instead of placing an order with a human team member. 

Other sectors such as hotels began using virtual check-ins through apps. This limited contact with other guests in the hotel lobby as well as employees of the hotel. As we return to normal, it is believed that many of these businesses will retain their low-touch option and many other businesses will begin using this practice also.

Low-touch business model examples:

  • Wal-mart Online
  • e-commerce sites

19. Fractionalization Business Model

In this model, companies will sell partial usage of their product or service to consumers, such as offering a timeshare deal for a condominium in a desirable location. Consumers will receive full benefits of the timeshare when they are there, but they can only be there for a pre-determined time each year.

20. Pay-As-You-Go Model

traditional business model examples

Photo credit: Mike Motzart

As the name suggests, consumers will pay for the service or product as they use it.  Meaning there is no recurring bill or subscription necessary. This model should entice those who do not like to be tied down. If the product or service is of high quality and worth the price paid, they will continue using it.

Pay-as-you-go model examples:

  •  Cell phone carriers
  • Power companies
  • Internet service providers

21.User-Generated Content Business Model

User-generated content business is a type of content distribution platform where the users create the content. Social media platforms and sites like Youtube and Quora are successful due to the content that is nearly 100% user-generated. This model eliminates the need to create content as a primary way to engage visitors. This is another type of business model that is often combined with the advertising model. But unlike traditional content distribution platforms like CNN and Fox News, UGC sites typically adopt the personality of their users.

User-generated content business model:

  • Online forums

In conclusion, the different types of business models mentioned will appeal to a wide range of companies’ needs and preferences, including highly niched marketed ones. When picking a company’s business model, it is vital to consider what would be appropriate for the company as a whole and the intended consumer. Which model will entice the target market to buy (and continue to buy) from the company? Using the right business model will maximize profits and provide clear, practical ideas to sustain profitability for years to come. 

Additional photo credits: Under CC

Thomas Martin

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traditional business model examples

Tom is a member of the Editorial Team at StartUp Mindset. He has over 6 years of experience with writing on business, entrepreneurship, and other topics. He mainly focuses on online businesses, digital publishing, marketing and eCommerce startups.

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Traditional Business V/S Digital Business and Types of Business Models Used

Devashish Shrivastava

Devashish Shrivastava

This post discusses the differences between traditional businesses and digital businesses. It also talks about the types of business models that come under these two forms of businesses.

Managing a business is both challenging and interesting. It’s not like your 9-5 government job where one reaches the office at or before a particular time, does some mundane tasks, and then wraps up for the day at a fixed time. With business, everything takes a different turn. Inherent risks and the constant need to pacify customer requirements float in the business owners’ minds.

A traditional business setup has a physical presence, and it serves people locally by providing services or products through brick-and-mortar stores. In case of a digital business setup, people sitting in any corner of the world can scroll through the web and avail the company's services and products.

What is Traditional Business? Types Of Traditional Business Models What is Digital Business? Types Of Digital Business Models Traditional Business V/S Digital Business

What is Traditional Business?

Organizations such as restaurants, agencies, and anything resembling an office-setup fall in this category. Traditional business-oriented organizations usually sell products or services through stores.

A traditional business serve s customers in exchange for monetary compensation. It works on CAPEX and OPEX. While such organizations focus on profit generation, a few of them—non-profit organizations—work for customers without expecting profits.

Types Of Traditional Business Models

Various types of business models used in traditional business are:

Manufacturer

The manufacturer business model utilizes raw materials to create products that are then sold in the market. This type of business model involves the assembly of pre-manufactured items. The products are either directly sold to the customers in what’s known as B2C model (business to customer) , or to another business unit in the form of B2B model (business to business) . Automobile manufacturers are an example of B2C model, and wholesalers follow the B2B model.

Distributor

A company in the distributor business model buys products directly from the manufacturer . The company then sells the procured products to consumers or retailers.

A company following the retailer business model purchases products from the wholesaler/distributor. It then sells the inventory to the public. Brick-and-mortar stores fall in this category.

In this setup, the company buys the franchise of a very successful brand and promotes the brand’s services/products to the general public. The franchise segment is a popular way to build awareness across geographies.

What is Digital Business?

Digital business is the modern form of business, a significant deviation from the established norm. This model leverages technology for value creation & addition, thereby giving an entirely different customer experience.

The umbrella term includes both digital-only brands as well as traditional businesses that use modern-day innovations. Prominent examples of digital businesses are Uber, the cab-owning service which allows the user to book cabs online, Disney+Hotstar , and Netflix (video streaming service).

Types Of Digital Business Models

Types of the business model used in digital business are:

Small businesses fall in this category. With a small presence on digital platforms, such ventures rely on traditional marketing methods like direct mail and print advertising.

Intermediate

A level where small businesses employ tools like websites with basic functionality; these sites don't have e-commerce or mobile rendering capabilities. Other factors like listing in online directories and third-party marketplaces play a major part here.

Advanced websites with mobile app versions or e-commerce abilities are used by digital businesses in this category. The reliance on Social media engagement is quite significant. Video conferencing, SAAS apps, etc. are part of the toolkit.

This model is the epitome of digital business. Such ventures have high social media visibility, have little or no physical presence (as in brick-and-mortar stores), and engage with customers extensively through the internet.

Traditional Business V/S Digital Business

Traditional Vs Digital Business

There are various differences between traditional business and digital business which are listed below:

  • The traditional business model requires more capital than its digital counterpart. The former needs place, furniture, transport, staff, and other utilities. Digital businesses are cost-effective in this aspect.
  • A business unit following the digital approach is convenient for customers in terms of the flexibility offered in the variety and cost of products (consider Amazon's extensive product catalog). In the traditional setup, rigidity is a major issue. As a result, consumers are now inclined towards shopping online.
  • The digital business model is yet to achieve perfection when it comes to real-time customer experience . For example, you can’t try a mobile phone before purchasing it from Amazon. You rely on customer reviews and the specifications listed on the website. This obstacle is overcome in the traditional business model.
  • Online businesses tend to have a larger digital market spend than their old-school counterparts. Traditional businesses diversify marketing strategies to attract customers from both local areas and online demographics. But their reach is relatively restricted to digital businesses.
  • Digital businesses work 24/7 and overcome both geographical and timing barriers. You can carry out online purchases in the middle of the night from anywhere in the world.
  • Organizations based on the traditional business model have restrictions on when and where they function. Timings are rigid and customer service isn’t flexible either. There are exceptions where few traditional business operates 24/7, but those are limited in numbers and function in select locations only.

What is the difference between traditional business and digital business?

A traditional business setup has a physical presence, and it serves people locally by providing services or products through brick-and-mortar stores. In the case of a digital business setup, people sitting in any corner of the world can scroll through the web and avail the company's services and products.

Why is online business better than traditional business?

Digital businesses work 24/7 and overcome both geographical and timing barriers. You can carry out online purchases in the middle of the night from anywhere in the world. Traditional business has restrictions on when and where they function.

What is traditional business?

What are traditional business models.

Types of Traditional Business Models:

  • Manufacturer: The manufacturer business model utilizes raw materials to create products that are then sold in the market. This type of business model involves the assembly of pre-manufactured items.
  • Distributor: A company in the distributor business model buys products directly from the manufacturer.
  • Retailer: A company following the retailer business model purchases products from the wholesaler/distributor. It then sells the inventory to the public. Brick-and-mortar stores fall in this category.
  • Franchise: In this setup, the company buys the franchise of a very successful brand and promotes the brand’s services/products to the general public. The franchise segment is a popular way to build awareness across geographies.

What is the difference between traditional and non-traditional business?

The major difference between traditional and non-traditional business are:

Traditional

Standalone stores, retail spaces in malls, and any other type of place that houses a usual location for a given franchise fall under the category of traditional businesses.

Non-Traditional

Non-traditional businesses conduct most of their operations over the internet. They might have a few physical stores but these are generally for resolving customer issues and function as a point-of-contact.

What are the types of ECommerce Business models?

Four Traditional Types of Ecommerce Business Models are:

  • B2C – Business to consumer
  • B2B – Business to business
  • C2B – Consumer to business
  • C2C – Consumer to consumer

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Home / Online Business Degree Programs / Traditional Types of Business Models

Traditional Types of Business Models

A business model is simply the overarching plan of a company to generate a profit by selling a service or a product. The business model provides an outline of the plans of the company to produce a product or service and to market it. This plan also includes the expenses that will occur with manufacture and marketing of the service or product. Different business models exist, each of which can suit different companies and types of businesses.

Manufacturer

The manufacturer business model utilizes raw materials to create a product to sell. This type of business model might also involve the assembly of prefabricated components to make a new product, such as automobile manufacturing. A manufacturing business can sell the products created directly to customers, which is known as the business-to-consumer model. Another option involves outsourcing the sales aspect of the process to another company, which is known as the business-to-business or B2B model. Wholesaling manufacturers typically sell products to retailers, which then sell directly to consumers. An example of this type of company might be a clothing manufacturer that sells merchandise to a retailer, which then sells to consumers.

Distributor

A company fitting the distributor business model would be a business that buys products directly from a manufacturing company. This business would then resell the products directly to consumers or to a retailer. The distributor often acts as one of the middle points between a manufacturer and the general public. Distributors have the challenge of setting price points that will produce a profit while also utilizing effective promotion strategies that will secure strong sales. Competition can be fierce for distributors, which necessitates continual analysis of the market.

A retailing business purchases products directly from a wholesale or distributing company, then sells the inventory directly to the public. Retailers often utilize a brick-and-mortar location for points of sale. Examples of retailers include grocery stores, clothing stores, and department stores. Retailers might be nationwide chains, or they could be independent shops operated by a single entity. A physical location for a retailer is common but not mandatory. Retailers may choose to offer sales as an online retailer. Online retailing can be done alone or in combination with selling from a physical location. Retailers experience the ongoing challenge of competing against other retailers that offer similar products.

A franchise business model might involve any of the other business models, such as manufacturing, distributing, or retailing. Franchise business are set up according to the unique service or product sold or produced. The business model of the franchise is adopted by the purchaser of the franchise, who is known as the franchisee. Purchasing a franchise has some important benefits for the franchisee, since most business processes and protocols are already established for the business. However, with these established protocols come less flexibility for the franchisee.

Additional Business Model Structure Options

Within these four standard business models, business owners can structure their companies to include specific features of one or more models. For example, a company that engages in direct sales to consumers might integrate a process of product demonstrations in the consumer’s home. Companies could also engage in direct online sales without the use of an intermediary company. Retailers that utilize both a physical store location and a website could offer online sales for consumers who could then pick up their items at the brick-and-mortar store. Companies might also hold Internet auctions for sales. Some businesses also utilize a sales approach that offers a free basic service with the option to upgrade to a paid, premium service. Business model structures can vary significantly, and companies might explore a wide array of combinations to find a model that meets with success.

