Building a Scalable Startup: A Deep Dive into 15 Promising Business Models – Part 1

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Building a Scalable Startup: A Deep Dive into 15 Promising Business Models – Part 1

It might be overwhelming to launch a new company. Entrepreneurs must overcome a number of obstacles, such as coming up with a great concept, assembling a team, obtaining finance, and creating a scalable business plan. The selection of a business model is one of the crucial variables that might impact a startup’s success. We will examine 15 viable business models in this three-part series blog post that startups can use to create scalable businesses. In each section, we’ll review five different business models and talk about their advantages, drawbacks, and practical applications for both Indian and international startups.

What is a business model?

A startup’s business model is a strategy that describes how it will generate, deliver, and collect value. It outlines how the firm will operate, make income, and deliver value to its clients while also describing how it will maintain growth and profitability.

The choice of business model is influenced by a number of distinctive factors specific to the startup ecosystem, including regional market dynamics, cultural quirks, and the regulatory landscape. In order to flourish, entrepreneurs frequently face obstacles such as a lack of access to financing, fierce competition, and the need to innovate.

A scalable, sustainable, and commercially viable solution must be developed for a specific market issue or opportunity in order to have a successful business model in the Indian startup ecosystem. Retail, wholesale, franchise, e-commerce, SaaS, advertising-based, and sharing economy models are just a few of the business models that Indian companies have used.

Promising Business Models

In the modern era of rapid technological advancement and digital transformation, startups may take into consideration a number of intriguing business models. Five scalable and attractive business models will be covered in this article: subscription-based, marketplace, freemium, platform-based, and on-demand business models. We have included instances of both Indian and international firms that have successfully applied these models to show the potential of these frameworks.

1.Subscription-based Business Model

Customers pay a recurring fee on a regular basis (often monthly or annually) for access to a good or service under a subscription-based business model. Businesses that provide software, media, and other digital goods and services frequently use this approach. Indian and international startups that leverage the subscription-based business model include the following:

Netflix: Global leader in internet streaming services is Netflix. Customers may access its collection of films, TV episodes, and other material by paying a monthly charge under its subscription-based business model. With more than 200 million subscribers globally, Netflix is renowned for its original programming.

Disney Hotstar: Disney owns the subscription-based streaming service Hotstar, which is available in India. The variety of content it provides includes live sports, films, TV series, and news. In India, Hotstar has more than 300 million active users.

Spotify: A subscription-based approach is available for this music streaming service. Users may access its huge music and podcast collection for a monthly charge. More than 345 million people actively use Spotify, which is accessible in more than 180 countries.

The Ken: The Ken is a digital media startup from India that offers in-depth research and insights on industry trends. Users can access its material by paying an annual fee through a subscription-based mechanism it offers. The Ken is well known for its high-caliber journalism and has more than 20,000 subscribers.

Benefits

1. Predictable revenue: Subscription-based businesses offer a predictable source of income since clients are charged on a recurrent basis.
2. Customer loyalty: Customer retention and loyalty are better with subscribers since they are more inclined to remain around for an extended length of time.
3. Upsell Opportunities: Opportunities to upsell users on extra features or services may help businesses make more money.
4. Cost-effective: Since subscribers are already familiar with the product or service, costly marketing initiatives to attract new clients might not be as necessary.
5. Data-driven insights: Businesses that rely on subscriptions can collect information about consumer behavior, tastes, and usage patterns in order to enhance their offerings.

Limitations

1. High churn rate: If customers do not think the product or service is worthwhile, they may cancel their subscriptions, which results in a high turnover rate.
2. Dependence on recurrent income: Businesses that rely largely on recurring revenue may have negative effects if their subscriber base declines.
3. Price sensitivity: If there are cheaper alternatives to the items or services you’re offering, customers who are price sensitive could be unwilling to pay for a recurring subscription.
4. Need for continuous improvement: Continuous product or service development is required for subscription-based organizations in order to maintain current customers and draw in new ones.
5. Management of cash flow: When subscription income is collected on a recurring basis, companies must efficiently manage their cash flow to make sure they have enough money to pay bills.

2. Marketplace-based business model

When a platform serves as an intermediary between buyers and sellers, it is referred to as a marketplace-based business model. The platform enables transactions between buyers and sellers and receives payment for each transaction in the form of a commission or fee. Here are some instances of companies from India and other countries that make use of the marketplace-based business model:

Amazon: An international leader in e-commerce, Amazon operates under a marketplace-based approach. It links buyers and sellers and gives them a platform to conduct business. For each sale that occurs on its site, Amazon receives a commission. It provides a variety of goods and has over 2.5 million active vendors.

Flipkart: Using a marketplace-based business strategy, Flipkart is an Indian e-commerce company. It provides a variety of goods, including electronics, clothing, and household appliances, and it links consumers and sellers. Flipkart was purchased by Walmart and has more than 300 million registered users.

