Every startup wants to solve a problem and make money while doing so. Any business no matter the size and no matter the problem they are solving, they all follow a business model. We will discuss the most popular business model of successful startups below.
We can see 1000’s of startups every month at a global level solving problems or providing convenience to their users through various technology. At a country level, India ranks 17th in the list of the startup ecosystem and 3rd biggest startup hub in the world.
We read so many news of some or other startup becoming unicorn while others are raising huge funds from premium investors. This is also true that most of these unicorns loose money until a certain point in their growth cycle. Just to get a perspective, Indian unicorn like Swiggy and Zomato are still not making any money on their books and raising money at outstanding valuations to fuel their growth.
If we go to the depth of the business model of any startup, we can realize that 90% of the startups create their business model on top of the brokerage scheme. What differs is the way of implementing this business model and various sources of generating revenue.
Why Brokerage is the most preferred way of earning for any startup:
Since most of the startups build products which makes accessibility an easier option – e.g Swiggy, Uber, Zomato, Urbanclap, etc. Apart from the startups that build products like Freshbooks, Zoho or any tool all other startups are asset light model irrespective of their model. This asset-light model helps them to scale at a much faster rate with a clear replication of success from one geography to another. Also, this helps them to focus on investing in technology implementation to improve the product. They basically work as a marketing platform/channel at the core with add on services in a few sectors.
The idea remains to utilize the core offerings of others (cab owners, restaurant owners, service providers, etc) with keeping the operational turbulence in their basket and just market their existence. This is what is called a behavior change business model. These companies invest in behavior change and offer deep discounts to create a habit of asking for convenience. At a tap on the phone, we get cab, food, supplies, services and what not. this is the change these companies are driving and are investing upon. We must have seen the surge in cab fares, reduction in the commission of drivers, the surge in delivery charges and others. The more habituated we are becoming, the bigger the price we are going to pay to these companies for fulfilling our desires. The idea is to match a supply-demand ratio and to make a “you can’t walk without our support” kind of situation.
Upon establishing, the only thing they need to do is start getting a commission for services or products of others. This commission increases exponentially since replication can be done at the drop of a hat and they have already established a statement of their importance. The asset-light model makes brokerage earning as the most preferred way of earning since product creation is the toughest part.
When it comes to restaurant, procurement of raw material, cooking the food, managing employees, establishment, and so many other miscellaneous factors need to be perfect to create a positive outcome. For any platform, the only thing they need to do is to publish their existence or we can say, the only thing they need to do is create technology and market themselves. The chances of error remain very limited and hence the focus becomes very limited as well.
For platforms which are based on commission or brokerage business model, it’s time and money game. The more user a platform can acquire, the more valuable it becomes since its chances of making money also increase over others.
I hope, I was able to answer why brokerage is the most popular business model for the majority of startups. Feel free to comment and share your thoughts below. Also, don’t forget to share it with others and spread the word.