RoundMap® adopts a forward-thinking stance towards leadership, endorsing a distributive model that juxtaposes traditional hierarchical structures. This paves the way for the distribution of decision-making responsibilities, fostering empowered and agile teams.
Embracing Distributed Leadership: Transformation Through Empowerment
The dawn of the information age brings with it complexity and dynamism that conventional hierarchical leadership structures can struggle to navigate effectively. The need for more fluent and adaptive leadership methods arises. One approach gaining significant traction is Distributed Leadership, a model emphasizing collaboration and decentralizing authority instead of sticking to rigid hierarchies. This model sees leadership as diffuse and spread across different organizational members based on expertise, not titles.
The DNA of Distributed Leadership
Distributed leadership breaks free from the convention where leadership is vested in a single authoritative individual or a top-tier executive team. Instead, it celebrates the idea that every team member, endowed with a unique assortment of skills, knowledge, and experience, can contribute to steering the organization. This innovative approach to leadership empowers individuals across all levels of the organization, nurturing a culture of shared responsibility, engagement, and ownership.
Pillars of Distributed Leadership
Embedded in the fabric of distributed leadership are several key principles:
Autonomy: Autonomy fosters an environment where employees feel they can take initiative and operate independently. In the distributed leadership model, empowered team members can wield their authority and tap into their unique skills to contribute remarkably to their organization’s growth and success.
The Power of Collaboration: Distributed leadership builds upon the concept of “distributed cognition,” suggesting that intelligence and understanding expand when we interact with people, tools, and routines. Thus, effective leadership practice becomes a concert of interactions among leaders, followers, and the context over time.
Flipping the Hierarchy: A significant departure from traditional models, distributed leadership presents an ‘inverted hierarchy.’ This inverted pyramid pushes power and influence out and down, fostering an accessible leadership ecosystem with formal and informal leaders interspersed across the organization.
Shared Decision-Making: In distributed leadership models, decision-making is a collective journey. It encourages all members to participate, facilitating a shared sense of ownership and responsibility, and cultivating a genuine democratized workplace.
Flexibility: Flexibility leads to versatility in a distributed leadership model. Adaptable leadership styles working symbiotically with the demands and nuances of different situations allow various individuals to emerge as leaders when their expertise meets the requirements (source).
The Distributed Leadership Advantage
By fostering a distributed leadership model, organizations stand to gain in multiple dimensions:
Increased Engagement: Since it empowers employees at all levels, distributed leadership increases engagement and commitment.
Boost in Innovation: With diverse individuals stepping into leadership roles, their unique perspectives can lead to innovative solutions and strategies.
Motivated Workforce: Emphasizing shared responsibility and collective success, this model can significantly enhance team morale and motivation.
Accommodating to Complexity: As organizations grow and become more complex, distributed leadership can accommodate that complexity by distributing decision-making and leadership responsibilities.
Resilience During Change: During periods of organizational change, a distributed leadership approach can help maintain stability and continuity by scattering authority throughout the organization.
Parting Thoughts
Distributed Leadership presents a paradigm shift in organizational stewardship, encouraging organizations to embrace adaptation, collaboration, and democratization as critical elements of success in today’s complex business landscape. Its principles serve as a guide for leaders to understand and navigate this transformative journey. By integrating this approach, businesses can foster a dynamic, empowered, and engaged community, equipped to navigate the challenges and seize the opportunities of the modern world. In a world of distributed work, matching it with distributed leadership creates a symphony of productive harmony, leading organizations to new horizons.
The Innovation Pipeline is a systematic approach to managing the innovation process within an organization. It serves as a structured pathway that guides the development of new ideas, concepts, and innovations from their initial conception through various stages of development, testing, and eventually, commercialization. This framework ensures that innovation efforts are aligned with the organization’s strategic goals and that resources are effectively utilized to drive growth and competitiveness.