Airbnb: Airbnb is a global marketplace that links guests who provide short-term lodging with travelers. Each reservation made through the platform results in a commission for the platform. In more than 220 countries, Airbnb has over 7 million listings.

Uber: Uber is a global ride-hailing service that links passengers and drivers. It operates under a marketplace model, earning a commission for each ride booked through its service. Uber operates in more than 10,000 locations globally and has over 110 million active monthly customers.

Swiggy: Using a marketplace-based business strategy, Swiggy is a meal delivery startup from India. It offers a variety of meal delivery services and links consumers with eateries. On its platform, Swiggy receives a commission for each order. It operates in more than 520 Indian cities and has more than 2 lakh restaurant partners.

Benefits

1. Variety of goods or services: The marketplace model enables users to access a variety of goods or services from various vendors or service providers, improving shopping convenience and turning it into a one-stop shop.
2. Low investment: controlling operations, controlling inventory, and logistics do not need significant financial outlays on the part of marketplace owners. Instead, you can concentrate on developing and managing the platform and giving your consumers a smooth experience.
3. High potential for scalability: Marketplace models offer tremendous potential for scalability since it is simple to add more vendors or service providers to the platform and extend to other markets. 
4. Reduced Risk: Less risk is involved because you don’t need to make large inventory investments. Without having to pay for unsold inventory, you may test out new goods or services.

Limitations

1. Limited control over sellers: If you run a marketplace, you have little power over the vendors that use your platform. The total customer experience may be impacted if there are problems with the quality of the products, delivery schedules, or customer service.
2. High competition: Marketplace models must contend with intense rivalry since it is simple for other platforms to enter a given industry or category, making it difficult to hold onto market share and pricing power.
3. Low profitability: Because the fee charged on each transaction is very minimal, marketplace models often have low-profit margins. Without considerably growing up, achieving profitability might be difficult.

3. Freemium Business Model

In a freemium business model, a firm provides a free, basic version of its product or service while charging for more advanced, premium features or services. With this business strategy, you may draw users in with a low entry barrier and eventually monetize them by adding more premium services. Here are some instances of companies from India and other countries that operate using the freemium model:

Dropbox: Dropbox is a global provider of file-sharing and cloud storage services that operates on a freemium business model. It provides a free, rudimentary version of its service with a finite quantity of storage capacity. To acquire greater storage and more features, users can subscribe to a premium version. More than 700 million people have accounts with Dropbox.

LinkedIn: LinkedIn is a freemium-based platform for international professional networking. It provides a free introductory edition of its service that enables users to set up profiles, network with other professionals, and submit job applications. Premium options on LinkedIn, such as InMail, which lets users mail individuals outside of their network, have a price.

Canva: Canva is a freemium-based graphic design platform available worldwide. It provides a free introductory edition of its service with a constrained selection of design tools and templates. Users who want access to more sophisticated features and templates can subscribe to a premium edition. Over 60 million people use Canva globally.

Freshworks: Using a freemium business model, Freshworks is an Indian startup that develops client interaction software. It provides a free version of their software that comes with the most fundamental customer interaction tools, such chat and email. For more sophisticated features like automated processes and phone help, customers can subscribe to a premium version.

Disney Hotstar: Indian video streaming service Hotstar has a freemium business model. There is a free version of the service available, however it only offers a small selection of material. To access a larger range of material and other features like live sports, users can upgrade to a premium edition.

Benefits

1. A large user base is attracted: By providing a free version of the product or service, a company may draw in lots of customers who might not have otherwise tried it.
2. Opportunities for upselling: After drawing customers in with the free version, firms may charge a price for extra features or services, boosting income.
3. Low marketing expenses: By acting as a marketing strategy in and of itself, the free version of the good or service might eliminate the need for expensive advertising or promotional efforts.
4. Competitive advantage: A firm may have an edge over rivals who do not have a similar model by providing a free version of the product or service.

Limitations

1. High acquisition costs: A freemium model might draw in a sizable user base, but it can be expensive to get those individuals on board. Creating and maintaining a free version of the good or service might be expensive as well.
2. Conversion rates: Since some people may be happy with the free version and not perceive the need to upgrade, the conversion rate from free to premium users may not be high.
3. User perception: Some customers could believe that the free version is inferior to the premium one, which might harm the company’s reputation.
4. Churn rate: Because consumers who are not paying for the service could be less committed to utilizing it in the long run, the churn rate—the rate at which people discontinue using the product or service—can be high.

4. Platform-based business model

An online platform that links buyers and sellers, or other participants, is created by a firm as part of a platform-based business model in order to enable transactions or interactions. By collecting a charge for each transaction or interaction that takes place on the platform, the platform owner makes money. Here are some instances of startups from India and other countries that make use of a platform-based business model:

Uber: Using a platform-based business strategy, Uber is a large, international ride-sharing service. Through its app, the business matches drivers and passengers, and it makes money from each ride that happens on the network. Uber has changed the way people hail rides by offering a more effective and convenient method.

