How To Build An Effective Business Model For Startups

Looking to scale your startup?

Then you’re about to discover the most important element in every business’ success: the business model.

A business plan outlines a company’s goals and strategies. But a business model is how they’re going to monetize their products or services.

Arguably, the business model is more important.

How will you achieve your goals if you don’t know how you’ll make money?

By the end of this article, you’ll understand how to create a simple but effective business model for your startup.

And you’ll also know what to fix when it’s not working.

Why Startups Die Without a Business Model

A business model is the way a company makes money.

It explains who you’re selling to, what you’re offering, and how you’re getting paid.

The business model is one of the most crucial elements in any startup. Without a business model, you can’t make money. And without a good business model, you can’t scale.

For example, let’s say you’ve built a shiny new app.

You decide your main goal is to get to 1 million users without worrying about how you’ll actually make money. You hit your target but soon when you try to monetize the app you aren’t generating enough revenue to stay afloat.

This is not just a thought experiment.

Take a look at three startups that went viral but couldn’t find a good business model:

• Yo (2014-2016)

• Yo was a viral app that let users send the word “yo” to friends. It quickly gained popularity on Product Hunt, but the founder, Or Arbel, admitted his biggest mistake was “not charging customers from day one.” Once investors saw there was no revenue, funding dried up, and the app shut down.

• HQ Trivia (2017-2020)

• It attracted over 2.3 million players with live trivia games, but the founder, Rus Yusupov, admitted they were still “solidifying their business model” when investors pulled out. Despite its viral success, HQ Trivia couldn’t figure out how to make money and eventually had to close.

• Vine (2013-2016)

• The popular short-form video app, saw similar issues. Vine allowed users to create 6-second looping videos and grew quickly – it attracted popular creators like Logan Paul and Daniel Dobrik. But without a strong business model, it couldn’t monetize its user base. Twitter, which acquired Vine in 2012, shut it down in 2017 due to increasing competition and the inability to generate sustainable revenue.

In all of these cases, the lack of a well-defined business model led to failure.

No business model = no business.

Below, we’ll walk you through a simple business model framework to help you avoid this fate.

An Effective Business Model Template

Scaling a startup to millions of dollars in revenue is exciting, but it’s not easy. Managing that money flow can be complex.

But the essence of a business model is simple.

Here’s a proven business model template from The Value Engineers, incorporating elements from academic research on the topic. It breaks down into four key elements:

1. The value proposition: What are you offering? Who is it for? What makes your offer unique?
2. The value network: Who are the key partners involved in delivering this value?
3. The revenue model: How does the business make money? What cash flows are involved?
4. The delivery model: How is your product or service delivered to customers?

You don’t need to write a long business plan to answer these. Short, clear sentences will do the job.

At its core, these are the four main factors that determine the strength of your business model.

Below, we’ll look at how some of the world’s top companies have their business models condensed into this simple template.

10 of the Most Profitable Business Models for Startups

Now that we’ve seen the template, let’s put it into action.

Below, we’ll dive into some of the most profitable business models by looking at real-world examples of successful startups.

Although a business model is more than just a revenue model we’ll categorize the following examples based on how they charge customers.

Remember, there are always more factors at play.

1. ClickFunnels (Tiered Subscription Fee)

The Value Proposition:

• ClickFunnels offers an all-in-one platform for creating marketing funnels, websites, and sales pages.
• ClickFunnels offers tools for businesses to increase conversions and sales.
• ClickFunnels is part of an ecosystem that includes live seminars, resources, training, and niche-specific funnels to help users grow their businesses.
• ClickFunnels is constantly adding new features to help users stay ahead.

The Value Network:

• Entrepreneurs, marketers, and online businesses
• Payment processors
• Third-party integrations (e.g., email marketing tools, CRM platforms)
• Developers and tech partners

The Revenue Model:

• Tiered subscription fee: ClickFunnels offers a basic subscription for startups and a higher-priced tier with additional features for larger businesses.

The Delivery Model:

• Cloud-based platform accessible through the web, with integrations and tools for building and managing online sales funnels.