Key Components of the Innovation Pipeline
The Innovation Pipeline consists of several key components, each serving a specific purpose in the innovation journey:
1. Idea Generation
The first step in the Innovation Pipeline is idea generation. This involves the systematic collection of ideas from various sources, including employees, customers, suppliers, and external partners. The goal is to create a diverse pool of potential innovations that can be evaluated for their feasibility and potential value.
2. Idea Screening
Not all ideas generated in the initial phase will be feasible or aligned with the organization’s goals. Idea screening is the process of evaluating and prioritizing ideas based on predefined criteria. This step helps identify ideas with the highest potential for success.
3. Concept Development and Testing
Once promising ideas are selected, they are further developed into concrete concepts. Concept development involves creating detailed plans, prototypes, and specifications for the proposed innovations. These concepts are then tested to assess their feasibility and market acceptance.
4. Business Analysis
In the business analysis phase, a detailed assessment of the proposed innovation’s financial viability is conducted. This includes estimating costs, revenue projections, and potential return on investment (ROI). The goal is to determine whether the innovation is financially viable and aligns with the organization’s strategic objectives.
5. Development
After passing the business analysis phase, selected concepts move into the development stage. Here, the innovation is built, refined, and tested extensively. This phase may involve cross-functional teams, prototyping, and iterative development to ensure the innovation meets quality standards and user expectations.
6. Testing and Validation
Innovation testing and validation involve rigorous testing, validation, and refinement of the innovation to ensure it performs as intended and meets customer needs. Feedback from user testing and market trials is crucial in this phase.
7. Launch
The launch phase marks the commercialization of the innovation. It involves the strategic introduction of the innovation to the market, including marketing, sales, distribution, and customer support. A successful launch is critical to capturing market share and generating revenue.
8. Post-Launch Evaluation
Even after the launch, the Innovation Pipeline continues to monitor the performance of the innovation in the market. Post-launch evaluation assesses customer feedback, sales data, and other key metrics to determine the innovation’s success and identify areas for improvement.
Benefits of the Innovation Pipeline
Implementing an effective Innovation Pipeline offers numerous advantages to organizations:
1. Strategic Alignment
The Innovation Pipeline ensures that innovation efforts are closely aligned with the organization’s strategic goals and objectives, helping to drive growth in desired directions.
2. Resource Optimization
By systematically evaluating and prioritizing ideas, the pipeline optimizes the allocation of resources, focusing them on initiatives with the highest potential for success.
3. Risk Reduction
The structured approach of the pipeline reduces the risk of pursuing unviable or poorly conceived innovations by subjecting ideas to rigorous evaluation and testing.
4. Continuous Improvement
Through ongoing post-launch evaluation, the Innovation Pipeline fosters a culture of continuous improvement, allowing organizations to refine and enhance their innovations based on real-world feedback
5. Faster Time to Market
Efficiently moving ideas through the pipeline accelerates the development and launch of innovations, reducing time-to-market and gaining a competitive edge.
Challenges in Implementing the Innovation Pipeline
While the Innovation Pipeline offers significant benefits, its implementation can pose challenges for organizations:
1. Cultural Resistance
Organizational cultures that resist change or are risk-averse may struggle to adopt the structured and iterative approach of the pipeline.
2. Resource Constraints
Smaller organizations with limited resources may find it challenging to allocate the necessary personnel, time, and budget to fully implement and maintain the pipeline.
3. Innovation Fatigue
Constantly pushing for new innovations without proper support and resources can lead to innovation fatigue among employees, reducing their enthusiasm for the process.
4. Overreliance on Metrics
Overemphasizing metrics and quantitative analysis in the pipeline can stifle creativity and prevent the pursuit of breakthrough innovations
Real-World Examples of the Innovation Pipeline
Several companies have successfully implemented the Innovation Pipeline:
1. Apple Inc.
Apple is known for its well-established Innovation Pipeline. The company continually generates and tests new product ideas, prioritizing those aligned with its user-centric design philosophy. Apple’s structured approach has led to the development of groundbreaking products like the iPhone and iPad.
