5 types of Startups!

I read a book Founders at Work: Stories of Startup's Early Days, I want to talk about the 5 types of startups you can build, the pros and cons of each, and how you can combine some elements to make a hybrid startup.

The 5 types of startups are:

1. Services Agency

2. Micro-Education Startup

3. eCommerce/ D2C Brand

4. Software as a Service (SaaS)

5. Platforms

1. Services Agency

The first type of startup that you can build is a services company. An agency. This is the easiest type of business you can build because it doesn't require any capital.

If you are already a freelancer, building a services startup is your next step. You need to get more clients, higher paying clients, and get your team to deliver instead of delivering the services yourself. You will have some scale here.

Pros:

- Low capital requirements

- Can get international clients

- Can be sold to a bigger company

- Establish processes and systems so that the company runs without the founder.

Cons:

- Difficult to scale beyond 1cr per month in revenue because it is people-dependent and assets are less.

- Chaos managing people

- Unhappy clients who demand more for less

2. Micro Education Startup

The second type of startup that can be scaled up without external capital is a micro-education startup.

There are large ed-tech startups that have raised millions of dollars in funding and then failed because they were not profitable. Our startup need not be the case.

When you are running a Micro-education startup, the courses, content, and community revolve around a single person/brand.

There are 4 major steps involved in building an education business.

a. Content?- The content can be in the form of lead magnets, blogs, or YouTube videos. This content helps people discover you.

b. Tribe?- You have to build a tribe of people around you who like to learn from you. This will build trust.

c. Sales?- You need to learn how to sell via webinars, sales pages, and sales calls.

d. Deliver?- You need to learn how to deliver value to the customers who have purchased from you. In this day and age, it is no longer enough to just give some recorded content. You need to offer a service to take people from where they are to where they want to be. This includes 1-on-1 guidance through account managers and community calls.

Pros:

- Can be scaled to 1cr/mo in revenue with a small remote team

- Satisfying to build a tribe and get some fame for the mentor

- The mentor becomes an expert through teaching

Cons:

- Difficult to scale beyond a particular level

- Business is dependent on the key person of influence (the mentor)

- Can lead to burnout as the mentor needs to keep showing up in front of the audience

- You cannot make everyone happy, some people will criticize the mentor and it can be hurting.

3. eCommerce/D2C Brand

If you have a unique product (physical product) and if there is a demand in the market, you can scale an eCommerce startup to great heights. Many such brands get sold to bigger brands and conglomerates.

Initially, it will be very challenging to get product market fit and traction. But once it picks up, it can bring in a lot of word-of-mouth customers.

Pros:

- Requires some capital to start such as buying the stock and warehousing

- Needs R&D if the product is unique

- Can get high revenue multiples and valuations attracting investors

Cons:

- Difficult to patent most products and once the fad is gone sales might drop

- If the brand is successful, other copycats will emerge. Even Amazon might compete with you by launching an Amazon Basics product similar to yours and they will sell for a cheaper price.

- Needs multiple moats such as community, patents, and production capacity

- Runs on thin margins and if depending on online ads for sales, ads might eat up most margins.

4. SaaS (Software as a Service)

Long back software was sold in floppy disks. People used to install software on their systems through engineers. The systems were mostly offline or at best intranets within organizations. And end-users didn't use much of the software at all.

Salesforce was one of the first companies to build a SaaS company. They delivered their software using the cloud. People could access the software via a browser. And there was no upfront fee for the software. It was charged as a monthly subscription.

Now there are a lot of SaaS companies. Some companies are worth billions of dollars and some are worth hundreds of millions of dollars. However, your SaaS company need not have such valuations.

You don't need to be a "Unicorn" with a billion-dollar valuation blaah blaah blaah. You can be a "Popcorn" at a $1m valuation or a "Babycorn" at a $10m valuation. If you are a solo founder or have one more founder, then you can build popcorns and babycorns without external funding.

Pros:

- Recurring revenue can be generated

- Doesn't cost much resources to keep the software up and running

- Can scale without problems as the product is digital

Cons:

- Needs investment in development and engineering. Developers don't come cheap.

- Needs a tech co-founder even if you have money to hire developers

- Anyone can launch a similar product at a cheaper cost and take away your market share. SaaS companies die all the time.

- Needs continuous updates and tinkering all the time to keep up with customer demands for features

5. Platforms

Platforms are one of the most complex types of business models. Platforms are usually two-sided or multi-sided. On one side you have consumers and on another side, you have the suppliers/producers.

Examples of platforms:

- Airbnb (Travellers and homeowners)

- Ola / Uber (Passengers and Taxi Drivers)

- Paytm (Consumers and merchants)

- Swiggy / Zomato (Restaurants and foodies)

Platforms usually require a huge amount of capital to start and grow. Until the network effect comes into place, the platform sucks up a lot of money.

Pros:

- Can become a billion-dollar company

- Can become a listed company and attract a lot of investors

- Once established, the platform becomes a monopoly

Cons:

- Requires a huge amount of capital to get it off the ground

- Can die if there is no activity in the network

- Many categories are already taken and dominated by big players. Only niche opportunities are available for disruption.

Shubham Kumar Singh Chauhan

[email protected]