2. Netflix (Flat Subscription Fee)

The Value Proposition:

• Netflix offers global on-demand video streaming at any place, any time, on any device
• Netflix has a large content library with original high–quality content
• Netflix provides personalized recommendations

The Value Network:

• Content producers
• UP holders
• Rights clearing organizations
• Investors
• Competitors

The Revenue Model:

• Flat monthly subscription fee: Netflix originally charged a flat monthly fee, though they introduced a tiered structure that includes ad-free viewing and the ability to share the subscription with extra members. This was to cut down on password sharing.

The Delivery Model:

• Streaming

3. Amazon Web Services (AWS) (Pay-Per-Use)

The Value Proposition:

• AWS offers cloud computing services like storage, databases, and machine learning on a pay-as-you-go basis
• Flexible, scalable, and cost-effective for businesses of all sizes
• High reliability and security for critical infrastructure

The Value Network:

• Developers and tech companies
• Hardware and software vendors
• Data centers
• Service integrators and consulting partners
• Global regulatory authorities (for data compliance)

The Revenue Model:

• Pay-per-use model: customers are charged based on their usage of computing resources (e.g., storage, processing power, data transfers).

The Delivery Model:

• Cloud-based delivery through a web-based platform, accessible globally

4. Facebook (Advertising-Based)

The Value Proposition:

• Facebook offers a free social media platform for connecting with friends, family and communities.
• Tools for businesses to reach and engage with their target audience through targeted advertising.
• Personalized user experience based on interests, activities, and behaviors.

The Value Network:

• Users
• Advertisers (businesses targeting specific demographics)
• Content creators (media companies, influencers)
• Developers (third-party apps and services integrated with Facebook)

The Revenue Model:

• Free for users: Facebook generates revenue through advertisers who pay for targeted ads.

The Delivery Model:

• Social media platform accessible via apps and web browsers

5. Airbnb (Commission-Based)

The Value Proposition:

• Airbnb provides a platform for people to list, discover, and book accommodations globally.
• Unique and personalized stays are often cheaper than hotels.
• Hosts can earn money by renting out their homes or spare rooms.

The Value Network:

• Hosts (property owners)
• Guests (travelers)
• Local governments (compliance and regulations)
• Insurance companies
• Payment processors

The Revenue Model:

• Commission-based: Airbnb takes a percentage from both the host and the guest for each booking.

The Delivery Model:

• Marketplace platform available via apps and the web, facilitating bookings and payments.

6. PayPal (Transaction Fee)

The Value Proposition:

• PayPal offers a secure and easy way for individuals and businesses to send and receive payments online.
• International payment transfers with currency conversion.
• Fraud protection and buyer/seller security guarantees.

The Value Network:

• Banks and financial institutions
• Merchants (e-commerce platforms, individual sellers)
• Consumers
• Regulatory bodies
• Developers (for PayPal integrations in websites and apps)

The Revenue Model:

• PayPal charges a percentage-based transaction fee to merchants for each sale processed through its platform.

The Delivery Model:

• Online payment platform integrated into e-commerce sites and apps, with a web and mobile interface for users.

7. Etsy (Marketplace/Platform Fee)

The Value Proposition:

• Etsy offers a marketplace for creative entrepreneurs to sell handmade, vintage, and unique items globally.
• Easy-to-use platform for small businesses to reach a large audience.
• Buyers get access to one-of-a-kind products with a personal touch.

The Value Network:

• Sellers (artists, craftsmen, vintage item collectors)
• Buyers
• Payment processors
• Logistics companies (shipping and delivery)
• Community of creators and buyers

The Revenue Model:

• Etsy charges a listing fee to sellers and takes a commission (transaction fee) when an item is sold.

The Delivery Model:

• Marketplace platform available via website and apps, with integrated payment and shipping solutions.

8. Microsoft (Licensing)

The Value Proposition:

• Microsoft offers software and tools, like Windows and Microsoft Office, to businesses and individuals.
• Productivity software for personal, educational, and business use.
• Frequent updates and support for users, ensuring security and new features.

The Value Network:

• Corporate customers and consumers
• Software developers and hardware manufacturers (PC and device makers)
• Channel partners (resellers, system integrators)
• Competitors (Google, Apple, etc.)

The Revenue Model:

• Licensing model: Microsoft charges per-user or per-device licensing fees for its software.

The Delivery Model:

• Software is delivered as downloads or pre-installed on devices, with subscriptions available for cloud-based versions like Microsoft 365.

