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7 Fundamental Business Models

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The Business Model Archetypes are seven fundamental business  “personalities” upon which any business model can be developed.  By providing the context of all available models, it becomes easier to see how businesses relate and directions in which businesses can pivot. In this article, we’ll discuss the model and the archetypes, as well as describe use patterns where the models might benefit entrepreneurs and product strategists who use the model.

BACKGROUND & CONTEXT

The purpose of a business model is to concisely describe the function of your business within the overall market landscape, including details such as business inputs and dependencies, target customer base, and the value being created on behalf of those customers. By using such a conceptual construct for evaluating a business, strategists are able to more easily understand the function of the business, identify strengths, weaknesses, and opportunities, by comparing the attributes of other similar businesses who may be using a similar structural model.

While the concept is great, the value of such an exercise is lost on many product managers, who require something a bit more compact and immediately usable. There is a growing library of popular models that go by names like ‘Razor and Blades’ and ‘Network Effects Business’ which describe popular models that have been successfully used by other companies, but the knowledge is diffuse and there is little organization or context from which to easily discover and compare model options that may be appropriate for a business. The net result is that unless you have formally studied business strategy, there’s a good chance you are not aware of these known models, and thus the wisdom they represent is not leveraged. It is critical however for product managers to clearly articulate the function and contact of their business in the market.

business models

It was with this challenge in mind that a different approach was developed, called The Business Model Archetypes. The concept is derived from work by Carl Jung, the 20th century Psychiatrist who suggested there are fundamental personality templates from which we all inherit and combine attributes to create our own personalities. By understanding the fundamental templates he believed, you could better understand the personality of an individual, and predict their response to a variety of stimulus. He called this theory, the Personality Archetypes.

Jung’s concept is also relevant to the fundamental personalities of a business and provides an excellent structural base from which to identify the spectrum of possible templates. In the case of businesses, there are three primary personalities that describe the fundamental interests and activities of every business. And, similar to an additive color wheel, three secondary archetypes are derived by combing attributes of the three primary archetypes:

business model archetypes
 

PRIMARY

  • Product – one time purchase of an artifact
  • Service – manually doing something and charging a fee
  • Trade – Connecting buyers and sellers for commerce

SECONDARY

  • Brokerage – providing trade as a service
  • Subscription – productizing and semi-automating a service
  • Marketplace – productizing trade with a self-service platform
  • Ecosystem – Platform that combines all three (Mature)

ABOUT THE MODEL

These seven archetypes are high-level abstractions that describe basic truths about categories of businesses. This can be helpful for identifying a generalized context from which to determine where in the spectrum of possibilities to focus your efforts, but it is not specific enough to be actionable. For this, two prototypes were added to each of the model archetypes. A prototype is a more specific and functional demonstration of what is possible within a model archetype.

To demonstrate this idea, the Trade archetype has two prototype examples: eCommerce and Lead Generation. Both are examples of sourcing something of value and bringing it to the market for sale. In both cases, money is made on the spread between the cost of acquiring the item and what it can be sold for by the trader by taking it to market and promoting it. Similarly software and content are the two most common types of products to sell if you are an online business.

Being able to see the spectrum of structural options is a great place to begin thinking through the strategy of your business. Typically, teams will find they relate more strongly to one of the archetypes than the others, but while evaluating their options more closely, they might be able to reasonably pivot to the neighboring archetypes, providing additional opportunity and potentially even a more innovative and effective approach to their business. A well-connected Trader for example might find interest in expanding their business through a Brokerage model, by providing Dropship fulfillment of their products. Or they may be interested in building a category-leading brand online by establishing the go-to Marketplace for the types of products they specialize in.

The important point is to take the time to do the analysis and to understand the primary function of your business and to consider the possible variations on your theme that might be more optimal that what you’re currently doing. That is where the Business Model Archetypes framework is useful, by providing a conceptual framework with which to think through the possible opportunities you may not have considered. At the end of the day, every product manager be able to clearly articulate their business’s foundational strategy and to understand their context and expansion and pivot options – this framework provides a simplified method for achieving these goals.

