Startups: De-risk revenue with multiple business models

#Startups

The product/service you are building to a problem is to “create value”

It is different from building your business model/s to “capture that value!”

Startups can explore multiple business models to monetise their solution, effectively, with their customers, markets & users. This separation of value creation & value capture & multiplicity of business models arise from the exploratory & iterative nature of startups

By doing so, startups can achieve both impact & viability; leverage financial, human & tech resources & capabilities, effectively de-risking it’s business at multiple levels

Difference between Value creation & Value capture

Problems - Solutions focus on market impact i.e. Value creation

Startups aim to solve a real problem or fulfil a need for a specific target audience. This process is about creating value & often starts without a clear revenue strategy. This understanding is important. If a startup’s value creation is spot on, the monetisation models will follow!

• Early-stage Facebook focused on user engagement, not monetisation

Business Models focus on viability i.e. Value capture

Once value is created, startups can identify how to capture value in the form of revenue streams, which might not directly align or seem apparent with the solution itself. The value capture process can be straightforward or iterative &/or a continuous improvement process

• Google: Solves the problem of information search but monetises through advertising.
• OpenAI: Solves AI-related problems but could use subscriptions, licensing, or API models for revenue

Exploration of viable business models & paths to monetisation

Startups often experiment with various business & monetisation models to find what works best in terms of scalability, profitability & market fit. This is especially true when a single solution can serve multiple customer segments with different needs

It is common for startups to operate or test multiple business & monetisation models simultaneously or sequentially. Some of them are;

• Freemium + Subscription: A core product is offered for free, while premium features are gated behind a subscription. I.e. Spotify (free music streaming + premium ad-free subscription)
• B2B + B2C Hybrid: The startup serves both individual consumers & businesses. I.e. Dropbox initially targeted consumers but later focused heavily on enterprise accounts
• Marketplace + Commission + Subscription: A platform connects buyers & sellers, charging a commission per transaction & potentially offering subscription services for premium access. I.e. Amazon (Commission on sales + Prime subscriptions)
• Advertising + Product Sales: The startup provides a free service to attract users & monetises through ads, while also selling related products. I.e. YouTube (ads + YouTube Premium subscription)
• Licensing + API Monetisation: Intellectual property or software is licensed to partners & APIs are monetised through usage-based fees. I.e. OpenAI’s GPT API licensing & tiered usage fees

Benefits of multiple business models & hybrid monetisation models

• Diversified revenue streams:? Multiple models reduce dependence on a single source of income
• Customer-centric flexibility:? Different models can cater to various customer needs, segments, or geographies
• Rapid Experimentation: Explore various models to identify the most profitable & scalable one

Challenges in managing multiple business models

• Allocation of resources
• Dilution of focus
• Divided attention across models can weaken the startup’s core product or service
• Customer Confusion - Multiple pricing &/or business models can confuse customers & dilute value propositions

Global best practice for startups - Key points of strategy

• Start with a core model - Focus on the most promising model initially to gain traction & refine the product-market fit
• Experiment strategically - Use data-driven insights to test additional models without overextending resources
• Iterate based on feedback - Adjust models based on user behaviour, market dynamics & scalability potential
• Stay customer-centric - Ensure that all business models align with solving the customer’s problem or enhancing their experience

If you think the above is only for startups, take the example of banks. Banks are a traditional legacy business

It is important to see how they leverage their user base, across markets, to scope products & services, with multiple business & monetisation models, thus effectively leveraging it’s financial, human & tech resources & capabilities, effectively de-risking it’s income/revenue & business at multiple levels

Some of the key business models with their own revenue streams, within banks include:

Retail Banking

• Focus: Individuals & small businesses
• Services: Savings accounts, checking accounts, credit cards, personal loans, mortgages, etc.
• Revenue models: Interest on loans, fees for services & transaction charges

Corporate Banking

• Focus: Large corporations, multinational businesses & institutions
• Services: Working capital loans, cash management, trade finance & treasury services
• Revenue models: Interest on large-scale loans, fees for advisory services & foreign exchange

Investment Banking

• Focus: Capital markets, mergers and acquisitions (M&A) & advisory services
• Services: Underwriting, IPOs, bond issuance & strategic consulting
• Revenue models: Transaction fees, advisory fees & profit from trading activities

Wealth Management & Private Banking

• Focus: High-net-worth individuals (HNWIs) & affluent clients
• Services: Investment advisory, portfolio management, estate planning & tax advisory
• Revenue models: Management fees, performance fees & commissions

Asset Management

• Focus: Managing pooled funds like mutual funds, pension funds & ETFs
• Services: Investment strategies, fund management & financial planning
• Revenue models: Management fees & performance fees

Treasury and Capital Markets

• Focus: Managing the bank’s liquidity, funding & financial risks
• Services: Forex trading, derivatives & hedging services
• Revenue models: Trading gains, arbitrage & interest rate spreads

Digital Banking/Fintech Integration

• Focus: Digital-first financial services, often leveraging technology
• Services: Mobile banking, digital wallets, peer-to-peer payments, etc.
• Revenue models: Subscription models, transaction fees & data monetisation

Insurance Services (Bancassurance)

• Focus: Providing insurance products through the bank’s network
• Services: Life insurance, health insurance & investment-linked policies
• Revenue models: Commission fees & product margins

Micro-finance and Financial Inclusion

• Focus: Serving underserved or low-income populations
• Services: Small-scale loans, savings products & financial literacy programs
• Revenue models: Interest on micro-loans & government incentives

Payments and Merchant Services

• Focus: Payment processing, POS systems & e-commerce integration
• Services: Payment gateways, credit card processing & digital invoicing
• Revenue models: Transaction fees & merchant service charges