Let´s have an educational time together and talk about business models. We went through this topic with the start-ups during our Spring Pre-accelerator program 2023. Peter Pašek, AceON co-founder, spoke about the importance of choosing the right way to bring value to customers and then project it into the revenues aka define the right business model.
At the moment there are 9 proven business models which are: SaaS, Marketplace, Transactional, Subscription, Usage-based, E-commerce, Advertising, Hardware, and Enterprise.
For tech start-ups to achieve fast growth and global reach it is essential to attract VC funds or investors to raise capital to achieve these goals. The Y Combinator study of their 100 most valuable start-ups suggests that the most successful business models to get investments seem to be SaaS, marketplace and transactional. These 3 models had almost 67% of all analyzed start-ups: 31% SaaS, 22% transactional and 14% marketplace.
To understand these 3 models better, here is a quick summary of the main characteristics:
SaaS (Software as a service)
Repetitive revenue is the main benefit as software is available to customers on a subscription basis. If a SaaS start-up has a high gross margin at the same time with high retention rate, it is considered as a healthy model which can work and can be scaled in the future – this increases the price of such start-up. As an example of SaaS models, we can mention Mailchimp or Spotify.
Start-ups with transactional business model often become part of clients´ critical infrastructure and it is almost impossible to cut them off. These start-ups facilitate transactions and collect a fee. For example, PayPal or Stripe are transactional start-ups.
When marketplace start-up once reaches the target market size, it is so big that it´s almost impossible for other companies to compete. But this model has a problem often called “chicken and egg”. To become dominant in the segment, a start-up needs to reach for “network effect” - that means to get the mass of end customers and providers at the same time. A good example is Airbnb, which joins the biggest group of accommodation providers and at the same time the biggest group of customers looking for accommodation.
On the contrary, the Y Combinator statistics shows E-commerce and Advertising business models have only 5% start-ups from the whole. This all is important to consider when planning to enter the investment world. Furthermore, 10th model will probably find its way to the list of proven business models – blockchain. Our advice is to watch trends and choose wisely.