2. Procter & Gamble (P&G)
P&G employs a robust Innovation Pipeline to drive product development and market expansion. The company actively collaborates with external partners and maintains innovation hubs to generate, test, and launch new products and brands.
3. Google (Alphabet Inc.)
Google’s approach to innovation is built on an effective Innovation Pipeline. The company encourages its employees to explore new ideas, develop them into viable concepts, and test them in real-world settings. Google’s “20% time” policy allows employees to spend a portion of their workweek pursuing innovative projects.
Significance of the Innovation Pipeline
The Innovation Pipeline is of significant importance in today’s rapidly evolving business landscape for the following reasons:
1. Sustained Growth
It provides a structured framework for sustained growth by consistently delivering new innovations that meet market needs and maintain competitiveness.
2. Risk Mitigation
The pipeline helps organizations mitigate the risks associated with innovation by subjecting ideas to rigorous evaluation and testing before committing significant resources.
3. Resource Efficiency
By prioritizing and optimizing resource allocation, the pipeline ensures that resources are used efficiently, reducing waste and maximizing returns.
4. Adaptability
Organizations that embrace the Innovation Pipeline are better positioned to adapt to changing market conditions, emerging technologies, and evolving customer preferences.
5. Competitive Advantage
A well-executed pipeline enables organizations to maintain a competitive advantage by consistently launching innovative products and services that resonate with customers.
Conclusion
The Innovation Pipeline serves as a strategic framework that guides organizations through the entire innovation process, from idea generation to commercialization. By adopting this structured approach, companies can align their innovation efforts with strategic goals, optimize resource allocation, reduce risks, and continuously deliver new and valuable innovations to the market
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined)
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode)
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Starbucks is a retail company that sells beverages (primarily consisting of coffee-related drinks) and food. In 2018, Starbucks had 52% of company-operated stores vs. 48% of licensed stores. The revenues for company-operated stores accounted for 80% of total revenues, thus making Starbucks a chain business model.
When 1983, Howard Schultz was walking through the streets of Milan and Verona he became “enamored” by the coffee experience people had in the Italian bars. He decided to bring that experience back home. That’s how Starbucks was born.
While McDonald’s makes money by primarily and heavily franchising its restaurants, Starbucks is a mix of operated vs. licensed stores. If we look at the revenue generation, company-operated stores make up 79% of the company’s revenues in 2017.
Ad-supported (subsidized) business model
Spotify is a two-sided marketplace where artists and music fans engage. Spotify has a free ad-supported service and a paid membership. Founded in 2008 with the belief that music should be universally accessible, it generated €9.66 billion in 2021. Of these revenues, 87.5% or €8.46 billion came from premium memberships, while over 12.5% or €1.2 billion came from ad-supported members.
Keeping a free product offering, especially when it comes to a consumer brand, like Spotify, can be quite expensive. It is true, that Spotify uses a sort of self-serving model where its free accounts are channeled to activate premium plans (the Family Plan has been the most popular in the last years).
On the other end, Spotify makes sure to support its free side of the business by running ads. Those ads, subsidize in part the free service for over 163 million accounts as of March 2020.
Therefore, instead of letting premium members support the free plans. The ad-supported side (representing 10% of its revenues as of 2019) becomes self-standing and viable.
In short, while the free/ad-supported side of the business is relevant to Spotify to convert those accounts in premium. At the same time, it works pretty well as a self-sustaining product tied into a digital business model.
However, as the ad-supported model scales, it also proses some threats to the scalability of the business model, as the licensing costs for the streamed content might grow quickly (Spotify will pay more royalties as more free users stream content on the platform).
That is also part of the transition of what I like to call from platform to brand.
