Types of Business Models

Now that you know what a business model is, let’s explore some types of business models and some ways different ventures use them. Understanding different business models is crucial because it provides a foundation for making informed decisions about structuring and managing a startup. Each business model offers a unique approach to creating and delivering value to customers, as well as generating revenue. This knowledge is essential for tailoring a business strategy to specific market conditions and customer needs, fostering innovation, distinguishing the business from competitors, and adapting to changes in the industry.

📺 Let’s learn about some types of business models by watching this video from Aaron Epstein of Y Combinator. In this video, they share the nine business models they find most successful with their portfolio startups.

From this video, the 9 most successful business models from Y Combinator startups are:

1. SaaS (software as a service): cloud-based subscription software.
2. Transactional: facilitate transactions and take a cut.
3. Marketplace: facilitate transactions with buyers and sellers.
4. Hard tech: physical products that you make and sell to users.
5. Usage-based: pay as you go based on consumption.
6. Enterprise: sell large contracts to huge companies.
7. Advertising: sell advertisements to monetize from users.
8. E-commerce: sell products online.
9. Bio: science-based companies that sell research or other innovative developments.

❓ Which of these business models have you heard of before?

Let's take the general business idea (providing financial services) and look at how different types of startups could be built using each of the 9 business model types described above.

SaaS (Software as a Service): The startup could develop a cloud-based financial management software tailored for businesses or individuals, offering features like budgeting, investment tracking, and financial analytics on a subscription basis. This model ensures steady recurring revenue and scalability.

Transactional: The startup could position itself as an intermediary for financial transactions, such as payment processing or currency exchange services, earning a fee or commission for each transaction processed through its platform.

Marketplace: The startup could create a platform where buyers and sellers of financial products (e.g., loans, insurance, or investment opportunities) can connect and transact. This could allow the startup to earn revenue by taking a commission from each successful deal or by charging listing fees.

Hard Tech: The startup could create specialized financial hardware (e.g., secure point-of-sale systems, ATMs, or hardware wallets for cryptocurrencies) that cater to specific needs within the financial industry.

Usage-based: The startup could charge for financial services, such as API access for market data, credit scoring services, or usage of high-frequency trading platforms, where customers pay based on their level of usage or consumption.

Enterprise: The startup could develop comprehensive financial solutions tailored to large corporations, such as bespoke risk management software, large-scale asset management systems, or enterprise-grade compliance solutions, securing revenue through significant one-time sales or annual contracts.

Advertising: The startup could create content-driven platforms like financial advice blogs, investment analysis portals, or educational resources, generating revenue through advertising financial products, services, or even job listings relevant to finance professionals.

E-commerce: The startup could sell financial tools or resources online, such as financial planning ebooks, courses, software, or even physical goods like secure document storage solutions.

Bio: The startup could create a bio-based model that involves leveraging biotechnology for financial security or authentication purposes, developing products like biometric authentication systems for secure banking and transactions, or creating innovative solutions at the intersection of finance and bio-data analysis.

❓ Think of a product-led company you like. What is the name of the company and what is their business model?

It’s worth noting that these are not the only business models that exist. Most of these business models are geared toward product-led companies and tech startups. For an educational venture, for example, one of their business/revenue models is tuition. For a non-profit, it could be donations.

Here are the business models mentioned in the articles, along with some examples of companies that employ them.

Case Study: mPharma

Let’s look at the example of mPharma and their business model.

mPharma is a health technology company that is revolutionizing pharmaceutical access in emerging markets.

Founded in January 2013 by Gregory Rockson and his co-founders Daniel Shoukimas and James Finucane, mPharma’s problem statement is that the drug supply chain in Africa is broken. Essential medication patients need are not always available and when they are, they are multiple times more expensive than they should be.

To address this problem, mPharma uses technology to eliminate inefficiencies and price fluctuations that prevent prescription drugs from reaching sick people. Using the collective power of a network of pharmacies, they negotiate lower prices with the best manufacturers. This way, they keep pharmacy shelves stocked with no upfront payment required.

mPharma is headquartered in Ghana, and has expanded operations to eight other African countries including Ethiopia, Gabon, Kenya, Nigeria, Rwanda, Togo, Uganda, and Zambia. mPharma serves over 100,000 patients monthly and has a network of more than 400 pharmacies in their key markets, with their partner pharmacies having dispensed millions of life-saving drugs to patients.

📺 Watch to their founder, Gregory Rockson, as he shares more about mPharma and the problem they are solving.

One of mPharma’s products is the mymutti app. mymutti is a digital health companion that gives members access to a personalized range of quality and affordable healthcare benefits. This includes loyalty discounts, discounts on prescription medications, healthcare tracking, personalized wellness programs, and subscription payment discounts for refill medication. For customers to access enhanced benefits like doctor services and selected prescription medication, they pay a monthly subscription service of less than $2.00. There is also a free multi-membership tier that users can take advantage of.

❓ From what we’ve shared about mPharma, what is their business model?

❓ What other companies do you know that have a similar business model to mPhrama?