9. Amazon Associates (Affiliate Marketing)

The Value Proposition:

• Amazon Associates offers a way for individuals and businesses to earn money by promoting Amazon products through affiliate links.
• Affiliates earn a commission on every sale generated through their unique referral links.
• Access to a vast product catalog and easy-to-use link-building tools.

The Value Network:

• Affiliates (bloggers, websites, social media influencers)
• Amazon (retailer)
• Consumers (those purchasing products)
• Merchants (selling products on Amazon)

The Revenue Model:

• Commission-based: Amazon pays affiliates a percentage of sales made through their referral links.

The Delivery Model:

• Affiliate programs are managed online through Amazon’s dashboard, with tracking and reporting tools available for affiliates.

10. Spotify (Freemium)

The Value Proposition:

• Spotify offers music streaming anytime, anywhere on any device.
• Free access to a vast library of music with ads.
• Premium subscribers get ad-free listening, offline playback, and better sound quality.
• Personalized playlists and recommendations based on user preferences.

The Value Network:

• Music creators and record labels
• Advertisers (for free users)
• Payment processors (for premium subscriptions)
• Hardware partners (e.g., smart speakers, mobile devices)
• Competitors (Apple Music, Tidal, YouTube Music)

The Revenue Model:

• Freemium model: free users with ads and premium users with a monthly subscription fee.

The Delivery Model:

• Streaming through apps on mobile, desktop, smart speakers, and other connected devices.

How Flexible Should You Be With Your Business Model?

If you’re reading this, you’re likely still figuring out your business model.

So, here’s the big question: After creating your business model, how strictly should you stick to it?

There are strong opinions on both sides of this debate.

• Flexible Business Models – Some argue that a business model will “figure itself out” as you grow. If you get too caught up in the details, you might never get to making actual revenue. For example, Twitter co-founder Evan Williams admitted that he didn’t know how to make money from Twitter even three years after its launch. Yet, he didn’t seem too worried. He focused more on user engagement and satisfaction. Despite struggling with its revenue model, Twitter was still bought by Elon Musk for $44 billion in 2022.
• Fixed Business Models – On the other hand, some insist that having a rock-solid business model is essential from day one. Jeff Bezos, founder of Amazon, famously sketched out Amazon’s business plan and model during a road trip. He planned out every detail, including the decision to sell books via a marketplace model. This structure was used in Amazon’s early days and even during its IPO. Only after validating that business model did Bezos begin expanding Amazon’s offerings.

So, which approach is right? 

The truth is, that the best strategy is to have a business model but stay flexible. 

Be prepared to pivot if it’s not working. Some of the world’s most successful startups pivoted – even after getting funding and investment.

How ClickFunnels Helps Startups Like You Stay Flexible

ClickFunnels is an ideal tool for startups that need flexibility.

It allows you to test different business models without needing expensive developers or infrastructure changes.

Here’s how:

1. Rapid Funnel Creation: Quickly set up different sales funnels to test various revenue models.
2. A/B Testing: Easily run A/B tests to see what type of offers or pricing models work best.
3. Customizable Payment Options: You can easily switch between subscription, one-time payments, or pay-per-use models.
4. Integrated Email Marketing: Seamlessly update your marketing based on changes to your model and funnel.
5. Analytics Dashboard: Track real-time data to measure how successful each business model experiment is.

With ClickFunnels, startups can adjust, tweak, and refine their approach without major disruptions, making it perfect for testing new business models.

Not sure if it’s for you yet?

Don’t worry, you can take advantage of our introductory offer to try ClickFunnels free for 14 days.

Try ClickFunnels for Free!

Final Thoughts

Building a startup without a business model is like driving blindfolded. You might get somewhere, but it’s not likely where you want to be.

A business model gives you direction, focus, and, most importantly, a way to make money.

We’ve walked you through the TVE business model template, which is simple but powerful. 

We also explored examples of how companies like Spotify, Airbnb, and PayPal fit into this template. Each business model was tailored to fit their revenue strategies and delivery methods.

Finally, we made a compelling case for using ClickFunnels to help your startup remain flexible and adaptive. 

It offers tools like rapid funnel creation, A/B testing, and a customizable payment system, which are essential when pivoting your business model.

Remember, a business model isn’t set in stone. 

The most successful businesses adjust and refine their models until they find what works. And with tools like ClickFunnels, you can easily make those adjustments without losing momentum.

Try ClickFunnels for Free!