ABOUT THE ARCHETYPES

Here’s a brief description of each of the archetypes to demonstrate further:

I. PRODUCT

inf-product

 

This primary archetype focuses on the development of a tangible artifact that can be bought and sold for a one-time cost. The product is usually consumed either because it provides personal entertainment, or because it offers some gain of efficiency and can be acquired for less cost than hiring a services company to perform an activity. When applied to the online world, the most common types of products are software in the form of plugins for major platforms such as WordPress, or content in the form of mobile apps of ebooks.Indicative Attributes

  • Key partners: Marketplaces
  • Value proposition: Productivity or entertainment
  • Key Activities: Product Development
  • Monetization: Sale of product

II. SUBSCRIPTION

inf-subscription

 

This secondary archetype is a popular blend of a product and a service. The most common examples are software as a service (SaaS) and Content as a Service (CaaS). Rather than buying a tangible product one time at a maximum cost, the subscription model provides continued access to the product or service for a lesser monthly cost, and continues to update, improve, and support the product over its lifetime. The benefit for the business is a reduction in up-front cost, reduced dependency upon a marketplace, and a continued relationship with the customer. For the customer, its also a way to reduce up-front cost, and ofte means having access to more and better resources than if they needed to purchase the tangible equivalent.Indicative Attributes

  • Key partners: Ecosystem platform owner
  • Value proposition: Customization and support of platform
  • Key Activities: Customization and maintenance
  • Monetization: Time and materials

III. SERVICE

inf-service

 

The third primary archetype provides intangible solutions for customers and clients, where commoditized products are not sufficient. Often this is in the form of integration, maintenance, or customization of a popular platform solution. Usually this type of organization is formed by an organization of skilled professionals who sell their services for an hourly rate.Indicative Attributes

  • Key partners: Ecosystem platform owner
  • Value proposition: Customization and support of platform
  • Key Activities: Customization and maintenance
  • Monetization: Time and materials

IV. BROKERAGE

inf-brokerage

 

This a secondary archetype which combines the activities of Trade and Service by trading on behalf of clients, as a service. These businesses typically service consumer-facing brands that focus on marketing and need assistance with more efficient sourcing. Prototype examples of this type of business include advertising networks which provide online traffic sourcing for brand retailers, and dropship programs which often have deeper sourcing relationships, and better fulfillment relationships than the brands they service.Indicative Attributes

  • Key partners: Wholesalers
  • Value proposition: Efficient commodity procurement
  • Key Activities: Recruiting Wholesalers
  • Monetization: Base fee plus commission

V. TRADE

Trade Archetype

 

The primary archetype of Trade focuses on connecting buyers and sellers. Money is earned by buying a product for less than it IS sold for. The trader’s primary occupation is sourcing something of value “in the field”, packaging it, and making it readily available to those who desire it. Prototypical examples include the eCommerce retailer and lead generation. In both of these examples, the Trader sources something, qualifies and prepares it, then sells it to a customer. In the case of lead generation the behavior is the same as retail, except that the product is information about a customer prospect.Indicative Attributes

  • Key partners: Product sourcing and advertising
  • Value proposition: Low price, convenience, and curation
  • Key Activities: Sourcing and advertising
  • Monetization: Product arbitrage

VI. MARKETPLACE

inf-marketplace

 

The Marketplace is a secondary archetype that combines attributes of of the primary Trade and Product archetypes. It brings together buyers and sellers for trade, but it does o via self-service platform which itself is product. The product could be a physical shopping mall or an online technology platform that facilitates payment processing and statistical reporting. What is sold in a marketplace can either be tangible products or services. In both cases, the value and the efficacy of the marketplace is affected by Metcalfe’s law (aka Network Effects): the value of the network exponentially increases with every new node on the network. This can be a powerful dynamic that sustains a marketplace once critical mass is achieved, though it can also be rather difficult to reach critical mass to begin with.Indicative Attributes

  • Key partners: Merchants (sellers)
  • Value proposition: Destination shopping
  • Key Activities: Recruit vendors and advertise
  • Monetization: Commission per sale

VII. ECOSYSTEM

info-ecosystem

 

The Ecosystem is the only Tertiary archetype in this model, in that it combines all three primary archetypes – Product, Service, and Trade. This is the rarest and most difficult archetype to achieve but is the more desirable. Success with one primary or secondary archetype behavior typically opens up the opportunity to extend the brand into complimentary and synergistic offerings. A product creator for example, may start to offer services in support of their product. If that too is successful, they may begin looking at how to facilitate marketplace activities and a host of other supportive behaviors. All of the synergistic activity helps to entrench the brand as a market leader, and adds to the value chain and perceived value of the customer. Typical prototype examples of an ecosystem are the technology platform (Salesforce CRM, Microsoft, etc) and the media platform (NBC, Facebook, etc).Indicative Attributes

  • Key partners: PaaS providers
  • Value proposition: Turnkey software and management
  • Key Activities: Develop software and manage servers
  • Monetization: Subscription fee

_________________________________________________________

About the Author 

This article was produced by Smarter Startups. Smarter Startups began with the publishing of the book of the same name in 2013 and where authors Neal Cabage and Sonya Zhang, Phd continued to refined their thoughts. As for the book, it provides a comprehensive look at why some startups succeed while others fail and how to have a more predictable and reliable outcome. The book is available online and at major bookstores.