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What is a business model? (Plus, how to define yours)

Last updated: September 2023

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Business model large

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

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There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

traditional business model examples

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

  • What is value-based product development?
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Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Business model in Aha!

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

Lean canvas example in Aha!

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

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What Is a Business Model? Explained With Types & Examples

The Business Model Canvas Template

Free Business Model Canvas Template

Ayush Jalan

  • December 15, 2023

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Capital is the lifeblood of any business. From building a startup to sustaining an MNC, your business model affects every decision you take. It’s one thing to have a great business idea and a whole other thing to turn it into a long-term profitable mechanism.

In this article, we’ll see what is a business model, factors to consider when choosing one, and 15 of the most successful business models to look into.

What is a Business Model?

A business model is the DNA of a company. It dictates how you earn profits, price your products, and manage costs. It envelops all the necessary processes that need to happen to convert returns on your investments.

Picking a business model for startups is especially tricky as it greatly influences the funding they raise. Investors study your business model to evaluate its viability, profitability, and sustainability.

A business model answers these six important questions:

  • Who is your target audience?
  • What are you planning to offer them?
  • How are you going to market your offerings?
  • What are the costs involved?
  • What is your pricing strategy?
  • What are your revenue streams?

Which Business Model Should You Choose?

Few things to consider while choosing a business model

A few things to consider while choosing a business model are:

Consumer buying behavior:

Flexibility:, competitors:, industry leaders:, 15 types of business models with examples, 1. brick and mortar.

Brick and mortar is a traditional business model. Any business that sells its products directly in physical stores or offices uses this business model.

While this business model has been the standard for ages, the rise in internet access has led to an increase in online stores—negatively affecting physical counterparts.

Examples: grocery stores, restaurants, and coffee shops.

2. E-commerce

The polar opposite of the brick-and-mortar model is the e-commerce business model . It is opted for by companies that sell their products or services on the internet via e-stores.

Since these businesses operate virtually, they don’t need a physical outlet. Over the years, e-commerce has transformed how people shop , making it convenient, easy, and seamless for consumers.

Examples: Shopify, Alibaba, PayPal.

3. Bricks and clicks

A hybrid of the above two is the bricks-and-clicks business model. Companies that use this model sell their products online as well as in physical stores.

Many traditional brick-and-mortar businesses have started selling online to steal a piece of the e-commerce pie. Conversely, e-commerce companies are setting up physical stores to increase visibility and brand loyalty.

Examples: Zara, Walmart, Amazon, and Target.

4. Manufacturer

The manufacturer business model refers to the companies that use raw materials to produce goods or assemble parts to create finished products. These companies either sell directly to customers or intermediaries.

Examples: Toyota, General Motors, Samsung, LG, Sony.

5. Wholesale

Wholesalers buy large quantities of finished products from manufacturers and sell them to multiple retailers or distributors in smaller quantities. They are a key intermediary in the supply chain.

Examples: Costco, Walmart, and Johnson & Johnson.

Retailers are the last intermediary in the supply chain. They buy products from wholesalers, distributors, or even directly from manufacturers and sell them to consumers.

Nowadays, there are many businesses and individuals who make money through Amazon, for example, while also using many of its benefits.

Examples: Target, The Home Depot, Best Buy, Casper.

7. Subscription

The increasingly popular subscription business model allows companies to charge their customers a recurring fee for continual benefits. Think SaaS companies and subscription box companies.

Examples: Netflix, Disney+, Amazon Prime Video, FabFitFun, BirchBox, and Dollar Shave Club.

8. Freemium

The freemium business model is quite similar to a subscription model. Except, it includes a free version on top of the paid service. The latter is usually displayed as a premium variant.

For instance, Hulu offers a 7-day free trial while Spotify offers a free version that can be used indefinitely.

Examples: MailChimp, Evernote, LinkedIn, and DropBox.

9. Franchise

In this model, a franchisor company grants the rights over its brand identity, intellectual rights, and resources to a franchisee company in exchange for a fee called royalty.

For instance, McDonald’s permits its franchisees to run their restaurants under its brand name. In exchange, the franchisee pays an initial fee and a cut of the revenue incurred.

Examples: Subway, Domino’s, UPS Store, Coca-Cola, Nestlé, and Hyundai.

10. Razor and blades

The name ‘razor and blades’ comes from the pricing tactic used by the popular Boston-based company Gillette. The company sold its razor handles at a lower price to increase the sales of its razor blades.

In a nutshell, companies sell a primary ‘razor’ product at a low margin to boost the sales of its complementary ‘blade’ products which are sold at a high margin.

Examples: Microsoft Xbox, Sony PlayStation, Nespresso.

11. Reverse razor and blades

Contrary to the above, in the reverse razor and blades business model, companies sell the primary ‘razor’ product at a high margin and sell complementary ‘blade’ products at a bargain.

For instance, Amazon sells the Kindle Paperwhite at a high price because it allows buyers to further purchase ebooks at a discounted price.

Example: Apple sells iPhones at a premium price and allows users access to affordable complementary services like Apple Music and App Store.

12. Advertising

Advertising is one the oldest business models wherein an advertiser pays to get their product promoted on a publisher’s platform. Earlier, this used to be limited to newspapers, magazines, and storefronts.

Today, advertising is a highly saturated business model covering platforms such as social media, video games, job portals, billboards, email, mobile apps, etc.

Examples: Google, YouTube, TikTok, Meta, Twitter, and LinkedIn.

13. Crowdsourcing

In this model, a company solicits contributions like ideas and services from a crowd of unaffiliated providers. These contributions are then pooled into a unified platform controlled by the company to create something of value.

There are multiple types of crowdsourcing but perhaps the most recognizable one is used by Wikipedia. Here, volunteers contribute to creating and adding value to the platform accessible to everyone. The hosting company, Wikimedia Foundation, makes money via donations.

Example: McDonald’s asked fans to create new burger recipes under its “My Burger” campaign. The most acclaimed ones were then added to the menu to try and increase sales.

14. Hidden revenue model

All social media companies use the hidden revenue model. Unlike other models, this business model allows companies to offer their products to consumers for free—concealing their revenue.

Instead, they make money via third parties in the form of advertising. This helps keep the product free to use or subsidized enough to be available at a very low price.

Examples: Google, YouTube, TikTok, Facebook, Twitter, and LinkedIn.

15. Peer-to-peer

In this model, companies provide a platform for two parties to collaborate or make transactions. The company acts as a middleman overseeing the trade by establishing regulations to reduce the risks for both parties.

A perfect example is Airbnb; it allows hosts to rent out their properties to hostees. The company makes money via commissions from both parties.

Examples: Uber, Freelancer, OLX, Craigslist.

Actualize Your Potential with a Tailored Business Model

Choosing the right business model can be quite tricky since there’s so much at stake. However, with adequate research and testing, you can be sure to find a model or combination of models that work best for you.

Opting for a business model that has a proven track record can be a safer choice if you’re unsure of your startup’s viability. Although, if you’re willing to take some risk, creating a new model or tweaking existing ones can prove to reap more profits eventually

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About the Author

traditional business model examples

Ayush is a writer with an academic background in business and marketing. Being a tech-enthusiast, he likes to keep a sharp eye on the latest tech gadgets and innovations. When he's not working, you can find him writing poetry, gaming, playing the ukulele, catching up with friends, and indulging in creative philosophies.

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Business Model Types Explained Using Real-World Examples

While kick-starting a business, the critical foundation of the process is planning. However, business planning may sound boring, but you need to invest your time determining:

  • What to sell, 
  • Who would be your customers, and 
  • How your business would make money. 

Besides, you need to choose a business model and include it in your business planning and research. 

This post will take you on a walkthrough:

  • Definition of a business model
  • Components of a business model
  • Traditional eCommerce business models
  • Different types of business models, and
  • How to pick a suitable business model

Let’s start then!

Table of Contents

What Is a Business Model?

A business model tells about a company’s plan to make a profit. It identifies:

  • The product or services a business would like to sell,
  • The target customers, and 
  • Any expected expense. 

Undoubtedly, business models play an important role whether you have a well-established business or planning to start a new one. They may ask the companies about the prospects of the business idea, whether it would catch up with success. 

The business models assist companies in magnetizing investment, recruiting needed experts, and encouraging staff and management. 

A business, even if it’s already established, should update its business plans, or it may expect a fall in understanding the challenges and trends ahead. 

Furthermore, investors can opt for the companies that interest them through business plans. 

Essential Components of a Business Model

One should follow every business model component as they offer a complete guide towards making a company profitable and crafting customer value. 

Let’s review the top components of a business model one should consider:

As value is related to business models, it addresses the key features of your solutions that make them exceptional. 

Also, the value can include the treatment you give to your business employees and consumers concerning their requirements and considerations.

Your message must be robust and clear to magnetize the customers’ attention and convince them that your products or services are worth purchasing. 

One can use this message in advertisements and should reflect his brand’s unique traits and enclose a call to action, like “ Contact us Today ” to catch up with a quote. 

A robust business model holds a list of solutions for the customers’ issues. One needs to ensure that such solutions are realistic by considering the resources available for you to use at any time. 

Go to Market

It includes choosing the channels for promoting and selling your products or services, like mobile app stores, social media platforms and paid search.

Customer Targets and Challenges

When choosing a business model, it’s significant to know the potential customers interested in buying your products or services. 

This component needs to list the challenges our target customers may face while consuming our offerings, such as receiving a wrong or damaged product and what steps they should take further.

Growth Opportunity

It includes finding the ways that can assist your company to grow. For example, you can search for acquisitions and mergers with other brands and partnerships with nonprofit firms for charity campaigns. This way, you can enhance the efficiency of your business operations by expanding your staff which may lead to enhanced brand reputation. 

As a business person, you should craft a pricing model for the product or services you want to sell. If your brand is new, you can start with low prices to attract customers, but be sure it’s high enough to cover costs and overhead expenses. While setting the price, remember to consider the quality of the products or services. You can offer special deals and discounts when you reach your profit margins. 

A high-level Vision

While creating your company’s vision, you should remember to state your business’s industry and use a positive tone. 

Key Objectives

Post establishing your company’s vision, you need to determine your top quantifiable targets and a plan to evaluate them. 

Your objectives can be relevant to your operating costs, annual sales revenue, staffing decisions, or marketing strategies.

New businesses need to set reasonable goals, whereas an already established one should go for more ambitious targets, like increasing customer reach. 

Required Investment

One should decide the needed investments to avoid any costly losses. So, before making such a decision, one should set the budget and conduct a cost-benefit analysis. 

What Are The Four Traditional Types of eCommerce Business Models?