Airbnb: Using a platform-based business strategy, Airbnb is a global online marketplace for short-term rental homes. The business charges a fee for each reservation made through its platform, which links travellers looking for lodging with property owners. By offering a more convenient and individualised lodging choice, Airbnb has upended the conventional hotel sector.

Swiggy: Using a platform-based business model is Swiggy an Indian food delivery service. The business facilitates the ordering of food from nearby eateries and levies a fee for each transaction. By offering a quicker and more dependable way to place food orders, Swiggy has upended the conventional meal delivery market.

Upwork: Upwork is a global online marketplace that links independent contractors with companies who need their skills. Each job that is completed on the platform is subject to a fee from the business, which also offers project management and collaboration tools for clients and freelancers. By offering a quicker and more transparent method of finding and hiring freelancers, Upwork has upended the conventional freelance market.

Practo: Practo is an Indian online service that links patients with medical professionals. In addition to offering tools to help individuals and healthcare professionals organise their appointments and medical records, the company levies a fee for each appointment that occurs on the platform. By offering a more practical and accessible way to schedule appointments and get medical services, Practo has upended the conventional healthcare sector.

Benefits

1. Scalability: Platform-based firms are able to grow quickly because they depend on other companies or people to supply the products or services.
2. Savings: Platform-based firms can cut costs by forgoing the expense of developing their goods and services.
3. Network effects: The platform-based business model produces network effects, where the platform gains value as more users and companies use it.
4. Flexibility: Flexibility in pricing and product offers is made possible by the platform-based business model.

Limitations

1. Competition: Since platform-based firms depend on others to deliver their goods or services, they must contend with fierce competition.
2. Dependence on partners: Platform-based firms rely on their partners to offer their goods and services, which makes them susceptible to changes in the partner’s company or market conditions.
3. Regulatory obstacles: Platform-based companies could run into legal obstacles, such as those with liability, intellectual property, and privacy.
4. Trust and safety: It might be difficult to maintain at scale, but platform-based firms must secure the trust and safety of their consumers.
5. Trouble in monetizing: Platform-based firms may have trouble monetizing their platforms since they frequently have to strike a compromise between satisfying the requirements of users and partners and making money.

5. On-demand business model

A company that uses an on-demand business model gives customers the products or services they need when they need them, typically via an online store or mobile app. By charging a fee for each transaction or service rendered, the business makes money. Here are some instances of startups from India and other countries that employ an on-demand business model:

Zomato: Zomato is an on-demand business model-based Indian platform for finding restaurants and placing online food orders. The business offers delivery services and links customers with restaurants in their neighborhood. Each order placed through Zomato’s platform is subject to a fee.

Postmates: A US-based on-demand delivery and logistics network called Postmates links clients with neighborhood couriers. Deliveries are made by the business for a range of things, including meals, groceries, and other items. For each delivery made through its platform, Postmates charges a fee.

Urban Company: An Indian internet platform that links users with nearby service providers like plumbers, electricians, and cleaners. The business offers services that are available immediately, and each service is priced separately.

TaskRabbit: Based in the US, TaskRabbit is an on-demand business that links users with nearby service providers for a range of jobs, including cleaning, handyman work, and furniture assembly. Each task carried out through the company’s platform is subject to a price.

Ola: Ola is an on-demand business model-based ride-hailing platform from India. Through its app, the business links passengers with drivers and offers transport services. Each ride that is reserved through Ola’s platform carries a cost.

Benefits

1. Convenience: By delivering goods or services when and where customers need them, on-demand enterprises make their customers’ lives easier.
2. Flexibility: These companies can quickly adjust to shifting consumer wants and tastes, which facilitates scaling and expansion.
3. Low Overhead expenses: Many on-demand businesses do not need a lot of infrastructure or equipment, which makes it simpler to launch and operate with minimal overhead expenses.
4. Fast Growth potential: On-demand models have a high degree of scalability, which allows them to expand swiftly and reach a big audience in a short amount of time.

Limitations

1. High Competition: Low entry barriers have led to significant competitiveness in the on-demand company sector, which makes it challenging to separate out from the crowd.
2. Utilization of Technology: Technology and digital infrastructure, which can be expensive to develop and maintain, are largely relied upon by on-demand enterprises.
3. Quality Control: It might be difficult to maintain uniform quality among a large number of vendors, which can result in unhappy customers.
4. Regulatory Obstacles: Due to the possibility that their services may be covered by different rules and regulations than traditional firms, on-demand enterprises frequently face regulatory issues.

Startups now have the opportunity to use cutting-edge business models to upend established markets and industries in the age of digital change. Subscription-based, marketplace, freemium, platform-based, and on-demand are the five business models we covered in this blog post. All five have shown a great deal of promise for creating successful startups. Entrepreneurs may make wise decisions and create profitable ventures by comprehending the advantages and limitations of each model and studying examples from the real world. Stay tuned as we explore the next ten intriguing business models in parts 2 and 3.