Callum Connects

Benjamin Kwan, Co-Founder of TravelClef

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Making music to create a life for his family, Benjamin Kwan, started an online tuition portal and his music business grew from there.

What’s your story?
I am Benjamin and I’m the Co-Founder of TravelClef Group Pte Ltd, a travelling music school that conducts music classes in companies as well as team building with music programmes. We also run an online educational platform which matches private students to freelance music teachers. We also manufacture our own instruments. I started this company in 2011 when I was still a freshman at NUS, majoring in Mechanical Engineering.

I was born to a lower income family, my father drove a taxi and was the sole breadwinner to a family of 7. I have always dreamed of becoming rich so that I could lessen the burden placed on my father and give my family a good life.

After working really hard in my first semester at NUS, my results didn’t reflect the hard work and effort I put in. At the same time, I was left with just $42 in my bank account and it suddenly dawned on me that if I were to graduate with mediocre results, I would probably end up with a mediocre salary as well. I knew I had to do something to gain control of my future.

During that summer break, I read a book “Internet Riches” by Scott Fox and I knew that the only way I could ever start my own business with my last $42 would be to start an online business. That was how our online tuition portal started and after taking 4 days to learn Photoshop and website building on my own, I started the business.

What excites you most about your industry?
Music itself is a constant form of excitement to me as I have always been an avid lover of music. As one of the world’s first travelling music schools, we are always very eager and excited to find innovative ways to a very traditional business model of a music teaching.

What’s your connection to Asia?
I was born and raised in Singapore and I love the fact that despite our diversity in culture, there’s always a common language that we share, music.

Favourite city in Asia for business and why?
Hands down, SINGAPORE! Although we are currently in talks to expand to other regions within Asia, Singapore is the best place for business. I have had friends asking me if they should consider venturing into entrepreneurship in Singapore, my answer is always a big fat YES! There’s a low barrier of entry, and most importantly, the government is very supportive of entrepreneurship.

What’s the best piece of advice you ever received?
I have been blessed by many people and mentors who constantly give me great advice but right now, I would say the best piece of advice that I received would be from Dr Patrick Liew who said, “Work on the business, not in it.” This advice is constantly ringing in my head as I work towards scaling the business.

Who inspires you?
My dad. My dad has always been my inspiration in life, for the amount of sacrifices that he has made for the family and the love he has for us. He was the umbrella for all the storms that my family faced and we were always safe in his shelter. Although my dad passed away after a brief fight with colorectal cancer, the lessons that he imparted to me were very valuable as I build my own family and business.

What have you just learnt recently that blew you away?
You can not buy time, but you can spend money to save time! With this realisation, I was willing to allow myself to spend some money, in order to save more time. Like taking Grab/Uber to shuttle around instead of spending time travelling on public transport. While I spend more money on travelling, I save a lot more time! This doesn’t mean that I spend lavishly and extravagantly, I am still generally prudent with my money.

If you had your time again, what would you do differently?
I would have taken more time to spend with my family and especially my father. While it is important to focus our time to build our businesses, we should always try our best to allocate family time. Because as an entrepreneur, there is no such thing as “after I finish my work,” because our work is never finished. If our work finishes, the business is also finished. But our time with our family is always limited and no matter how much money and how many successes we achieve, we can never use it to trade back the time we have with our family.

How do you unwind?
I am a very simple man. I enjoy TV time with my wife and a simple dinner with my family and friends.

Favourite Asian destination for relaxation? Why?
Batam, it’s close to Singapore and there’s really nothing much to do except for massages and a relaxing resort life. If I travel to other countries for shopping or sightseeing, I am constantly thinking of business and how I can possibly expand to the country I am visiting. But while relaxing at the beach or at a massage, I tend to allow myself to drift into emptiness and just clear my mind of any thoughts.

Everyone in business should read this book:
Work The System, by Sam Carpenter. This book teaches entrepreneurs the importance of creating systems and how to leverage on systems to improve productivity and create more time.

Shameless plug for your business:
If you are looking for a team building programme that your colleagues will enjoy and your bosses will be happy with, you have to consider our programmes at TravelClef! While our programmes are guaranteed fun and engaging, it is also equipped with many team building deliverables and organizational skills.

How can people connect with you?
My email is [email protected] and I am very active on Facebook as well!
https://www.facebook.com/benjamin.christian.kwan

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Entrepreneurship

Before you enter a Startup or before you choose your founding team or new hires read, “Entering Startupland” by Jeff Bussgang

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Before you enter a Startup or before you choose your founding team or new hires read “Entering Startupland” by Jeff Bussgang.