While starting a new eCommerce business, chances are you will fall into any of the general categories of the eCommerce business model below. Many companies work in various types simultaneously.

Each comes with its benefits and challenges. 

Let’s check them out:

B2C – Business to Consumer

As the name says, business to consumer (B2C) , businesses sell to the end-users, customers in this business model. A widely-known and used model, B2C covers a plethora of distinctive approaches. 

This business model’s decision-making process is much shorter than other models, especially for lower value products or services, like B2B purchases. 

So, because of the short sales cycle, B2C businesses usually spend less on marketing to make a sale. But, its average order value is lower and recurring orders are less. 

B2C innovators consider using the technologies such as native advertising, remarketing, and mobile apps to market to their customers directly and ease their lives. 

Examples: Walmart, Amazon

B2B – Business to Business

In this business model, a business sells its product or services to another company. Sometimes, the buyer is the end-user here, but mainly, the buyer resells to the consumer. 

Such a business model, B2B , has a longer sales cycle, but the order value is higher, and recurring purchases are more. 

Nowadays, B2B innovators have made a position for themselves by replacing order sheets and catalogs with eCommerce stores and expanding targeting. 

Example: Intel, Panasonic

C2B – Consumer to Business

C2C businesses permit individuals to sell goods and services to companies. 

In this business model, a website may allow customers to post their preferable work for completion and get businesses to bid for grabbing this opportunity. Affiliate marketing services are also known as C2B. 

The competitive edge of the C2B model is the pricing of goods and services. This approach facilitates consumers with the strength to name their price or business directly to fulfill their needs. 

Recent C2B innovators have started connecting companies to social media influencers using this model to market their products. 

Example: Referral programs, data sharing

C2C – Consumer to Consumer

Also known as an online marketplace, the C2C business model connects the consumers to exchange their goods and services and make money by charging listing or transaction fees. 

C2C businesses need to take care of their products’ or services’ quality and technology maintenance. 

Examples: eBay, Etsy

Types of Business Models

As we have read, the business model is the best way to streamline your business process. 

A business model is a complete framework that defines, understands, and designs an entire business. 

Let’s go through different business models with examples to get better insights. 

1. Franchise Model

This model is best for the company’s expansion. By franchising, the franchisor gets a chance to license its brand name, resources, rights for a franchise, and intellectual property to sell its goods and services in exchange for royalty. 

Examples: McDonald’s, Subway

2. Multi-sided Platform Model

A company that offers services to both sides of business chooses a multi-sided business model, like a hiring company that charges people who want to hire candidates and others who wish to get hired. 

Examples: Freelancer.com, LinkedIn 

3. Cash Machine Business Model

Also referred to as the cash conversion cycle (CCC), this model is for companies that quickly convert cash into goods and services and then into money. Such brands make low-profit margins but survive longer with a disruptive position. 

Examples: Amazon, Apple

4. Freemium Business Model

Tech brands usually use paid and free services, the software as a Service (SaaS) freemium model. The companies that need to grow their business and acquire customers offer free versions or limited features. The customers need to choose paid services to unlock the upgraded versions or advanced features.

Examples: Dropbox, Zoom

5. Subscription Business Model

This business model permits customers to catch up with services on paying a monthly fixed amount or annually. The company needs to offer enough value to the customers to become repeat customers. 

Moreover, it allows brands to divide the market and offer certain items under different plans and prices, known as tiered offerings. 

Examples: Amazon Prime, Netflix

6. Peer to peer Business Model

In this model, a company is a middleman between two parties and crafts value for supply and demand. It’s different from B2C and B2B , making a profit through commission.

Examples: Airbnb, eBay

7. One for One Business Model

Also known as a social entrepreneurship business model, this model is a hybrid solution combining profit and nonprofit services. 

Examples: Soapbox Soaps, TOMS Shoes

8. Hidden Revenue Business Model

It refers to a revenue generation system that facilitates users not to pay for the services offered. Still, the brands earn revenue from other sources. 

Examples: Google, Instagram

9. Razor and Blade Business Model

Also termed as a printer and cartridge business model, one product (Razor) is sold at a low cost in this business model. In contrast, another associated item (blade) is sold premium. For the recurring sale of an associated item, one can use this model to generate a continuous flow of revenue.

Examples: Nespresso coffee machines, HP Printers

10. Reverse Razor and Blade Business Model

It’s the reverse of the razor blade model in which low-priced products are offered to motivate customers to purchase premium-priced items. This model follows the strategy according to which the customers are given a one-time offer for the high-priced products and catch up with enhanced revenue from the secondary items in a long way out.

Examples: Apple sells apps, songs, and movies at an affordable rate but charges high on its devices, like iPad iPhone.

11. Direct Sales Business Model

In this business model, the brands sell products directly to end customers, whether in one to one conversations or small gatherings. 

Examples: Personal Care & Nutrition Brands (Herbalife, Avon), Tupperware

12. Affiliate Marketing Business Model

Using this model, the companies make money by reviewing, recommending, and featuring other brands’ goods or services. 

Examples: Capterra, NerdWallet

13. Consulting Business Model

Companies that offer consulting services by hiring qualified and professional people and assigning them to clients’ projects choose this business model. Such companies charge on an hourly basis or pick a percentage share based on the successful completion of the project. 

Examples: Mckinsey, Deloitte

14. Agency-based Business Model

It’s a project-based business model, where the company hires an outside firm to complete their specific tasks like some brands hire advertising agencies for their promotional needs.

Examples: Leo Burnett Company, TBWA\Media Arts lab

15. User-generated Content Business Model

It’s a new, yet fast-growing model that permits users to create quality content on websites for free to resolve other users’ queries and provide reviews. User-generated content is also compiled in this model and sold to brands seeking to use customers’ ideas and content for promoting their brands. 

A wide range of digital commodities uses this model.

Examples: Yelp, YouTube

16. Online Educational Business Model

This business model targets the educational industry, including teachers and students, and permits them to access educational resources through subscription or flat course fees. You can name it a combination of freemium, a subscription-based model, and course fees. 

Examples: LinkedIn learning, Khan Academy

17. Instant News Business Model

This model targets updating and sharing news with no intermediary.

Brands that choose this model offer reliable and open channels permitting trusted primary and secondary sources to spread urgent announcements or breaking news directly to their audience. 

Example: Twitter

18. Multi-brand Business Model

It’s based on marketing multiple products, almost identical yet competing for each other and lying under one organization but holding different brand names. It’s used to create profits and build an empire.

Examples: Unilever, Nestle

19. E-Commerce Business Model

A simple yet the best business model, this model permits buyers and sellers to connect and transact utilizing an online platform. 

Various types of eCommerce business models are there, like Business to Customer(B2C),  Business to Business (B2B), Customer to Business (C2B), and Customer to Customer (C2C). 

Examples: eBay, Walmart

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20. Distribution Based Business Model

A company that performs by having one or more major distribution channels to connect with its end users chooses this model. 

Brands that use this model offer channels for businesses to sell to consumers via brokers, dealers, retailers, supermarkets, and more.

Example: Unilever

21. Dropshipping Business Model

In this model, a business owner connects with different wholesalers/suppliers to sell their goods on the site. Once a customer places an order on a business owner’s site, the wholesaler dropships the goods directly from the manufacturer to the customer. 

In this case, the business owner doesn’t need to hold an inventory. Instead, he uses a third party to manage all the logistics and shipping needs. 

This model is best to start a niche eCommerce business site with a little upfront cost. 

Examples: Oberlo, Doba

22. Enterprise Business Model

This business model is based on catching up on big deals, targeting just large clients. It is developed on complex sales with a few and good potential clients. 

Examples: SpaceX, Boeing

23. Social Enterprise Business Model

It is based on the base according to which the brands should make profits without harming anyone, and a portion of it is spent on human welfare to improve people’s living conditions. 

Example: Brunello Cucinelli

24. Direct to Consumers Business Model

This business model permits brands or companies to sell their goods directly to final customers. To retain customers, highly effective advertising campaigns and marketing campaigns are needed. 

25. Family Owned Business Model

When a family runs a business and two or more family members control the decision-making process, it’s a family-owned business. The leadership of a company is passed to its offspring. 

Examples: Walmart, Ford

26. Blockchain based Business Model

The futuristic, advanced, and modern technology, Blockchain has flipped the entire way of transactions, including decentralized network systems worldwide. 

A decentralized network increases trust and permits customers to transact end-to-end. 

Blockchain-based businesses earn profit using tokens and provide Blockchain as a service. 

Examples: Bitcoin, Ethereum

27. Vertically Integrated Supply Chain Business Model

It’s about owning and handling the supply chain activities, such as manufacturing, retailing, and distribution, for its goods by the brand itself. 

When a brand controls the production and delivery of products to the end-users, it can offer goods at lower prices to the customers. 

Examples: Amazon, Walmart

28. Combination of Chains and Franchise Business Model

It’s a blend of licensed stores (franchising) and operated chains. 

Example: Starbucks

29. Data Licensing Business Model

Such a ‘data’ business model has earned popularity in this modern world, specifically in the technology sector. Data plays a vital role in web technology, where the brands need critical information to conduct operations and earn revenue. 

Example: Twitter 

30. Attention Merchant Business Model

Influencer or attention merchants work using advertising models and make money by magnetizing the attention of their target audience. 

Example: Instagram, Snapchat

31. Discount with High-quality Business Model

The departmental stores and supermarkets use this business model, where they get the products in bulk and sell them at wholesale prices. 

Examples: ASDA, Tesco

32. Pyramid Scheme Business Model

It’s usually considered controversial or illegal. This model performs on the only principle of recruiting members with a promise to reward them in the face of services or payments if they admit enrolling others into the schema despite product sale or supplying investments. 

Example: Amway

33. Nickel and Dime Business Model

It includes the lowest pricing strategy for essential goods or services. By keeping the basic cost as low as possible, an extra amount is charged for the other services and perks with the leading service. `

Examples: Frontier Airlines, Spirit

34. Aggregator Business Model

This business model is a network model that offers collective information relevant to a specific service and sells it under its brand name. Using this model, many brands provide sources and information on a single industry using this model. 

Examples: Uber, Zillow

35. API licensing Business Model

Basically, it’s a set of subroutine definitions, software development tools, and communication setups. This business model offers licensing protocols that permit developers’ communities to craft 3rd-party APIs , plugins or add-on apps for popular platforms. And the developers pay an amount to get API access. 

Examples: Apple, Microsoft

36. CrowdSource Business Model

It facilitates the brands to access operational solutions, such as technologies and ideas, co-collaboration opportunities, consumer interaction upgrades, reduced costs, and operation optimization. 

Examples: YouTube, Wikipedia

37. High Touch Business Model

In this business model, the customers’ involvement and interaction are at the peak to make a personalized experience. It’s a fact in which a customer is involved in a type of partnership with the business. It’s required for larger accounts as they pay more and stay longer. 

