last updated 26/05/2022

Proven Business Models

Evidence related to proven business models is successfully demonstrated by the fact it has already worked for another company in the market.

Of course, there are innumerable variables at play to the point that it fails to convincingly work in alternative markets.

In the same way, we observe early-stage enterprises with low-priced margins that present themselves as evidence of demand.

However, this only accounts for the current price.

Therefore, a proven business model is not related to the level of revenue, and it instead suffices in the event that large numbers of customers repeatedly buy with prices that yield meaningful gross margins.

What’s more, a large revenue number based on a contract with only one customer at low gross margins fail to constitute a proven business model.

A business model represents the foundation of a successful startup due to the fact that no matter the uniqueness or specialty, a startup needs a viable revenue stream that is worthy of sustainability through investment.

Here is a list of many different proven business models that will help businesses regardless of industry.

1. Serve as the Middleman

Warby Parker is a prime example of a successful middleman business model. In 2010, by entering the eyewear market, Parker saw immense opportunity upon realizing that the industry was monopolized by several large companies.

By reducing the price of its own products whilst adding social elements to the brand, Parker provided customers with huge savings and capitalized in a meaningful way.

Serving as the middleman allows startups a price advantage and saves customers money. It provides them with immense control over the quality of a service or product and provides immediate feedback to continuously develop better products.

2. Serve as a Marketplace

One of the more popular business models that have proven immensely effective is to serve as a marketplace. In doing so, you act as a bridge between supply and demand.

A key instance in recent years of this includes AirBNB, a company that has implemented such a model perfectly.

Renting rooms from strangers’ houses found on the Internet was a very sketchy notion at first, but the founders observed a sharing economy.

Convinced that the supply and demand existed, they have now successfully convinced over 20 million individuals to do the same.

Likewise, other examples like Uber have taken the reigns in a similar way through vehicle sharing services.

One of the most noticeable benefits is zero overhead and practically no inventory. You can run the company over the Internet, or get a nice office space.

Upon manufacturing a product, you take on pressure and risk to ensure that the inventory is sold. When in the proper marketplace, you bring buyers and sellers together to facilitate transactions in which you take a piece of the pie.

You also provide sellers a place to reach consumers and profit, while customers are happy to find what they want at discounted prices.

3. Offer a Subscription

Mobile payments have skyrocketed in their popularity, with consumers moving toward hassle-free shopping.

These trends are resulting in explosive growth for services demanding subscriptions. They allow customers an easy setup process that’s hands-free once established, to continuously access a service or product every month.

An example of a successful subscription service can be observed in Dollar Shave Club, as it provides men and women the ability to acquire razors consistently and save money.

This business model provides a balance of value for the customer and the company. It’s convenient and simple for customers and takes much of the thinking out of the purchasing.

Products are guaranteed to customers every month such that they don’t have to worry about reorders and know they will pay set rates within their personal budgets.

For startups, the value lies in being able to project revenue through a recurrence of sales numbers, which is highly advantageous to their valuation.

This enhances the company’s ability to sell and maximizes its appearance to potential buyers. Often, valuations are 8 times the quantity of similar businesses which have no revenue whatsoever.

4. Customization

The industry of fashion is currently dominating customization trends that align with a consumer focus on personalized goods that reflect their tastes.

Specifically, this is the reason that Coca-Cola added names to their packaging, car companies make vehicles in any color, and retailers allow custom product designs. This personalized tailoring has risen immensely in the apparel sector, and services like Black Lapel and Indochino have solved similar problems related to men’s suits.

These services simplify the ability to choose budgets, sizes, styles, and colors as desired. Furthermore, 3D printers have caused a surge in startups through the provision of technology that used to be more expensive.

5. On-Demand Services

In a world of immediate access to entertainment and information, consumers prefer instantly gratifying things.

This economy has an appetite for simplicity, speed, and convenience. Smartphones have permanently transformed how people consume services and goods. In addition, consumers have become acclimated to pushing buttons for all their needs.

On-demand companies have disrupted their industries and provided work for customers that want to go into business for themselves. Startups like Handy have thrived by providing handymen at the drop of a hat to service consumer needs that weren’t available in the past.

6. Direct Sales

Direct selling, in the modern sense, has accounted for billions in annual worldwide sales.

Fashion jewelry startups like Chloe + Isabel are reinventing the wheel by appealing to students that have to pay tuition or fail to find employment full-time.

They design, produce, and market jewelry for customers with interested merchandisers having the ability to create their own online stores and earn 30% commissions utilizing the infrastructure. As a result, the company has seen massive success and increased the loyalty of sellers who are also customers.

