How to Develop a Game-Changing Business Model

There is a lot of confusion surrounding business models. In simple terms, a business model is what a business does to make money. A business model covers who will pay, what they will pay for, how much they will pay, how often, what percentage of what they pay will show up as profit and how they will pay.

Some approaches to doing business are described as business models when they’re simply pricing or marketing strategies. For example, loss-leading is not a business model as such but is a pricing strategy aimed at changing customer behaviour in the short term. In a similar way, the free-with approach where multiple products are bundled into a single package is a pricing strategy and not a business model.

As a business you can innovate in terms of your products and services but you can also innovate in terms of your business model. Look at Google as an example. For decades Microsoft had been dominant with its business model of licensing software. Google had great technology, but it decided to turn things on its head and gave away its technology tools for free in return for data. It then used that data as the basis for its advertising business model.

There really is no such thing as a brand-new business model. The trick is to do something different in the way that Google did. Advertising wasn’t a brand-new business model, and the innovation was to use it in the way that they did.

The six main existing business models are:

• The manufacturing model is where the maker of a service or a product sells it directly to the buyer via a licence, leasing or a one-time payment.
• The advertiser business model is based on making revenues or sales from advertising other businesses.
• The data business model is where a business charges for information.
• The merchant model is where a business sells products or services made by other companies on a wholesale or retail basis.
• The brokerage model is where a business shares its knowledge or skills in return for a fee. An estate agent is an example of a broker because they act between the buyer and the seller.
• The affiliate model is like a combination of the merchant and brokerage models because the business doing the advertising makes a financial return from actual purchases.

So what’s the best way of doing something similar to Google and coming up with a game changing business model? The first step is to look at the business models of your competitors and to seek out weaknesses.

Next, think differently. One way of doing this is to take a leaf out of Google’s book and do the opposite of what your competitors are doing.

Another way is look to see if there a business model being used successfully in another industry that you could copy and bring across to yours. An example of this approach is what the hotel chains like Premier Inn did when they brought the idea of dynamic pricing pioneered by the likes of EasyJet and Ryanair over from the airline industry.

Finally, is there a tweak or an alteration that you could make to an existing business model, be it large or small? For example, most music-sharing services are pretty much the same but Spotify has continually innovated by offering its users an increasing range of options.

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