38. Low Touch Business Model

It’s the opposite of the high touch model, where the goods or services are delivered with less customer interaction. It’s best for low-price software tools where it’s easier to acquire customers. 

Examples: Amazon, SurveyMonkey

39. Flex Pricing Business Model

It operates through a business strategy in which the product’s final price is negotiable. In brief, buyers and sellers are allowed to bargain to meet their purpose. 

Example: Letgo

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40. Auction-Based Business Model

It’s based on the bidding option to purchase goods or services. It’s not so common now, still used for industries, such as real estate, antiques, businesses sales, and collectibles. 

Examples: Amazon, eBay

41. Reverse Auction Business Model

It follows a fixed pattern making the products priced higher and allowing the buyers to bid accordingly until the cost decreases. 

Businesses seeking suppliers choose this business model. The suppliers bid lower and lower to magnetize business and grab the contract.

Example: Government contract bidding.

42. Brokerage Business Model

This business model offers a single platform to buyers and sellers for deals communication. It charges an amount for any transaction between the buyers or the sellers based on the featured category. 

Example: Century 21, Expedia

43. Bundling Business Model

A business strategy bundling combines products or services to provide a package accumulated as a single fused unit to sell comparatively at a low price. It eases the purchasing process for numerous products and services from a single business unit. 

Example: Burger King, Microsoft Office 365 

44. Disintermediation Model

It removes the need for a third-party or outsourcing intermediary. This model permits the direct deal between clients and customers via distinct channels, such as the internet.

Example: Tesla, Dell

45. Fractionalization Business Model

This business model allows selling goods or services for separate parts or partial usage. It’s a strategy that divides goods and services into subcategories to introduce products’ varieties. 

Example: Selling a pizza with different varieties of slices in one box. 

46. Pay as Go (Utility) Business Model

It charges according to the product or service usage. 

Example: Cell phone, water, and electricity brands, Amazon Web Services

47. Product as a Service

It facilitates selling a product’s service despite selling the actual product. 

Example: Fedex, Zipcar

48. Standardization Business Model

It states making a universal service that was customized in the past. It attracts customers because of low prices and convenience. 

Example: MinuteClinics

49. User Base Communities

Using this model, users communicate with each other and advertise simultaneously, and it also generates revenue with both advertising and subscription fee. 

50. Leasing Business Model

It refers to renting high or large-profile items, such as electronic equipment and machines, instead of selling them.

Example: Hertz, Enterprise

51. Virtual Real Estate in Metaverse

Buying land has always been the most beneficial investment for us, ensuring a solid return on our investment. Buying land on Earth has proven successful, and it is now time to acquire land in the Metaverse . Being a landowner in the metaverse allows you to reap the same benefits as you would in real life. Some advantages include gaming, trading, socializing, and meeting new people.

Example of Metaverse Marketplace: Otherdeed, Decentraland, Sandbox, NFT Worlds

How to Choose the Right Business Model for You

Witnessing many business models would make it challenging for you to pick the most suitable for your business. 

You need to follow a process that can assist you in determining the suitable business model for your business. 

Let’s catch up with that process:

1. Consider your Customer Needs

Be sure the model you choose should meet your customers’ expectations and needs. 

Moreover, you should put the customer experience above profit, and it demands a combination of multiple models. 

2. Consider How your Customers Buy

Some markets are challenging to monetize . You need to know the preferable way your customers choose to buy. 

For example, you can pick the advertising model if your website is content-driven and catching up with a high traffic volume but is not getting converted into product sales. 

3. Consider the Market Potential and Competition

You should invest your time analyzing your market to know how other brands are catching up with revenue. If they are new in business, they might have chosen a model that holds the caliber to replicate. 

You can emerge, innovate, and disrupt your market. So, don’t ever feel that you should follow the pathway that’s a way to success for others. 

4. Consider your Value Proposition

You need to find your business’s value proposition, what makes it unique, which suitable model, etc. 

5. Consider Multiple Revenue Streams

Various successful businesses will depend on many revenue streams. In the initial days of your new business, it’s all relevant to experimentation. 

Now, as you know about the various business models, you can pick one or a combination of a few that suits your business, which would magnetize more revenue for your business. 

A business model lets us know an organization’s needs and objectives. If crafted accurately, a business model can assist a brand in delivering valuable products and services. Further, it can increase customer satisfaction, a powerful position, and improve brand loyalty.

So, while planning, you need to choose smartly one or a combination of business models. 

  • Zelle Business Model
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Encyclopedia of Sustainable Management pp 1–11 Cite as

Business Model

  • Kathrin Weidner 7  
  • Living reference work entry
  • First Online: 07 January 2023

23 Accesses

Business Case ; Business process model ; Commercial model ; Company’s plan ; Economic model ; Enterprise/Corporate model ; Management model ; Operating model

Definition/Description

This chapter provides an understanding of the business model concept in different settings. Starting with a focus on traditional business model , an overview of the range of definitions is given. Generally, a business model represents the relevant activities of a company and their relations with each other in order to create, deliver, and capture value (Zott & Amit, 2010 ; Osterwalder & Pigneur, 2010 , Richardson, 2008 ; Wirtz, Pistoia, Ullrich, & Göttel, 2016 ). Business models consist of several elements which are discussed in the following section. The Business Model Canvas (Osterwalder & Pigneur, 2010 ) is known as a prominent tool in practice and academia alike and introduced in detail. Subsequently, the most prominent patterns of business models which are freemium, long-tail, and multi-sided platforms are...

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Weidner, K. (2023). Business Model. In: Idowu, S., Schmidpeter, R., Capaldi, N., Zu, L., Del Baldo, M., Abreu, R. (eds) Encyclopedia of Sustainable Management. Springer, Cham. https://doi.org/10.1007/978-3-030-02006-4_545-1

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Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

The Complete Guide to Traditional Business Ideas

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Many types of businesses have been around for years, traditional ideas that are tried and true. They are the ones that people need no matter where they live or what they do. 

There is more security in these types of businesses than innovative ones that can be risky. So, if you are thinking of starting a traditional company that allows you to follow the steps of many businesses that have come before you, you’re in luck.

We have put together this guide to help you navigate coming up with traditional business ideas to help you get your business going.

Why Traditional Business Ideas Are So Important

Traditional business ideas are critical because they involve the types of companies many of us require to live our lives. They include things such as: 

  • Dentists, doctors, and veterinarians
  • Restaurants
  • Legal services
  • Grocery stores
  • Homebuilders
  • Tutors, teachers, and exam prep
  • Lawn care specialists
  • Pet and house sitters

Traditional businesses are typically stores, restaurants, services, and agencies that aren’t going away anytime soon. They provide products or services that were relevant years ago and are still just as relevant today. 

One traditional business many people have found success with is starting a tutoring business. The startup costs of it are minimal and only require time to develop curriculums and teaching plans. One key thing needed for this traditional business is a level of education appropriate to tutor others in certain subjects. From there, a business can be built that will always be needed. People will continue to learn, and people will continue to struggle to learn in specific areas and subjects.

Quick Tips to Coming Up With Traditional Business Ideas

If you aren’t sure where to start with your traditional business, the following tips will help guide you. 

These tips are straightforward and easy to apply to help you come up with and further develop your business idea. They won’t require too much time and serve as the base for starting your traditional business.

Tip 1 – Monetize Your Passion

It is impossible for you to love everything you do as an entrepreneur. It may sound pessimistic, but there are some parts of running a business that you will not love. And that’s okay! However, if you plan to spend a great deal of time and energy building a company, it should be an idea you’ll enjoy doing overall. 

For example, if you love dogs but hate all other animals, a veterinary clinic may not work out well for you. For your veterinary clinic to succeed, you need to be a lover and caretaker of all animals. 

Instead, consider starting a dog walking business. This allows your love of dogs to shine through and is a traditional business that provides a service needed by many. 

Take time to think through what you are passionate about and how others have already turned some of those passions into profitable businesses. Use the steps that they’ve taken as a guide for you to turn your passion into profit.

Tip 2 – Find a Gap

Traditional businesses are built on the foundation of things that have been done before. In other words, traditional businesses are tried and true and proven to be successful. 

There is no need for you to go crazy with thinking outside of the box for a unique, never-been-done-before business idea. Instead, look for businesses that exist elsewhere but have not been created in your community yet or could be done better. Identify a gap in your area you can fill.

These can be snow shoveling or lawn care, or you can think bigger and consider starting a restaurant that serves food you know people will love.

Traditional businesses are created to provide people with a good or a service that is a necessary part of life, so think about what your community needs and how you can help provide that product or service to them.

Tip 3 – Research Your Competition

If you are going the route of starting a traditional business, you’ll definitely have competition. 

But don’t worry–this is a good thing. You can see what other people are doing, and what is and isn’t working.  

Another area to research is reviews. Look on Glassdoor, Yelp, Google, and any other site to find real customer reviews to see what people love and dislike about the existing companies.

To help you conduct your research on your competition, you can employ tools to get the detailed information you need. While a Google search will give you some information and allow you to stalk your competitor’s websites and social media pages, you need more information than that if you expect to do better than your competition. 

One of our favorite tools for researching competition is SpyFu . This is a resource that allows you to research things like: 

  • Every place a domain shows up on Google
  • Every keyword a competitor has bought on Google Ads
  • Every organic rank
  • Every ad variation
  • Every change in ad spend every time

SpyFu landing page

By utilizing SpyFu, you can see your competitors’ successes and failures and learn from them to avoid the same mistakes and see what works well.

The list of tools available with the purchase of SpyFu is a long one and will help you build a successful traditional business. 

SpyFu offers three pricing plans: 

Basic. $33 per month if billed annually. Includes unlimited search results, unlimited data exports, unlimited domain overview PDFs, 250 sales leads and domain contacts, 5,000 weekly tracked keyword rankings, and 10,000 top lists results. 

Professional. $58 per month if billed annually. Includes everything in the Basic package plus 500,000 sales leads and domain contacts, 15,000 weekly tracked keyword rankings, 50,000 top list results, 10,000 API rows returned, and custom branded reporting. 

Team. $199 per month if billed annually. Includes everything in the Professional package plus 2,000 sales leads and domain contacts, 40,000 weekly tracked keyword rankings, 75,000 top lists results, and five user logins.

Tip 4 – Outsource

As a traditional business owner, it is important to know your strengths. And chances are good your strengths do not include every aspect of running a business. 

Rather than spend your time and energy learning to be an expert on everything in your business, hire others to help you. 

If you are not good with all the accounting stuff, accept that you should not do the bookkeeping and instead hire a bookkeeper and/or an accountant. Leave that to the professionals, and save yourself the headache. 

