5 Game-Changing Business Models to Learn From

By James Clear on 25 September 2011 (Updated 5 October 2011) 0 comments
Photo: PeskyMonkey

Your business model is simply how your organization creates, delivers, and captures value. It's how you go about creating something that customers want, giving it to them, and then making money from it.

Most of the time, the business models in our organizations remain the same—but that doesn't mean we can't change them.

In fact, business models can always be tweaked and adjusted. Often, those small tweaks can help us gain an advantage in the marketplace.

So, whether you're looking to make an adjustment to your business model or not, it's always helpful to step back and look at how others are going about it and perhaps learn from and use in your own companies.

1. Spotify

The music-sharing service has been loved in Europe for years and is now taking the United States by storm. Spotify seems to be on a mission to figure out how to offer music for free and make money from it.

Around 90 percent of Spotify users stream any song, on-demand for free. Those users are exposed to occasional audio and text advertisements. The other 10 percent of users pay a monthly fee for a premium version of the service, which offers mobile-streaming, no advertisements, and other upgraded features.

In essence, Spotify has combined many of the features of services like iTunes, Pandora, and Grooveshark to create a unique music playing platform. It remains to be seen whether Spotify's business model will be sustainable over the long-term, but the service has already gained over 10 million users.

The lesson?

Using a business model that offers a range of options can be an excellent way to grow your user base.

2. Box.net

Just as the consumer-focused tidal wave was coming into shore, Box.net took their boat out to sea.

The hot new startup companies—Facebook, Twitter, etc.—were all focusing on individuals. Instead of trying to create the next Carbonite or Dropbox—which focus on digital storage for consumers—Box.net founder Aaron Levie decided to transition into the B2B space.

It's paid off. The other services receive lots of press, but Box.net, which was founded in 2005, is now valued at $500 million.

The lesson?

Unsexy can be very profitable. Consumer-based software seems to get all the buzz, but B2B markets have deeper pockets.

3. Cutting Edge Group

There are lots of people and things in a Hollywood Movie–script, actors, director and crew, costumes, sets —and for a film to make it to theaters, each piece needs to be funded.

In the past, everything that went into a film was usually paid for out of one large pool of money. Cutting Edge Group has decided to join the funding party in a unique way. The company invests in the musical scores of new movies.

In essence, they inflate the musical budget of films. The result is that movies with Cutting Edge funding can hire better music producers, composers, musicians and so on.

For its investment, Cutting Edge receives film royalties, music licensing deals, and movie soundtrack sales.

The lesson?

Most industries have a profitable niche that new companies can carve out and use to their advantage. Sure, the movie industry wouldn't function if everyone only invested in the musical portion like Cutting Edge does ... but that's not going to happen.

4. Charity:water

When founder Scott Harrison started Charity:water, he decided that 100% of public donations would go towards the cause. It would take extra work, but he was committed to covering operating expenses through separate, private donations.

Little did Harrison know how difficult landing those private donations would be. At one point, the company was only a day or two away from financial failure and Harrison was prepared to walk in and tell his employees to pack it up.

A saving donation came through, of course, and now Charity:water is one of the most successful charities in the world.

The lesson?

Creating a business model that makes things more rewarding for your customers isn't always easy, but it can definitely be worth it.

5. Umphrey's McGee

This rock jam band took a page from the video game playbook and allowed their fans to "unlock" different tiers of bonus packages by pre-ordering their album, Mantis.

For example, if 100 fans pre-ordered, then everyone would get Bonus A. If 1000 fans pre-ordered, then a new level would "unlock" and everyone would get bonus A and bonus B. If 10,000 fans pre-ordered the album, then everyone would get bonus A, bonus B, and bonus C. And so on.

The result was that fans pressured each other to buy, so that everyone received more bonuses.

The idea created a flood of pre-orders and Reuters claimed it was the "perfect way to implement a pre-order campaign."

The lesson?

Making the experience more engaging and introducing some game-oriented tactics ("gamification") can make a big difference for your business model.

How can these brilliant business models help your company?

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