Affiliate business model
Let’s say you have a website with a large amount of traffic each month. Yet you don’t sell any product or service, which is yours. How do you make money? Well, thanks to affiliate marketing you don’t need either a product or a service, you have many from other companies.
Thus, you’ll make money by merely featuring other products or services and getting a commission for that. Affiliate marketing done right can be a powerful source of income. Take, Pat Flynn from Smart Passive Income, which has been generating millions of dollars with affiliate marketing:
Aggregator business model
An aggregator business model can be classified as a sort of platform business model, however, with its specific features. For instance, the aggregator might act as a middleman. Still, it monetizes the eyeballs on the platform (advertisers subsidize the aggregator) while keeping tight control on the whole experience of users.
In this business model, the aggregator becomes the middleman by removing all the other middlemen from the market. To understand more about this model and how it differentiates from platform business models, read the guide on the aggregator business model.
Agency-based business model
neilpatel.com is one of the most successful sites in digital marketing. Neil Patel has also used his name as a brand, which has become recognized in the digital marketing space.
However, rather than selling tools or info products, Neil Patel is monetizing its traffic by generating leads for his digital agency. As he pointed out:
My model isn’t as scalable and it requires more headcount, but it can generate much more money. Just look at ad agencies like WPP and Dentsu. They generate billions in revenue!
In short, Neil Patel Digital is the SEO and digital marketing agency that allows Neil Patel to monetize its traffic primarily by offering free content and free marketing tools. This is a mixture of a freemium business model, combined with an agency-based business model.
Yet, the idea behind the agency-based business model is simple: you generate enough qualified leads, set up a lean team to manage those projects, and grow the agency based on on-coming projects! According to Neil Patel – at least in the digital marketing space – there is still space to grow a multi-billion turnover agency.
AIaaS business models
In the coming decade, every software company will be an AI company. And this trend is very very strong. Indeed the SaaS industry is already turning into an AI-based software industry. Thus, the AIaaS industry and its business models already turned into a multi-billion dollar industry:
Artificial Intelligence as a Service (AlaaS) helps organizations incorporate artificial intelligence (AI) functionality without the associated expertise. Usually, AIaaS services are built upon cloud-based providers like Amazon AWS, Google Cloud, Microsoft Azure, and IMB Cloud, used as IaaS. The AI service, framework, and workflows built upon these infrastructures are offered to final customers for various use cases (e.g., inventory management services, manufacturing optimizations, text generation).
Asymmetric business models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
Some examples of hidden revenue generation are Google and Facebook. The two most popular websites on planet earth have a similar monetization strategy. They offer free apps and platforms for a broad audience (billion people worldwide) while monetizing the data of the same users.
Each time you click through a link on Google that has the “ad” notation next to it. De facto you’re allowing Google to monetize on a keyword, while you’re making a business monetize on that keyword if you buy the service they provide.
A similar logic applies to Facebook. The news feed is the place where Facebook monetizes most of its ads. Both models both use a hidden revenue generation model as those services work so well that most users barely realize their data is getting sold for advertising.
Attention merchant business model
An attention merchant might be defined as a company that primarily makes money by harvesting human attention. While this definition is tough in practice (most companies make money by grabbing their target attention) the attention merchant’s primary asset is human attention.
That is also why companies operating with an advertising business model are defined, as attention merchants. While in the tech industry companies like Facebook and Google have become hugely profitable by using an advertising model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
For the sake of this article, I’m mentioning Snapchat Business Model as it probably represents the wildest evolution of where attention merchants can get. Just like Google allows businesses to bet on keywords. Businesses on Snapchat can create their Geofilters based on location and track the results of those Ggeofilters.
While Google and Facebook proved to have a solid business model, attention merchants usually also face many challenges. In fact, as those companies scale up, they also end up grabbing the attention of billions of people worldwide. When that happens, those tools become a threat to the political system which tries to kick back by regulating or fining them.
