Subscription Revenues; On-Demand Expenses

Note: Businesses should look at moving towards a model for recurring inflows while they should making their expenses as variable as possible.

Startup Model – Simplifying Reading News

THE MODEL: An app which tries to reduce the information overload in news stories. It does so by summarizing the news in bullet points and highlighting its timelines.

STARTUP: NewsBytes (Indian startup)

WHAT I LIKE

Core Idea – Making reading news easier for users is an upcoming space.

Value Addition – The app using its back end engine and editorial team summarizes news stories and makes it very easy to read and understand.

CONCERNS

Business Model – A team is required to summarize different news stories, which will prove a big cost for the startup and may impact its scaling potential. This will need to be addressed either by outsourcing, tying up with different agencies or by incentivizing individuals to do so.

Competition – I have seen a few startups who are entering this space of simplifying news stories. Also newspapers can implement this service in a much faster and cost effective way as they already have editorial teams working on the news.

Business Model – Return & Re-Use

This is a business model wherein the startup encourages users to return and sell unused items for an incentive. These items are then refurbished and sold off.

RATIONALE

Users have old and unused stuff which they want to sell off. A company operating with this business model can help these users get value for their items. At the same time, the company can add value to the items and sell them off for a profit, thereby ensuring a win-win for everyone.

STARTUP EXAMPLE

The Amazon Trade-In program buys hundreds of items from customers, across categories such as video games, DVDs, books etc. In exchange, these customers are given an Amazon Gift Card which can be availed on the website. The items must be in acceptable condition and Amazon verifies the product before purchasing any item. Amazon then makes it available for resale.

Business Model – On-Demand

On-demand is a business model which is transforming a lot of Industries. It implies offering a product or service at the click of a button by a user. The requirement is fulfilled usually within a very short period of time.

RATIONALE

Time is scarce. Offering an on-demand service ensures that user does not have to wait for the service for a long time and is generally used for services which are required within a short period of time. The business model leads to a very rich customer experience and revolves around 4 tenants – simplicity, cost-effective, speed and convenience.  

Most on-demand platforms engage local and small entrepreneurs and have been able to foster entrepreneurship at a very local level.

STARTUP EXAMPLE

DoorDash is an on-demand startup offering delivery of food from local restaurants. Advanced algorithms are used to minimize delivery times and costs. Delivery holds good potential for an on-demand startup as the user requirement is generally local and immediate.

Asset Light Business Models

An asset light model is one where the business tends to minimize it’s capital expenditure. The aim of the startup is to maximize return on capital invested by spending less in capital items and spend more on developing systems and growth.

Most Industries are seeing emergence of such players. Even the investor community tends to prefer models which are asset light.

Hospitality – OYO Rooms is a prominent startup in the Indian room aggregation space. It ties up with hotels and collaboratively markets for them without investing any money in them.

E-Commerce – All major ecommerce players like Amazon, Flipkart etc. work on a marketplace model. They do not own any inventory and service an order by picking up the goods from the seller and delivering them to the customer.

Mobile Phones – A lot of mobile phone companies like Apple tend to purchase most of it’s parts from external vendors, rather than manufacturing themselves.

Education – Most school chains like DPS tend to take the franchising route to expand, thereby keeping the model asset light.

These are just a few examples of sectors where players with asset light business models have emerged and become prominent players. However, in this model, a few issues to exist.

Co-ordination – Since the business has to co-ordinate with the customers as well as the suppliers, the complexity of communication involved is higher.

Quality Control – Since asset light businesses are dependent on the quality provided by the supplier, quality control is a challenge. Startups need to develop strong quality control systems to ensure a good product for the customer.