"Over-innovation" in business models may make it harder for you to succeed. Among the top 100 companies invested by YC, there are only nine types of business models. In fact, it is more suitable for entrepreneurs to find a suitable model for themselves and then imitate the predecessors.
The most profitable one is the marketplace, and the easiest one to succeed is SaaS. Let's analyze what each business model is, who it is suitable for, and the key to success.
- SaaS
Examples: Adobe/Zoom/Slack
Key to success:
- Solve pain points for enterprises and promote sales through products or sales
- Increase MRR (Monthly Recurring Revenue) and Net Revenue Retention to establish a healthy cash flow
- Can do non-recurring revenue appropriately (such as consulting and customization) but don't get too distracted
- Transactional
Examples: Stripe/Coinbase/Wire
Key to success:
- Provide fintech and payment products in scenarios with high transaction frequency
- Extract 1-3% fees from a huge GTV (Gross Transaction Value)
- Marketplace
Examples: Airbnb/Doordash/Etsy
Key to success:
- Find a two-sided market and improve the stability of supply and demand
- Difficult to start in the early stage, but obvious network effects and moats after success
- Increase total transaction volume (GMV) and net revenue of the platform
- Subscription
Examples: Netflix/Classpass
Key to success:
- Find common pain points among a large number of consumer users
- Increase recurring payments and retention like SaaS
- Acquire paying users at a low cost without relying on salespeople
- Enterprise
Examples: Workday/Salesforce/SAP
Key to success:
- Find pain points of large clients and obtain high-value orders (over $100,000)
- Focus on sales and establish a good sales pipeline (contacting clients, showcasing products, negotiating contracts)
- Start with paid pilot projects or LOIs (Letter of Intent)
- Usage Based
Examples: AWS/Twilio
Key to success:
- Usually target developers and charge flexibly based on usage (API calls, product usage, etc.)
- Usage-based payments can be relatively stable, but usually lower than subscriptions and SaaS
- Make your product suitable for both small companies and large enterprises, and utilize flexible payment models
- E-Commerce
Examples: The Home Depot/Warby Parker
Key to success:
- Not a marketplace, so you can enjoy all the revenue
- Standardize products, reduce COGS (Cost of Goods Sold), and increase margin
- Focus on acquiring a large number of low-cost customers and managing gross margin
- Advertising
Examples: Facebook/Twitter/Reddit
Key to success:
- Users are the foundation, but advertisers are the real customers. Help customers make money with the foundation
- Not suitable for you unless you have confidence in becoming one of the top 100 websites globally
- Optimize the cost and volume of ad placements on the platform
- Hardtech/Bio/Moonshots
Companies that create miracles in hard tech, biotech, etc.
Examples: Pfizer vaccine/Cruise autonomous driving/OpenAI
Key to success:
- Usually takes several years to achieve significant breakthroughs in specific fields
- The willingness of large clients to pay (Letter of Intent) is a major indicator of commercialization
- More suitable for a small number of global elite research talents
In addition, service-oriented companies (such as consulting outsourcing) and existing ecosystem companies (such as plugins for Shopify/Unity) are easier to start and generate cash flow, but they cannot expand to become leading companies. Like hardware companies, they also find it more difficult to obtain capital support.