Another aspect of attention merchants is about keeping the users hooked. When those apps start losing users’ attention – if they don’t have a solid business model – a single Tweet from a Kardashian can make the company burn over a billion dollars in market cap!
sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad.
A Barbell strategy consists of making sure that 90% of your capital is safe, and using the remaining 10%, or on risky investments. Applied to business strategy, this means having a binary approach. On the one hand, extremely conservative. On the other, extremely aggressive, thus creating a potent mix.
Author Nassim Nicholas Taleb explains this approach in his Incerto Series. It’s an approach where you invest most of your wealth in extremely conservative financial instruments to preserve the capital.
And on the other end, the remaining part of the capital is invested in extremely aggressive strategies with massive potential upsides, yet controlled downsides. In short, you make yourself prone to take advantage of positive Black Swans (rare events that can benefit you).
I want to take this further to apply that to business modeling. Here the company uses a barbell approach to product and distribution. You have a core product and business where most resources are spent and the whole organization is structured around. On the other end, you place bets on new products that might renew your business model and make the old irrelevant.
Grubhub is an online and mobile platform for restaurant pick-up and delivery orders. In 2018 the company connected 95,000 takeout restaurants in over 1,700 U.S. cities and London. The Grubhub portfolio of brands like Seamless, LevelUp, Eat24, AllMenus, MenuPages, and Tapingo. The company makes money primarily by charging restaurants a pre-order commission and it generates revenues when diners place an order on its platform. Also, it charges restaurants that use Grubhub delivery services and when diners pay for those services.
Grubhub is an extremely interesting case as the Company primarily charges restaurant partners a per-order commission (mostly percentage-based). The restaurants can choose (in most cases) their level of commission rate, at or above the base rate.
When a restaurant pays a higher rate, that positively affects its prominence and exposure to diners on the Platform. This approach combined with Grubhub’s brands enables restaurants to easily build up their delivery operations even if they lack that.
Thus, increasing the overall market value, as more restaurants can supply their food and people get more variety.
Blitzscaler-mode business model
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services, Amazon AWS, Subscription Services, Advertising revenues, and Physical Stores.
Amazon’s continuous, massive, investment in growth to dominate multiple markets is a perfect example of a business model with built-in growth. This is the combination of several elements (platform’s network effects + branding power + scalable financial model).
That applies to the consumer e-commerce side of Amazon (excluding Amazon AWS) where the company, while generating low-profit margins for years, also generated substantial cash flows that it invested back to massive growth. A sort of continuous blitzscaler-mode, that while risky for most companies, has become a normal mode for Amazon. Thus, Amazon has been able to ingrain blitzscaling within its business model.
Blockchain-based business models
When on January 10th, 2009, a guy named Satoshi Nakamoto (it probably was only a pseudonym) sent an email to a man from Santa Barbara, Hal Finney, he announced a new currency, called Bitcoin, based on a new technology called Blockchain.
Merely put the Blockchain is a distributed ledger that relies on cryptography to handle transactions, interactions, or anything that implies an exchange between people, which is decentralized and anonymous.
That was a revolution. Since Bitcoin has become a global phenomenon, the technology that allows it to function, the Blockchain, has been evolving. To be sure, the Bitcoin Blockchain isn’t the only protocol.
Large numbers of Blockchain protocols have been created since the Bitcoin launch. This means that the combination of existing business and new Blockchain protocols will give rise to a countless number of innovative business models.
Those few that will pass the test of time might probably give rise to the next Blockchain Giants. A compelling case of innovation based on a Blockchain-based business model is Steemit:
In a Blockchain Economy, a good chunk of value is at protocol level. Therefore, you will have a Blockchain Protocol (in this case Steem is the protocol) which has a set of underlying rules. The Steem protocol reaches consensus, and it follows a proof-of-stake (contrary to Bitcoin where there is a proof-of-value mechanism). On top of the Steem protocol, several applications can be freely built. Those applications will be decentralized, as they will be based on a decentralized network in the first place. In the Steem Blockchain context, Steemit is among the largest and most important (Steemit was the first application launched as a use case for the Steem Protocol).