If you don’t know how to write up contracts, hire a lawyer to do it for you. Though the cost may seem high (especially when you’re first starting), it will save you a great deal of time and stress to have those contracts written correctly by a professional from the beginning rather than having to deal with fixing mistakes down the line. 

Acknowledge and accept your strengths and weaknesses. Utilize your strengths to build your business and outsource the rest to professionals.

Tip 5 – Write a Business Plan

If you are well-versed in writing business plans or feel you can handle on your own, go for it.

This is a crucial part of starting your traditional business, and you’ll find it is easier to create one using a template. For example, if you decide to open a Mexican restaurant, chances are good you will find a strong business plan example for this specific type of business. That is one of the best parts of choosing to run with a traditional business idea. 

However, if you still feel that writing a business plan is overwhelming, outsource this to a lawyer who has experience writing them or software like Enloop or LivePlan .

Long-Term Strategies for Traditional Business Ideas

The quick tips above are things you can do right now to get your traditional business started.

However, there is more to it than that. There are long-term strategies to implement to find success with your business. These will take more time and effort on your part, and you may not see a return on them immediately. But they are worth the time and energy. 

Just be sure not to get discouraged when you don’t reap the benefits of these strategies immediately–they are meant to happen over time.

Strategy 1 – Expect Mistakes

As a business owner, there is a lot of room for error. 

So much goes into starting and growing a successful business, and you will inevitably make a mistake or two along the way. 

Thus, you need to accept that mistakes will happen and handle them in a way that won’t throw your entire business off-balance. 

For example, let’s say you open a Mexican restaurant. But your produce supplier is not reliable and consistently delivers your produce late, then recognize that you made a mistake in choosing your supplier. Start fixing the error right away.

Look for suppliers other restaurants in the area work with and trust and switch to working with that company instead. 

Take advantage of your mistakes by setting up review processes that help you make the right decisions next time. By keeping your business plan up to date, you can set up regular meetings to review your numbers, strategy, and more. 

This helps you keep track of performance across your company and allows you to make decisions based on results. It also allows you to prepare for mistakes rather than having to react to them once they’ve already happened.

Strategy 2 – Prepare For Growth

The hope in starting your traditional business is that it will grow over time. You certainly don’t want to be in the same place two years down the road as you were when you started. 

Thus, you must prepare your business for growth. Your business plan plays a key role here. Though you write your business plan when you start the company, you need to adapt it as your business grows and revise it to reflect that growth. 

A tool that can help you do this is LivePlan . LivePlan provides you with the tools you need to project your business’ growth, so you know what to prepare for. With it, you create a budget and a forecast to check against the competition to see where you stand. 

LivePlan landing page

LivePlan also connects with QuickBooks so that you can see how your actual growth compares to your projected growth. This allows you to see instantly whether you are meeting your sales goals and staying within your budget. These are all key to the growth and success of your business.

Strategy 3 – Understand Your Customers’ Changing Needs

Though traditional businesses are rooted in providing people with conventional goods and services, it is important to note that customers’ needs change over time.

You must evolve with those changes. The best way to do this is to create buyer personas for sample customers. To do this, you’ll create a profile for a hypothetical customer. Let’s say name one Sally. Sally is 43 years old, she has a college education, and she likes to go out to eat once a week at a mid-level priced restaurant. Any other demographic data you can create for the hypothetical customers will allow you to anticipate Sally’s needs as they change so that your Mexican restaurant can meet them.

Maybe Sally enjoys trying fresh takes on traditional Mexican dishes. You could offer a couple of “trendy” items on your menu that Sally may not be able to find elsewhere. That will keep customers like her coming back for more. However, as Sally ages, she may find that traditional Mexican food is her preference, and the trendy items may not be as important as they once were. 

Noting changes in your customers’ needs and preferences is vital to the success and growth of your business. It also helps create brand loyalty.

Create an LLC, if you haven’t already. In addition to tax benefits and liability protection, you’ll build credibility by doing business as a business instead of yourself.

It won’t take more than 10 minutes with ZenBusiness . Pick a state to register your LLC, answer a few questions, and ZenBusiness will handle the rest.

ZenBusiness landing page for LLC services

As your business grows, you need to have your website grow along with it. If you are new to creating websites, we’ve got just the article for you: Learn how to create a great website . 

Another part of your growing traditional business is an excellent recruiting process. To hire the best employees for your business, you may want to implement recruiting software. It allows you to find qualified candidates, onboard employees, and help manage them effectively. Read this article that covers our top picks for recruiting software to find the right tool for you. 

Make your website better. Instantly.

Keep reading about operations.

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The Beginner’s Guide to Traditional Business Ideas

Traditional business ideas can feel like the ideas of yesteryear, making them harder to engage with and use in the rapidly developing digital business world. Where do you even begin?

The good news is that most of these ideas have stood the test of time—they’re not as hard to engage with as you might think, and modern-day tools can take them to the next level.

In our guide, we’ve detailed everything you need to know about traditional business ideas so you can start the business of your dreams. 

What Are Traditional Business Ideas?

Traditional business ideas are business ideas that involve a more classic, time-honored business setup. These ideas are reliable and are less likely to go wrong because they have worked for years before. An example here would be a brick-and-mortar store that serves local people by selling products and services physically. Other examples include restaurants, manufacturers, and retailers. These are in contrast to more trendy digital business ideas such as Netflix, Amazon, and Facebook.

The Basics of Traditional Business Ideas

Below we’ve listed the basics of traditional business ideas to help get you started.

Business Models

There are several types of traditional business models, including manufacturer, retailer, distributor, and franchise.

The manufacturer model is where a business uses raw materials to create new products sold to the market. A retailer is where a company purchases products from a wholesaler and then sells this inventory to the public—essentially brick-and-mortar stores.

The distributor model sees a company buy products directly from a manufacturer and then sell them to retailers or consumers themselves. Finally, the franchise model is where a company buys the franchise of a successful brand and promotes the services.

These models are important as they each provide a unique part of the process, so knowing which to go for is an immediate decision for new businesses to make. Traditional business models get improved by using modern technology to bolster them, as we’ll see later.

Distribution

Traditional business models, such as retailers and wholesalers, are involved in the physical distribution of goods from one point to another.

This fact is in stark contrast to more modern business ideas, for example, Netflix, Dropbox, and Spotify; these all fall under the term known as software as a service (SaaS). Nothing needs to be “moved” around in these modern business ideas, and all of them rely on transactions made through the internet alone.

The method of distribution is fundamental to how the business operates and sells its goods. However, that doesn’t automatically mean there’s no room for traditional business ideas. Instead, today’s conventional business ideas get improved in a hybrid approach that combines reliable ideas with technological progress.

Modern businesses tend to have fewer overhead costs as more traditional companies do. People involved with traditional business plans will typically decide on a good location to set up and then rent out the place to sell goods.

Digital businesses avoid much of this because they usually don’t need a physical site to sell their products—although this isn’t always the case.

Cost is a hugely important factor for businesses, and some great ideas never get realized due to the high kick-off expenses involved. Again, this is where contemporary solutions can improve traditional business ideas, as we’ll see in the next section.

Three Tools To Improve Traditional Business Ideas

Here are three tools to improve traditional business ideas and supercharge your plans.

Stripe is cloud-based payment processing software that can help traditional businesses of all shapes and sizes. These days, almost all retailers will have their own website, and Stripe enables you to process payments, invoices and use a multichannel approach. For instance, a customer could reserve something online via your site using Stripe and then pick it up in-store, all connected to the same unified system.

Stripe home page

Stripe comes in two distinct tiers, Standard and Custom. Standard comes in at 2.9% of a purchase plus 30¢ per successful card charge and includes the essentials. Custom pricing is separate, and you’ll need to contact Stripe for a custom quote—it’s ideal for businesses with large payment volumes.

Lightspeed is retail management software that can help streamline your transaction processing and improve inventory management. For example, sports stores will benefit significantly from the inventory management system available, allowing you to sync your stock across various channels. You can also view, edit, and organize your shipments wherever you are.

Lightspeed home page

There are four main plans available for Lightspeed : Lean, Standard, Advanced, and Enterprise. Lean comes in at $69 per month on the annual plan, Standard $119 per month, and Advanced $199 per month. You’ll need to get a custom quote for the Enterprise tier, which includes everything in Advanced along with a dedicated premium support team, a customer success manager, and unlimited personalized onboarding and launch services.

Epos Now is retail customer relationship management (CRM) software that enables you to improve your customer service, build lasting wholesales relationships, and make more effective use of your time. For example, an electronics store can reduce its operating costs, streamline its business, and open new sales channels using the software alone.

traditional business model examples

The entire point of sale (POS) solution that Epos Now offers typically comes in at $449, but right now, you can save 78% and get it starting from just $99. Additional accessories are also available for face-to-face sales. It’s a unified and smart solution, so if you can afford it, your customers will thank you. 

Four Tricks for Making Traditional Business Ideas Work

Here are four tricks for traditional business ideas, enabling you to improve your game.

Understand the Problem Your Business Solves

You may be right at the start of your traditional business idea, but as all successful businesses know, your company needs to be about solving a problem. If you don’t solve a problem for customers, then you don’t have a business. So you need to have a solid understanding of the area you want to focus on and how your business can help.

For example, if you’re a restaurant, the problem might be that there’s no good Italian food in your neighborhood, that is until you show up and offer a solution.

It might surprise you to know that many businesses forget to think about this central problem in the level of detail required, and they fail as a result. Do your best to understand your customers and how your business improves their lives, and you’ll have a successful business in waiting.

Join Search Engine Land’s Email List

You might be a bit further down the line and already have a great business setup. The issue traditional businesses often face is learning how to market their business online. Regardless of what industry you’re in, you need a digital presence but may not have the skills or knowledge to get online.

Well, Search Engine Land is the answer here. It’s a site covering all the critical marketing angles, from digital marketing to new marketing technology and advertising models. By simply signing up for the email list, you’ll receive daily news comprising the latest marketing trends and feature announcements.

You can stay on top of the latest digital trends, learn new tips, and reinforce your business. It takes less than a minute to sign up , while the benefits of getting those tips and trends delivered straight to your inbox could last for years.

Join a Social Media Marketing Email List

We’re not done with email lists just yet. Other invaluable lists you can join include Social Media Today and Social Media Examiner . As you would expect, the pair of these cover the expansive world of social media—a world, like it or not, that you need to do well in to stay relevant.

Social media can grow your customers, provide you with reviews, and increase the all-important awareness around your company. You might be busy most of the day working in your restaurant or shop, but by signing up for an email list, the latest trends and tips come straight to you, ready for when you finish. Even better, you can share what you’ve learned with your team, and the effect multiplies.

The most successful traditional businesses realize that embracing the sometimes-scary online world isn’t optional, so get started while you can.