7. Freemium

Combining free and premium products and services is one of the most common approaches used over the past 10 years.

The model requires a basic package that is offered for free while charging a premium for additional services or products.

LinkedIn is an example of successful execution in this category, with new members able to sign up for free but charged if they want added features for professional networking.

To work successfully, the model must find a balance between what is provided upfront such that users are enticed to spend.

8. Virtual Goods

Games like Candy Crush are incredibly addictive that result in people spending far more hours than they are willing to share playing.

Companies understand the power of virtual goods and make untold levels of revenue for specific features such as extra lives. These are online exclusive products paid for in the app itself for upgrades.

For example, Hot or Not once implemented the virtual goods model in a powerful way by allowing users to send roses to others that cost as much as $10.

Moreover, games like Clash of Clans have users spending over $1000 per month on purchases.

An advantage to utilizing virtual goods as a business model is the high margins for the low cost of bandwidth.

The objects, though not in the physical world, are of true value to customers. As more gamers spend their time living through the metaverse, the liquidity of the market increases.

Virtual goods provide a way for individuals to show meaning and affection in an increasingly digitized age.

When browsing opportunities for franchising, you may or may not have come across the phrase “proven business model” as a reassurance to candidates that the venture is a viable opportunity. However, you may not be fully aware of why brands claim to have it.

Although franchising is considered a less risky path to owning a business, the reality is that not every franchise is created equally.

What is Franchising?

Franchising represents a business agreement between two particular parties, the franchisor, and the franchisee. In general, a franchisor owns a company, and a franchisee wants to open a business using the services and products of the franchisor’s company.

This idea is attractive to entrepreneurs for several reasons.

Firstly, it allows them to operate as if they are a part of a business that is already established.

Secondly, it allows them to receive support from experienced managers. Thirdly, it allows them to step into a system that already works.

1. Successful Track Record

If a franchise really has a business model that is proven, it means that the business plan has consistently worked across other franchises.

In the event a franchise fails to prove it has a track record of success, this is a big warning sign. Conversely, if a franchisor hides information at any point during the journey, they should be pushed to know why.

2. Proof of Growth

A franchisor should demonstrate the growth of a brand over time.

This helps demonstrate the earnings potential and whether or not it is worthwhile to invest in. If a franchise has operated for a while, then the franchisor has likely ironed out weaknesses in the system. Consequently, franchisees have a better chance of success without hiccups.

Don’t let this discourage you from investing in emerging franchises. Rather, you simply need to make sure they have completed pilot operations.

Such scenarios require a franchisor to test a business concept to see if is replicable across other locations and how the concept impacts operation. If you doubt the viability of an opportunity, you are able to consult specific law firms that specialize in this category.

3. Ongoing Support and Training

For franchises to have the right to advertise they have a proven business model, and they must have a support network for existing franchisees.

This is the reason entrepreneurs love franchising. If you want to enter a brand new sector but fail to possess the expertise, you simply need schemes that cover every aspect of running a business in a specific industry.

In addition to providing training modules, operations manuals, and ongoing support, there’s typically a dedicated team to answer questions that you may have right away.

4. A Path Ahead

Successful long-term franchise brands need to set achievable and ambitious goals with a clear plan. Franchises that have proven business models must ensure that all relevant data to fulfill the vision is consistently communicated with franchisees.

5. Brand Recognition

Operating under a famous brand with an existing base of customers is a strong selling point for the model.

Franchises that are proven have a strong presence to the point where they are often observed as industry leaders. Franchise brands that are instantly recognized can generate quick profits and attract waves of customers with ease in comparison to new startups.

Benefits of Franchising

There is no greater example of a proven business model than a franchise.

Working under a franchise provides various benefits and opportunities that are much more difficult to acquire on one’s own.

Franchises do not typically require a physical presence and can be easily run from home or when traveling. Even if you have a franchise on fixed premises, there is much freedom to tackle tasks from any location you want.

Upon investing in the franchise, you don’t have to commute to an office. Instead, you fit the tasks of the day around your lifestyle and even employ others to offer added flexibility.

Having a base of customers that already exists essentially guarantees you will be successful, with many franchises having a positive reputation and customer base that can take a standalone independent startup years to accumulate.

The good thing about most brands is they are recognized which saves you time to maximize profits and earn revenue for yourself.

A good reputation does not mean you shouldn’t work to help with ongoing promotion. Rather, you should invest a sufficient amount of budget and time for your marketing. If the recognition of the brand is there, you’ll save effort and money on advertising but your marketing will let customers be pointed in the direction of the franchise.

Finally, becoming a part of a network helps keep you in the loop and have a constant support line.

Table of Contents
Table of Contents