That is a decentralized social network, which rewarding system is based on a Blockchain protocol, called Steem. Like Steemit many others are trying to innovate in several fields. Thus, we might expect an explosion of Blockchain-based business models.
Proof of Work (ETH 1.0), switching to Proof of Stake (ETH 2.0). A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.
Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.
ERC-20 Utility Token: Ethereum as the underlying protocol. An ERC-20 Token stands for “Ethereum Request for Comments,” a standard built on top of Ethereum to enable other tokens to be issued. Based on a smart contract that determines its rules, the ERC-20 enables anyone to issue tokens on top of Ethereum. As they are using a standard, those are interoperable. ERC-20 Tokens are critical to understanding the development of Ethereum as a business platform. Utility Tokens enable users’ participation in the network. Thus they work as a sort of built-in incentive mechanism for users to help the network grow.
The Graph is an ERC20 Utility Token (built on top of Ethereum) to enable consumers to freely query the blockchain through a fully decentralized database kept by indexers, incentivized by the payment of tokens (called GRT). The network is also ministered by curators and delegators that help maintain a high-quality index.
Brave is an open-source, privacy-centric web browser developed by Brave Software Inc. The company was founded by Brian Bondy and Brendan Eich in 2015. Brave makes the bulk of its revenue through banner advertising. In a rather unique arrangement, Brave users take 70% of the advertising revenue with the company taking the remaining 30%. Brave sells subscriptions to its video conferencing, VPN, and firewall products. It also makes money through affiliate commissions and merchandise sales in its decentralized web store.
Arbitrum Layer 2 Leveraging Ethereum’s protocol
A layer 2 solution can be applied as an additional protocol layer to solve various issues that the primary protocol can’t handle at scale. For instance, when it comes to Ethereum, when too many transactions go through the primary protocol, they can hardly go through, thus slowing down the main Ethereum protocol and making it not usable. In the case of Arbitrum, this works as a Layer 2 scaling solution. Meaning it helps manage transactions on top of this extra layer to help further scale the volume of transactions handled by the main protocol. Arbitrum works as the middle layer for various applications. For instance, Uniswap decentralized exchange is also, in part, relying on Arbitrum to scale the transactions that go through Uniswap.
One of the most popular Ethereum scaling solutions, Arbitrum aims to speed up transaction times and cut fees on the Ethereum blockchain
Uniswap is a decentralized exchange that enables users to exchange any ERC-20 token and more. Uniswap is a DeFi application and protocol which sits on top of Ethereum’s main protocol, and it leverages two Layer 2 scaling solutions (Optimistic Ethereum & Arbtrum). These underlying scaling solutions enable many transactions to go through the platform smoothly. When looking at Uniswap, it’s essential to distinguish between Uniswap as a token (which allows crypto users to exchange the UNI token) and Uniswap. This decentralized platform sits on top of Ethereum and leverages Optimistic Ethereum & Arbtrum to enable millions of transactions on top of the platform.
Uniswap is a decentralized cryptocurrency exchange founded by former Siemens mechanical engineer Hayden Adams in 2018. The exchange utilizes an automated market-making system rather than a traditional order book for transactions on the Ethereum blockchain.
Axie Infinity is a Non-fungible token (NFT). NFTs are cryptographic tokens that represent something unique. Non-fungible assets are those that are not mutually interchangeable. non-fungible tokens contain identifying information that makes them unique.
Axie Infinity is an NFT-based online video game developed by Sky Mavis, a Vietnamese game studio founded by Trung Nguyen in 2018. Nguyen combined his interest in blockchain accountability and the CryptoKitties craze to launch the game in August 2018. Sky Mavis generates the bulk of its revenue via the 4.25% fee it charges on all in-game purchases. This includes land purchases, monster NFT trading, and monster breeding. Axie Infinity requires that all new players purchase three monsters to get started. Since the cost can run into hundreds of dollars, Sky Mavis will lend players the monsters and collect a 30% interest fee once the player starts earning currency.