Invest in Digital Advertising

Did you know online advertising can significantly boost your traditional business’s online presence? Consumers are spending more and more time online, so reaching them there is essential. It doesn’t take long to get up and running with digital advertising, and how much you want to spend is mainly up to you.

Digital advertising comes in many forms, including pay-per-click (PPC) campaigns with Google Ads and media advertising on social media platforms such as LinkedIn, Twitter, and Facebook. For example, on Facebook, you can market and boost your company page and blog posts, driving more customers to your traditional business.

With the immense growth in mobile traffic, mobile ads are vital in getting your fledgling business noticed and customers engaged with the brand.

Mobile ads come in various forms, with distinct formats like video ads that drive new customers to your door. A typical mobile video ad only runs for around 15 or 30 seconds when a user taps to play it, and they don’t have to break the bank. It’s also important to ensure your site is mobile-optimized, but’s that a matter for another day.

What To Do Next

There are plenty of topics to dive into from here and an almost endless number of things to learn, especially if you’re just getting started. In fact, you should always ensure you’re learning something new each month because as you learn, your business will grow in response—the most successful business leaders in the world still learn new things every week.

If you haven’t got a website up and running for your business, now would be the time to do so. Our comprehensive guide on creating a website covers everything you need to know, including picking the perfect domain and creating compelling content. It’s not something any business can afford to skip today, so the sooner you know what you’re doing, the better.

You may be further back from that and still need to come up with a viable business plan. If so, we have a second guide that focuses on how to write a business plan for your start-up . The guide covers market research, sales strategy, executive summaries, budgets, company descriptions, and more. Writing your business plan gives you a much better understanding of your business, increases your chances of success, and you’ll see higher growth rates too.

Traditional business ideas thrive when you combine them with modern tools and software, so as long as you remember that, stay focused, and continue learning, the sky’s the limit.

Privacy Overview

Rob Llewellyn

The 50 Best Examples of Business Model Transformation

What is business model transformation .

Business model transformation refers to the process of altering the fundamental way a company operates and delivers value to customers, in order to improve its performance, competitiveness and adapt to changing market conditions.   It involves rethinking the company's strategy, operations, financials, and organisational structure, in order to create a new and more effective business model. The goal is to create new sources of revenue, lower costs, and increase the overall value the company provides to its customers and stakeholders.

Business Model Transformation

What is a Business Model?

A business model is a conceptual framework that outlines how a company creates, delivers, and captures value. It defines the products or services a company offers, the target customers it serves, the channels through which it reaches those customers, and the revenue streams it generates. The business model outlines the underlying logic of how a company operates, generates revenue, and grows over time. It is a key element of a company's overall strategy and plays a crucial role in its success or failure.   New businesses often seek to disrupt existing markets by introducing new and innovative business models. These new models can offer unique value propositions, reach customers in new ways, and generate revenue in ways that traditional businesses cannot.

Examples of new types of business models include:

Subscription-based models, where customers pay a recurring fee for access to a product or service 

Platform-based models

Platform-based models are where a company creates an ecosystem of buyers and sellers and takes a commission on transactions

Sharing economy models

Sharing economy models are where individuals share resources, such as cars or homes, through an online platform 

Freemium models

Freemium models are where a basic version of a product or service is offered for free, with premium features available for a fee

Crowdfunding models

Crowdfunding models are where a business raises funds from a large number of people, typically via the internet

crowdfunding business model

There are many more types of business model. Those listed above and others have the potential to shake up traditional industries and create new market opportunities, but they also bring new challenges, such as regulatory hurdles, changing customer behaviours, and intense competition.

Technology Enabled Business Models

Technology-enabled business models are business models that leverage digital technologies to create new value propositions for customers and generate new revenue streams. These business models often rely on the use of data, analytics, and automation to increase efficiency, improve customer experiences, and create new products and services.

Examples of technology-enabled business models include:

Platform business models: Platforms such as Uber, Airbnb, and Amazon leverage digital technologies to connect buyers and sellers, hosts and guests, or service providers and customers, creating new marketplaces and revenue streams.

Subscription business models: Companies such as Netflix, Spotify, and Adobe use subscription-based models to offer access to digital content or software as a service, providing recurring revenue streams.

E-commerce business models: Retailers such as Amazon, Alibaba, and Zara use e-commerce business models to sell products online, using data and analytics to personalize the shopping experience and improve supply chain efficiency.

Freemium business models: Companies such as Dropbox, LinkedIn, and Hootsuite use freemium business models to offer a basic service for free and charge for premium features, using data and analytics to convert free users to paying customers.

Data-driven business models: Companies such as Google, Facebook, and Twitter use data-driven business models to monetize user data, providing targeted advertising and insights to advertisers.

Technology-enabled business models often disrupt traditional business models and create new opportunities for growth and innovation. By leveraging digital technologies to create new value propositions, organizations can stay ahead of the curve and create sustainable competitive advantages. Learn more about technology enabled business models.  

7 Reasons For Business Model Transformation

A business may decide to undergo a business model transformation for a variety of reasons, including:

1. Market disruption

Market disruption refers to the phenomenon where an emerging technology or business model disrupts an established market or industry, leading to significant changes in the competitive landscape and the way business is conducted. The market or industry changes, and the older business model is no longer effective.

Disruptive technologies or business models often challenge established market leaders by providing a new and innovative way to deliver products or services that meets customer needs in a more efficient, convenient, or cost-effective way. Disruptors often leverage digital technologies, data and analytics, and platform-based business models to create new value propositions for customers and generate new revenue streams.

Market disruption can be a double-edged sword, as it can lead to the downfall of established companies and industries, but it can also create new opportunities for growth and innovation. By keeping up with emerging technologies and business models and embracing innovation, companies can position themselves to be disruptors rather than the disrupted.

2. Increased competition

Increased competition refers to the situation where a company faces more competitors in the marketplace, either from new entrants or from existing competitors who have expanded their offerings or improved their value propositions.

The emergence of new technologies, changes in consumer behaviour, and global market dynamics are some of the factors that can lead to increased competition. In a highly competitive environment, companies may need to invest more in marketing, product development, and customer service to differentiate themselves from their competitors and maintain their market share.

To stay competitive in a dynamic market, companies need to stay agile, be open to change, and continually adapt their strategies to meet the evolving needs of their customers. This may involve investing in new technologies, expanding into new markets, or developing new products and services that offer unique value propositions. By staying ahead of the competition and focusing on delivering value to their customers, companies can maintain a competitive edge and succeed in the marketplace.

3. Declining sales

Declining sales refer to the situation where a company experiences a decrease in the volume or value of its sales over time. This can be caused by a variety of factors, such as changes in consumer preferences, increased competition, economic downturns, and supply chain disruptions.

Declining sales can have significant negative impacts on a company, such as reduced revenue, lower profit margins, and decreased market share. This can lead to a vicious cycle, where lower sales lead to reduced investment in marketing and innovation, which further depresses sales.

By taking proactive measures to address declining sales, companies can turn the situation around and regain their competitive edge. This may require a shift in strategy, investment in new capabilities, and a willingness to embrace change and innovation.

4. Technological advancements

New technologies have emerged that enable companies to reach customers and operate more efficiently, and the current business model is not taking advantage of these advancements.

Technological advancements can occur across a range of fields, such as information technology, biotechnology, materials science, energy, and transportation. They can involve new discoveries or breakthroughs, as well as incremental improvements to existing technologies.

Technological advancements can have significant impacts on society and the economy, creating new opportunities for innovation and growth, as well as challenges and disruptions. To leverage the benefits of technological advancements, companies and individuals need to stay up to date with emerging technologies, be willing to experiment and innovate, and be adaptable to change.

5. Changing customer needs

The company's target customers' needs, and behaviours have changed, and the current business model is no longer meeting their needs.

Changing customer needs refer to the situation where the preferences, expectations, or demands of customers evolve over time due to factors such as changes in technology, lifestyle, demographics, or societal trends. As customers become more informed and empowered, they expect businesses to meet their needs in more personalized and customized ways, and to offer seamless experiences across all touchpoints.

Changing customer needs can have a significant impact on businesses, especially those that fail to adapt to these changes. To stay relevant and competitive, businesses need to be agile and able to respond to changing customer needs by developing new products, services, and experiences that meet evolving expectations.

By prioritising customer needs and staying attuned to changing trends, businesses can maintain their competitive edge and build stronger relationships with their customers.

6. Shifting regulatory environment

The company is facing new regulations or changes in existing regulations that impact its business model.

A shifting regulatory environment refers to the situation where there are changes in the laws, rules, or policies that govern a particular industry or sector. These changes can be driven by a range of factors, such as changes in political leadership, shifts in public opinion, or new technologies and business models that disrupt established regulatory frameworks.

A shifting regulatory environment can have significant impacts on businesses, especially those that operate in highly regulated industries such as finance, healthcare, and energy. Changes in regulations can create new opportunities or pose new challenges for businesses, depending on their ability to adapt and comply with new requirements.

By staying attuned to changes in the regulatory environment and adopting a proactive and collaborative approach to compliance, businesses can position themselves to succeed in the marketplace and take advantage of new opportunities.

7. Mergers and acquisitions

The company has undergone a merger or acquisition and needs to integrate the business models of the two companies.

Mergers and acquisitions (M&A) refer to the process of combining two or more companies through a variety of financial transactions, such as mergers, acquisitions, consolidations, or tender offers. The goal of an M&A transaction can be to achieve various strategic objectives, such as expanding the company's geographic reach, gaining access to new markets, achieving economies of scale, or acquiring new technology or talent.

M&A transactions can have significant impacts on both the companies involved and the broader market. On the one hand, M&A transactions can lead to increased efficiencies, cost savings, and other synergies that can benefit the companies and their stakeholders. On the other hand, M&A transactions can also lead to job losses, cultural clashes, and other negative impacts, especially if the companies involved are unable to successfully integrate their operations and cultures.

M&A transactions can take many forms, including horizontal mergers, where companies in the same industry merge; vertical mergers, where companies in different stages of the supply chain merge; and conglomerate mergers, where companies in unrelated industries merge.

The ultimate goal of a business model transformation is to create a new and more effective way for the company to operate, generate revenue, and grow over time. It requires a strategic and well-planned approach, as well as a willingness to take risks and embrace change.

Business Transformation Versus Business Model Transformation

Business Transformation and Business Model Transformation are similar but distinct concepts. This results in a lot of people using the terms interchangeably and not understanding how they differ.   Business Transformation refers to a comprehensive change program aimed at improving an organisation's overall performance and competitiveness. It can encompass changes to the company's strategy, operations, technology, culture, and structure. Business transformation often requires a significant effort, resources, and time, and affects many areas of the company.   Business Model Transformation, on the other hand, is a specific type of transformation focused on changing the way a company creates, delivers, and captures value. It is a more targeted effort to improve the company's business model, with the goal of generating new sources of revenue, reducing costs, and increasing the overall value the company provides to its customers and stakeholders.   In short, business transformation is a broader, more comprehensive effort to improve the entire organisation, while business model transformation is a specific type of transformation aimed at improving the company's business model. 

