Business Model Formation

The Latest Trends in Modern Business Model Formation

Over 90 percent of all startup companies fail within their first couple of years.

Fresh business models have risen and fallen ever since Internet technology became affordable. New firms are still struggling to find plans that work for them, however. One of the major reasons they end up faltering is due to a key financial error many entrepreneurs make.

Spending money on marketing and hiring before a company finds a working model is referred to as premature scaling. This can lead to bankruptcy very quickly. Fortunately, the rise of some major trends in modern business is helping entrepreneurs find an online model that works for them faster than ever before.

Business Model Formation

These trends are also quickly changing the way that huge enterprise firms and existing small and medium-sized businesses (SMBs) find clients online.

Crowdfunding & Fundraising for Startup Projects

Startup companies need a large amount of capital, and many have turned to online crowdfunding and fundraising organizations to raise that money. Perhaps the biggest criticism of this model comes from the fact that some individuals have abused it. Fortunately, trends in this market sector are far more legitimate in the past.

Fundraising organizations are cracking down on a misuse of their services, and new methods of measuring financing goals are preventing firms from losing sight of what they had in mind from the beginning. While these services are used by charitable projects, a number of for-profit startups are also leveraging them to great success. These companies often consider an initial donation to be a forward payment toward the cost of a product or service a consumer genuinely wants.

This has helped to give the crowdfunding a drastic makeover that’s lead to literally thousands of worthy projects turn to it in the last several months.

Instantaneous Blockchain Transaction Databases

If you make a transaction with a debit card, then it can often take several days before it gets processed. Using cryptocurrencies, all transactions are instant. According to experts, starting a blockchain-based business has never been easier. However, the scope of these businesses has drastically changed in the last year or so.

Mining tokens is no longer profitable for all but the largest installations. However, startup companies that focus on the transaction side of the equation have begun growing. Online retailers and service providers are turning to blockchain-based systems because all transactions are done in real-time, which eliminates the risk of never getting paid. All information about a transaction is stored in the blockchain log at all times, so there’s never any disputes about whether or not a client received something.

Independent exchanges are also starting to come into their own. Cryptocurrencies can be difficult to convert back into fiat money. Consumers are quickly turning to smaller exchanges to cash their money out, and it looks like this trend should continue for the foreseeable future.

Shared Economy Business Model

Peer-to-peer sharing of access to goods and services is called shared economics, and it grew out of the open-source software movement. Just like hackers were sharing their own GNU/Linux builds in the early 1990s, everyone from virtual online merchants to B2B companies are now starting to pool resources together.

Financial experts often prefer the term access economy, since even competitors who don’t want to share resources might do so under this kind of an arrangement. Business models based on this concept usually fall into one of three different categories.

Collaborative lifestyle plans feature community-based platforms that allow consumers to make monetary transactions in exchange for skills. Freelance work-at-home opportunities have leveraged this to great success. These plans can work for companies that need to crowdsource tasks, but they generally don’t work in any environment that requires an exchange of physical goods.

Redistribution markets, like online auction and swapping sites, have grown to fill that niche. However, these are usually geared only toward individual entrepreneurs who plan on running their own small business. That’s opened the door for another concept that tries to alleviate these problems for larger nationwide businesses while still remaining viable for entrepreneurs.

On-Demand Service Dispatching

Commercial peer-to-peer mutualization systems constitute the largest enterprise-level shared economy models. These expanded the shared economy concept so much that they’re now considered almost their own concept. On-demand service dispatching organizations use a central authority to send individual freelancer service providers to wherever their skills are in demand.

One of the biggest benefits of this kind of business model is that it’s completely scalable and allows companies to send human resources to where they’re needed most. Firms like Uber have honed this idea into a science by dispatching fleets of individuals who use their own vehicles to provide taxi services. Unfortunately, it doesn’t work with online services so other trends in the business world have stepped in.

No Fee Drop Shipping Directories

Most drop shippers don’t keep merchandise in stock. They instead rely on other retailers and wholesalers to help them fulfill customer orders. Businesses that worked on this model had to pay for the right to access lists of other firms they could use to find goods to sell.

Any price a retailer had to pay got passed onto the consumer. By offering retailer directories to drop shippers for a single one-time fee, competitive firms are giving drop shippers the freedom to slash their costs. This is expected to fundamentally change the online retail landscape in the next few years by empowering SMBs with smaller budgets to get into drop shipping. Many of these firms are able to use standard blog sites and aggregators to keep retailers informed.

Monetized Open-Source Software

While open-source software is normally free, the developers who code it still have to eat. The monetized open-source software has grown out of the original shared economy concept. Programs developed under this method remain free to distribute and modify but fund themselves either through selling support services or receiving donations from enterprise-level users. Some commentators feel that things have come full circle in a way, since the shared economy software was originally an outgrowth of the open-source movement.

This trend is starting to change the way that cloud-based companies do business. Red Hat’s recent buyout by IBM helped to drastically illustrate that fact. However, those who aren’t comfortable with releasing all their code are instead turning to subscription-based services.

Subscription-Based Sales Model

Many larger tech companies, as well as startups and SMBs, are offering freemium versions of their products that are disabled in some way. This somewhat resembles the shareware model of the past, but these subscription-based programs are usually deployed totally online. SMBs looking to cut costs have turned to applications distributed via the subscription-based model, since updates are automatically included with the package.

These services are usually browser-based. As a result, companies who market their services via this model usually find a large number of leads since they don’t have to worry about what market segments use certain types of equipment.

Ironically, though, game developers have also turned to this model. Some people in that sector have criticized subscription-based software and find it unsuitable for their particular market.

Business Model Trends for the Future

Predicting the future of online business is difficult even for alleged experts because of how fast the world of eCommerce moves. The good news is that all of these trends show no signs of slowing down. Startup ventures and SMBs looking to move in a new direction may wish to adopt one of these models before they fall into the trap of spending without a goal.

No one should feel like they need to adhere to someone else’s plan without making their own changes, though. Don’t be afraid to be an innovator. Modify modern business models when it makes sense to and you might end up setting the next online trend.

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Written by
Philip Piletic
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