Jeff knows how to spot and groom good culture, as the book session was held in Zestfinance a company he invested in and now, “The Best Workplaces for Women” and for “The Best Workplaces for Tech”, by Fortune.

These are the questions during the Book Launch.

How to know if a hire including the founder is Startup material?
Jeff says to watch for these qualities.

First, do the hires think like an owner?
Second, do the hires test the limits, to see how things can it be done better?
Are they problem solvers and are biased toward action?
Do they like managing uncertainty and being comfortable with uncertainty? And comfortable with rapid decision-making?
Are they comfortable with flexible enough to take in a series of undefined roles and task?

How do we know if we are simply too corporate to be startup?

Corporate mindsets more interested in going deep into a particular functional area? These corporate beings are more comfortable with clear and distinct lines of responsibility, control, and communication? They are more hesitant or unable to put in the extra effort because “it’s not my job”.

If you do still want to enter a startup despite the very small gains at the onset, Jeff offers a few key considerations on how to pick a right one.

He suggests you pick a city as each city has a different ecosystems stakeholders and funding sources and market strengths. You have to invest in the ecosystem and this is your due diligence. Understand it so you can find the best match when it arises.
Next, to pick a domain, research and solidify your understanding with every informational interview and discussion you begin. Then, pick a stage you are willing to enter at. They are usually 1)in the Jungle, 2) the Dirt Road or 3) the Highway. The Jungle has 1-50 staff and no clear path with distractions everywhere and very tough conditions. The Dirt Road gets clearer but is definitely bumpy and windy. Well the Highway speaks for itself, doesn’t it?

Finally Please – Pick a winner!

Ask people on the inside – the Venture Capitalists, the lawyers, the recruiters and evaluate the team quality like any venture capitalists would. Would you want to work for the team again and again? And is the startup working in a massive market? Is there a clear recurring business model?

After you have picked a winning team and product, how would you get in through the door?

You need to know that warm introductions have to be done. That’s the way to get their attention. Startups value relationships and people as they need social capital to grow. If you have little experience or seemingly irrelevant experience, go bearing a gift. Jeff shared a story of a young ambitious and bright candidate with no tech experience who went and did a thorough customer survey of the users of the startup she intended to work with. She came with point-of-view and presented her findings, and they found in her, what they needed at that stage. She became their Director of Growth. Go in with the philosophy of adding value-add you can get any job you want.

And as any true advisor would do, Jeff did not mince his words, when he reminded the audience that, “If you can’t get introduced you may not be resourceful enough to be in startup.”

Startupland is not a Traditional Career or Learning Cycles

Remember to see your career stage as a runs of 5 years, 8 or 10 – it is not a life long career. In Startup land consider each startup as a single career for you.

Douglas Merrill, founder of Zestfinance added from his hard-earned experience that retention is a challenge. Startup Leaders to keep your people, do help them with the quick learning cycles. Essentially from Jungle to Dirt road, the transition can be rapid and so each communication model that starts and exists, gets changed quickly. Every twelve months, the communication model will have no choice but to break down and you have to reinvent the communication model. Be ready as a founder and be ready as a member of the startup.

Another suggestion was to have no titles for first two years. So that everyone was hands-on and also able to move as one entity.

Effective Startupland Leaders paint a Vision of the Future yet unseen.

What I really enjoyed and resonated with as a coach and psychologist was how Douglas at the 10th hire thought very carefully what he was promising each of his new team member. He was reminded that startups die at their 10th and their 100th hires. He took some mindful down time and reflected. He then wrote a story for each person in his own team and literally wrote out what the company would look like and their individual part in it. In He writing each of the team members’ stories into his vision and giving each person this story, it was a powerful communication piece. He definitely increased the touch points and communication here is the effective startup’s leverage.

Douglas and Jeff both suggested transparency from the onset.

If you think like an owner and if you think of your founding team as problem solvers. Then getting transparent about financials with your team is probably a good idea. As a member of a startup, you should insist on knowing these things
Such skills and domain knowledge will be valuable. There is now historical evidence of people leaving startups and being a successful founder themselves because they were in the financial trenches in their initial startup. Think Paypal and Facebook Mafia.

What drives people to enter a startup?

The whole nature of work is changing. Many are ready to pay to learn. Daniel Pink’s book Drive showed how people are motivated by certain qualities like Mastery, Autonomy and Where your work fits into big picture. Startups do that naturally. There is a huge amount of passion and the quality of team today and as it grows then the quality of company changes.

The Progress principle is in place, why people love their startup jobs is not money rather are my contributions being valued? Do I see a path of progress and do I have autonomy over work and am I treated well?

Find out more about StartupLand on Amazon

And learn from Zestfinance

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