Types of Business Transformation

There are several types of business transformation, which we'll consider below. Note that this is about business transformation types. Not Business model types. We'll talk about business model types later.

Digital Transformation

Digital transformation is the type of transformation that is focused on leveraging digital technologies to transform the company's operations, reach customers in new ways, and generate new sources of revenue. It may involve changes to the company's technology systems, customer engagement strategies, and revenue models.

Operational Transformation

Operational transformation: This type of transformation is focused on improving the efficiency and effectiveness of the company's operations. It may involve changes to the company's supply chain, production processes, and technology systems.

Organisational Transformation

Organisational transformation: This type of transformation is focused on changing the company's culture, structure, and processes to improve its overall performance and competitiveness. It may involve changes to the company's management systems, decision-making processes, and employee engagement strategies. 

Market-Focused Transformation

Market-focused transformation: This type of transformation is focused on entering new markets, expanding the company's reach, and increasing its market share. It may involve changes to the company's target customer segments, marketing strategies, and distribution channels.

Cultural Transformation

Cultural transformation: This type of transformation is focused on changing the company's culture and values to align with its overall strategy and goals. It may involve changes to the company's leadership, communication styles, and employee engagement strategies.

Business Model Transformation

Business model transformation: This type of transformation is focused on changing the way a company creates, delivers, and captures value. It is a targeted effort to improve the company's business model, with the goal of generating new sources of revenue, reducing costs, and increasing the overall value the company provides to its customers and stakeholders.   Each type of transformation has its own set of challenges and opportunities, and companies must choose the type of transformation that is most appropriate for their specific needs and goals. It's also important to note that multiple types of transformation may occur simultaneously, as companies seek to adapt to changing market conditions and improve their overall performance. 

Business Model Innovation

Business model transformation cannot occur without innovation, however, it requires the proper form of innovation as the term “innovation” often elicits thoughts of product innovation. Some organisations tend to get caught up in the thrill of developing new products, frequently neglecting business model innovation.   Business model innovation refers to the process of creating and implementing new or significantly improved ways of doing business in order to gain a competitive advantage. This can include changes to a company's revenue streams, value proposition, customer segments, distribution channels, or other aspects of the business model.   The goal of business model innovation is often to create new sources of revenue, increase efficiency, or improve customer value. This can be done by exploring new markets, developing new products or services, or finding new ways to deliver existing products or services.   Business model innovation can be a key driver of growth and success for companies, especially in rapidly changing or disruptive industries.   Business model innovation is gaining recognition as a crucial aspect of strategic management that contributes to creating significant competitive advantages for an organisation.

Business Model Innovation Benefits

Business model innovation is important because it allows companies to adapt to changing market conditions and customer needs and create new sources of revenue and growth. In today's fast-paced business environment, companies that are able to continuously innovate and evolve their business models are more likely to stay competitive and successful.

5 Benefits of Business Model Innovation

There are several reasons why business model innovation is crucial for companies: 

1. Helps companies stay ahead of the competition

By continuously innovating their business models, companies can differentiate themselves from their competitors and create a competitive advantage.

2. Allows companies to explore new markets

Business model innovation can help companies identify new market opportunities and create new revenue streams. 

3. Helps companies adapt to changing customer needs

By understanding and responding to changing customer needs, companies can improve customer value and loyalty.

4. Enables companies to be more agile and efficient

Business model innovation can help companies streamline their operations and reduce costs, which can improve overall efficiency and profitability.

5. Helps companies to be more resilient

A diversified business model with multiple revenue streams can help companies to be more resilient in the face of market disruptions or economic downturns.   In summary, business model innovation is important because it allows companies to stay competitive and adapt to changing market conditions, which is essential for long-term success.

Business Model Innovation Process

Business model innovation is the development of new business models, the modification of existing business models, and the change from one business model to another.   It's increasingly seen as a source for superior organisational performance and competitive advantage that is complementing or even partly replacing organisational strategy.   The capability to move into new business models rapidly and successfully is an important source of competitive advantage and a key leverage to improve the performance of companies. 

Business Model Innovation in 10 Steps

Business model innovation consists of 10 iterative phases. An organisation undergoing this process may revisit stages and repeat or skip steps as needed, and may repeat the process to respond to new opportunities and challenges in its environment. The steps are:

1. Ideation

The purpose of the business model innovation and its key stakeholders are defined, and the value proposition and first conceptual ideas are ideated. 

2. Concept design

A first rough conceptualisation of the key business model elements is developed and documented.

3. Virtual prototyping

A range of prototypes is generated and revised to refine and communicate the business model concept. The phase also comprises benchmarking with solutions and concepts from other parties.

4. Experimenting:

The concept's crucial assumptions and variables are assessed through randomised controlled trials and simulations and by conducting field experiments.

5. Detailed design

A comprehensive analysis and examination of all the components of the business model and the connections between these components is performed.

6. Piloting

The entire idea is validated by launching a preliminary limited iteration of the business model in a portion of the target audience. 

The implementation of the business model is spread throughout the relevant organisational units and the designated target market. 

8. Monitoring

The regular collection and analysis of data and metrics relevant to the business model, such as revenue, customer satisfaction, market share, and operating costs, provide insights into the performance of the business model.

9. Diversification

The process of expanding the existing business model can take various forms, including vertical, horizontal, or geographic diversification.

10. Refinement

Fine-tuning and improving the business model to achieve better performance and results involves an examination to identify areas for improvement, such as increasing efficiency, reducing costs, improving customer satisfaction, or increasing revenue.   The process of innovating a business model may have to be repeated if significant changes are needed.

Product, Process, and Business Model Innovation

Product innovation.

Product innovation involves either the development of a new product, or improvements to an existing product. By revolutionising the way humans interact with mobile devices, Apple was a pioneer of product innovation. But even the mighty Apple has faced its fair share of challenges in this space. Because while bright ideas are one thing, effective management to make them a successful business reality is another matter.   Not so long-ago Apple was frustrated by seeing its teams reinvent the wheel every time a new product was launched. As is the case in many organisations, teams were often working in silos. One product team's quick decision would impact the work of a parallel team, resulting in one team destroying the progress of another. There was an abundance of great ideas at Apple, but a significant lack of great management. Apple has since improved performance in this space with ANPP (Apple New Product Process), but that still leaves thousands of other companies struggling to translate their ideas into income.

Process Innovation

Process innovation involves the implementation of new or improved production and delivery methods to reduce a company's costs or improve a company’s production levels. It can include changes across all value chain activities. The Ford Motor Company demonstrated process innovation more than a hundred years ago when it introduced the first moving assembly line, reducing assembly time per vehicle from 12 hours to around 90 minutes. A more modern example is using live data to plan production runs. Process innovations are typically far less visible to customers than product innovations. As with product innovation, executing process innovation projects and programmes is a struggle for many that lack the right management capabilities.

Business model innovation includes changes in how a product is brought to market and is broader and more complex than product or process innovation. Rather than focusing on the introduction of a new or improved product or service, business model innovation relates to the way products and services are brought to market.

50 Examples of Business Model Transformation

Here are a few examples of business model transformations:

Netflix Business Model Transformation

Netflix transformed its business model from a DVD rental-by-mail service to a streaming video service, leveraging the growth of the internet and the decline of physical media. This transformation allowed the company to reach a much larger customer base and generate new sources of revenue.

Amazon Business Model Transformation

Amazon transformed its business model from an online bookstore to an e-commerce platform, offering a wide range of products and services to customers. This transformation allowed the company to become a major player in the retail industry and generate new sources of revenue through its platform services.

Apple Business Model Transformation

Apple transformed its business model from a computer manufacturer to a consumer electronics company, offering products such as the iPhone and iPad. This transformation allowed the company to reach a much larger customer base and generate new sources of revenue from mobile devices and services.

Uber Business Model Transformation

Uber transformed its business model from a ride-hailing service to a transportation platform, offering a range of services including ride-hailing, food delivery, and electric bike rentals. This transformation allowed the company to reach a wider customer base and generate new sources of revenue through multiple services.

Walmart Business Model Transformation

Walmart transformed its business model from a brick-and-mortar retail store to an omni-channel retailer, offering customers the ability to shop both in-store and online. This transformation allowed the company to reach a wider customer base and generate new sources of revenue through e-commerce.

JPMorgan Chase Business Model Transformation

JPMorgan Chase transformed its business model from a traditional commercial bank to a financial services company, offering a range of products and services including investment banking, asset management, and private banking.

Salesforce Business Model Transformation

Salesforce transformed its business model from a customer relationship management (CRM) software company to a cloud-based platform for customer engagement, offering a range of products and services including marketing automation, customer service, and e-commerce.

Airbnb Business Model Transformation

Airbnb transformed its business model from a peer-to-peer room rental service to a travel platform, offering a range of services including home rentals, experiences, and travel activities.

Spotify Business Model Transformation

Spotify transformed its business model from a music download service to a streaming platform, offering customers access to millions of songs and podcasts.

Tesla Business Model Transformation

Tesla transformed its business model from an electric car manufacturer to a clean energy company, offering a range of products and services including solar panels, batteries, and electric vehicle charging stations.

Dropbox Business Model Transformation

Dropbox transformed its business model from a file-sharing service to a collaboration platform, offering a range of products and services for businesses, including file storage, collaboration tools, and virtual meetings.

Square Business Model Transformation

Square transformed its business model from a mobile payment processor to a financial services company, offering a range of products and services including point-of-sale systems, invoicing, and cash advances.

Zoom Business Model Transformation

Zoom transformed its business model from a video conferencing tool to a platform for remote work, offering a range of products and services including virtual meetings, webinars, and team collaboration.

Grubhub Business Model Transformation

Grubhub transformed its business model from an online food ordering platform to a full-service food delivery company, offering a range of products and services including food delivery, pick-up, and catering.

Procter & Gamble Business Model Transformation

Procter & Gamble transformed its business model from a traditional consumer goods company to a brand management company, relying on marketing and innovation to drive growth and profitability.

Microsoft Business Model Transformation

Microsoft transformed its business model from a software company to a cloud-based platform and services company, offering a range of products and services including cloud computing, artificial intelligence, and virtual reality.

Facebook Business Model Transformation

Facebook transformed its business model from a social networking site to a digital advertising platform, leveraging user data to target advertising to specific audiences.

Alibaba Business Model Transformation

Alibaba transformed its business model from a business-to-business e-commerce platform to a digital commerce company, offering a range of products and services including retail e-commerce, cloud computing, and financial services.

