Is there real business model innovation?
Innovation in the start up world is not restricted to mobile and digital technology. Almost every week someone announces a new business model. There has also been a bit of a surge in literature about the whole idea of a business model. Perhaps the two best known examples are Business Model Generation by @AlexOsterwalder & @ypigneur and Running Lean by @ashmaurya.
Despite this, I sit in lots of meetings where potential investors struggle to understand how the pitching business makes money. I also read many business plans where the founding team and their advisors have had difficulty articulating a clear business model. I believe that the whole question has become confused and obscured. It is true that there are occasional brand new business models. In practice though the overwhelming majority of start ups have innovative products and marry these to an established and well tried model.
Top 6 start up business models
For software based companies, all the business plans and propositions I see are based on one of six core business models:
How will data be monetised?
Each of these business models has many variations and applications and there are many start ups which try to combine two or more. One of the most interesting areas to watch in the next couple of years will be the business models adopted by companies which essentially sell data for example from wearables or the Internet of things. It is possible to see how almost any of the above models could be applied but which will dominate?
How do you link your business model to your numbers?
I am always eager to hear about truly innovative business ideas. However, business models are rarely the focus of genuinely new thinking. If you are evaluating the potential of a start up business, whether as an investor, an advisor or a founder, figuring out which of these models is most appropriate is a great first step. Applying one of these six ideas will make it much easier to understand and explain how any business actually makes money.
How do you link the operating metrics of your business model to your financial performance?
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.