Instacart Business Model Transformation

Instacart transformed its business model from a grocery delivery service to a platform connecting shoppers with local grocery stores, offering a range of products and services including same-day delivery and pick-up.

Peloton Business Model Transformation

Peloton transformed its business model from a high-end stationary bike manufacturer to a digital fitness platform, offering a range of products and services including home exercise equipment, virtual fitness classes, and nutrition coaching.

Google Business Model Transformation

Google transformed its business model from a search engine to a technology company offering a range of products and services including advertising, cloud computing, and hardware.

Deliveroo Business Model Transformation

Deliveroo transformed its business model from a restaurant delivery service to a food delivery platform, offering a range of products and services including restaurant delivery, grocery delivery, and alcohol delivery.

Adobe Business Model Transformation

Adobe transformed its business model from a software company offering individual creative applications to a cloud-based creative platform, offering a range of products and services including photo and video editing, document management, and digital marketing.

Etsy Business Model Transformation

Etsy transformed its business model from an online marketplace for handmade goods to a global platform for creative businesses, offering a range of products and services including handmade goods, vintage items, and craft supplies.

Zillow Business Model Transformation

Zillow transformed its business model from a real estate listing site to a full-service real estate platform, offering a range of products and services including home listings, mortgage loans, and home improvement services.

Stripe Business Model Transformation

Stripe transformed its business model from a payment processor to a financial infrastructure platform, offering a range of products and services including payment processing, subscriptions, and lending.

Postmates Business Model Transformation

Postmates transformed its business model from a food delivery service to a delivery platform, offering a range of products and services including food delivery, grocery delivery, and alcohol delivery.

Wix Business Model Transformation

Wix transformed its business model from a website builder to a full-service website and online marketing platform, offering a range of products and services including website building, e-commerce, and digital marketing.

Shopify Business Model Transformation

Shopify transformed its business model from an e-commerce platform to a full-service commerce platform, offering a range of products and services including e-commerce, point-of-sale systems, and financial services.

Tencent Business Model Transformation

Tencent in China transformed its business model from an instant messaging platform to a technology conglomerate, offering a range of products and services including social media, online payments, gaming, and cloud computing.

Flipkart Business Model Transformation

Flipkart in China transformed its business model from an online bookstore to an e-commerce giant, offering a range of products and services including retail, fashion, and home goods. (India) Alibaba: Alibaba transformed its business model from an online marketplace to a technology conglomerate, offering a range of products and services including e-commerce, cloud computing, and digital media.

Naspers Business Model Transformation

Naspers in South Africa transformed its business model from a media company to a technology investment firm, offering a range of products and services including e-commerce, online classifieds, and internet services.

JD.com Business Model Transformation

JD.com in China transformed its business model from an online retailer to a technology-driven retailer, offering a range of products and services including retail, logistics, and financial services.

Mercado Libre Business Model Transformation

Mercado Libre in Argentina transformed its business model from an online marketplace to a digital commerce platform, offering a range of products and services including retail, payments, and shipping. 

Rocket Internet Business Model Transformation

Rocket Internet in Germany transformed its business model from an incubator to a technology investment firm, offering a range of products and services including e-commerce, online classifieds, and internet services.

SoftBank Business Model Transformation

SoftBank in Japan transformed its business model from a telecommunications company to a technology investment firm, offering a range of products and services including telecommunications, e-commerce, and internet services.

Baidu Business Model Transformation

Baidu in China transformed its business model from a search engine to a technology company, offering a range of products and services including search, online advertising, and artificial intelligence.

Rakuten Business Model Transformation

Rakuten in Japan transformed its business model from an online marketplace to a technology company, offering a range of products and services including e-commerce, mobile payments, and digital media.

Line Business Model Transformation

Line transformed its business model from a messaging app to a technology company, offering a range of products and services including mobile messaging, online payments, and mobile gaming. (Japan)

Wizz Air Business Model Transformation

Wizz Air transformed its business model from a low-cost airline to a hybrid airline, offering a range of products and services including low-cost and full-service flights. (Hungary)

Zalando Business Model Transformation

Zalando transformed its business model from an online retailer to a fashion platform, offering a range of products and services including retail, logistics, and fashion content. (Germany)

Swiggy Business Model Transformation

Swiggy transformed its business model from a food delivery service to an on-demand platform, offering a range of products and services including food delivery, grocery delivery, and hyperlocal services. (India)

Grab Business Model Transformation

Grab transformed its business model from a ride-hailing service to a super-app, offering a range of products and services including ride-hailing, food delivery, and mobile payments. (Singapore)

Royal Dutch Shell Business Model Transformation

Royal Dutch Shell transformed its business model from an oil and gas company to an energy company, offering a range of products and services including oil and gas, renewables, and electric vehicle charging. (Netherlands)

Carrefour Business Model Transformation

Carrefour transformed its business model from a brick-and-mortar retailer to an omnichannel retailer, offering a range of products and services including brick-and-mortar retail, e-commerce, and home delivery. (France)

Metro Business Model Transformation

Metro transformed its business model from a wholesaler to an omnichannel retailer, offering a range of products and services including wholesale, e-commerce, and brick-and-mortar retail. (Germany)

Tesco Business Model Transformation

Tesco transformed its business model from a brick-and-mortar retailer to an omnichannel retailer, offering a range of products and services including brick-and-mortar retail, e-commerce, and home delivery. (UK)

Tata Group Business Model Transformation

Tata Group transformed its business model from a conglomerate to a technology-focused conglomerate, offering a range of products and services including steel, automobiles, information technology, and engineering services. (India)     These are just 50 examples of companies that have undergone successful business model transformations. The key to a successful transformation is to identify new opportunities, rethinking existing value propositions, and embracing new technologies to create a more innovative and profitable business model.

What is Business Model Transformation – 34 Industries Reinvented        

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8 Reasons Why Traditional Business is a Complex Business Model

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Explore the reasons why traditional business is a complex business model, from extensive initial investments to limited scalability. Understand the challenges they face in adapting to market dynamics.

Traditional business refers to a conventional business model that operates using physical infrastructure, face-to-face interactions, and offline marketing methods. In today’s rapidly evolving technology and digital landscape, traditional businesses face various challenges and complexities that require adaptation and transformation.

Here, I will try to discuss some common reasons why traditional business is a complex business model in the age of technology. Hope, it will help you explore some ideas to adapt your business to technology and the digital world.

What is Traditional Business

A traditional business is a conventional business that operates in physical locations and sells products or services to customers in person. It has a physical store or office where customers come to buy products or services.

They use methods like print ads, billboards, and word-of-mouth to promote their business. Traditional businesses serve a specific local area. There are several types of traditional businesses .

Here are some examples of traditional business:

  • Local stores;
  • Restaurants;
  • Grocery Shops, etc

You may also read  The most profitable online businesses .

Why Traditional Business is a Complex Business Model

The traditional business model is a complex business model for several reasons. Firstly, it involves extensive initial investments and high fixed costs. Moreover, geographic barriers, limited scalability, and hierarchical structure make it almost challenging to adapt to competitive market conditions in today’s business environment.

Traditional Business Model

To gain further insights, let us explore some key factors contributing to this complexity.

1. Extensive Initial Investment

Starting a traditional business often requires a significant initial investment. The investment money includes renting a shop or office space, decorating, purchasing furniture, hiring employees, marketing, raw material or stock, and more.

See, here are some expenses you don’t need when you are starting an online business. Renting an office or shop space in any market cost too much. Besides, you need decoration and furniture.

This high investment can be a barrier for many people who want to start a new business.

You may also read about  small business ideas in Bangladesh with low investment .

2. High Fixed Costs in Traditional Business

Traditional businesses have some unavoidable fixed costs, such as rent, equipment, and employee salaries. These expenses must be paid even though your selling level is zero.

Especially during the low-demand period, maintaining these expenses become difficult for many businesses. At this period, managing and optimizing these ongoing costs can be challenging, especially for small businesses with limited resources.

Also read: Best Free Online Accounting Software for Small Business

3. Geographic Constraints

Traditional businesses are typically tied to a physical location, which arises some limitations. The location’s demographic, competition, and local economy directly impact the success of a business.

Expanding to new markets often involves significant investments, logistical challenges, and potential risks.

4. Intense Competition

Traditional businesses often face hard local competition, both from established players and emerging competitors. Competition makes the business challenging to stand out in the market.

To overcome the competition, business owners need to continually invest in market research, find and solve problems, product development, marketing, and after-sale services.

5. Limited Scalability of Traditional Business

It is challenging to scale a traditional business due to its resource constraints and physical infrastructure. Expanding a traditional business often requires new investment, inventory, employees, and new locations.

Besides, scaling business operations while maintaining quality and customer satisfaction is also difficult for some businesses. It requires careful planning and execution.

6. Long Sales Cycles

The sales cycle in traditional businesses can be lengthy, particularly for high-value products or services. It may take a considerable amount of time to build relationships with potential customers, negotiate contracts, and close deals. This extended timeframe can lead to cash flow challenges and require careful financial planning and patience.

7. Regulatory Compliance

Traditional businesses are subject to various regulations and compliance requirements, depending on the industry and location. Following these regulations and ensuring compliance can be time-consuming, complex, and costly.

Business owners must stay updated with legal requirements, obtain licenses and permits , and maintain proper documentation to avoid fines or legal issues.

8. Technology Adoption

Businesses must adopt new technologies to survive the competition. Traditional businesses often struggle to adopt and integrate new technologies. This can hinder their ability to grow, improve efficiency, and meet evolving customer expectations.

Adopting new technology effectively may require additional investments in infrastructure, equipment, staff training, and overcoming resistance to change.

The traditional business model refers to a structure in which a company operates physically, typically with a physical storefront or office space, to offer products or services to customers. Traditional business examples are local stores, restaurants, salons, grocery shops, etc.

Traditional businesses can be difficult to form due to high startup costs, operational complexities, limited geographical reach, intense competition, and always-changing consumer behaviour.

Traditional businesses have a physical presence, operate within set hours, and serve a local audience. Online businesses, on the other hand, are digital-based, operate 24/7, have a global reach, and interact with customers through digital channels.

Bottom Line

The traditional business model has inherent complexity due to the above-described factors and some other reasons. These complexities can cause significant barriers and challenges for traditional businesses to adapt to changing market environment.

To avoid these complexities, business owners must plan carefully in order to adapt to changing market conditions. They should also embrace new technology, invest in market research, and explore innovative strategies to thrive and remain competitive.

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He is a co-founder of MoneyAns and a professional blogger. He has experience in online business, digital marketing, and blogging. From over 12 years of experience running his own business, he shares various business tips and advice.

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  1. Types Of Business Model Discussion in this Video // Business Model Discussion

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