Bundler model
Bundling is a business process where a series of blocks in a value chain are grouped to lock in consumers as the bundler takes advantage of its distribution network to limit competition and gain market shares in adjacent markets. This is a distribution-driven strategy where incumbents take advantage of their leading position.
In bundling, a strong distribution power combines several products in a single offer to extract more from the market. For decades Microsoft has been able to bundle several products under the same umbrella (Office has been coupled from time to time with several other products) so the company extracts more from the market, or if it were selling a single product.
Cash conversion cycle or cash machine model
Have ever wondered how some businesses survive, nonetheless the thin margin they have? One great example is Amazon.
A company that makes a low-profit margin yet it has been very disruptive. In reality, Amazon can get its partners to finance the business by playing on the short-term liquidity of the business.
Cloud-as-a-service (CaaS) business models
Cloud as a service is a business model that combines the cloud infrastructure delivered to customers as a subscription-based service, where the customer can access a cloud infrastructure without running it on-premise. Therefore, the whole premise of the cloud as a service business model is to offer a more agile cloud infrastructure at a fraction of the costs compared to on-premise software, and that can be scaled up according to the need of the business.
Cloud-based services have become the new standard. As the software paradigm has shifted from proprietary, to hosted, agile, and continuously improving, updating, and integrating within the company’s architecture, cloud-as-a-service business models (IaaS, PaaS, and SaaS), have become the new standard of the software industry.
The discount business model focuses on high quality
Leveraging on the price to gain a competitive advantage isn’t new. However, price wars are not the best way to create a sustainable business model. Instead, the supermarket chain – ALDI – has done just the opposite. One of the critical ingredients of the ALDI business model is to keep its prices low while maintaining its quality as high as possible.
How? With several strategies. For instance, ALDI limits its stores to 1,300 items, which generates minimum waste. Also, ALDI also features its brands, which makes it inexpensive to sell them, as there will be lower sales and marketing costs associated. 90% of ALDI brands have an exclusive agreement with the market chain!
It is important to notice that almost any business can be classified as a distribution-based business model, as there is no company that can survive without distribution.
However, in general, companies that tap into consumer markets need to be extremely good at creating distribution channels that are able to unlock long-term value. There are a few critical aspects:
The distribution channel has to be sustainable: this means that if you spend more money to maintain it that is what it generates might not work. It is fine in the short term to lose money on building up a distribution strategy. Yet in the medium term, it needs to be sustainable.
It needs to be diversified: relying on a single distribution channel might be too risky, especially if you don’t control it. Therefore, it is critical to focus on the main channel, yet the company needs to expand and tap into other channels.
It needs to scale: a distribution strategy is as good as its ability to stick also when the business scales up. Thus, the critical question is “would this strategy work if I go from €1 million to €10 million in revenues?” Many won’t and it’s fine. Yet as an entrepreneur, your goal should be to find a distribution strategy that scales.
Also, tech giants like Google spent billions to guarantee proper distribution. For instance, Google spends a good chunk of its revenues on distribution via acquiring traffic from several sources:
The traffic acquisition cost represents the expenses incurred by an internet company, like Google, to gain qualified traffic – on its pages – for monetization. Over the years Google has been able to reduce its traffic acquisition costs and in any case, keep it stable. In 2021 Google spent 21.75% of its total advertising revenues (over $45.56 billion) to guarantee its traffic on several desktop and mobile devices across the web.
When you see companies with a large turnover, you need to always ask, “what’s their distribution strategy?” or “how did they get there?” You’ll find out that they spent massive resources to tap into channels that proved successful to scale up their business!
Direct-to-consumers business model
A direct-to-consumer business model is primarily based on direct access from a brand or company to its final customers. Indeed, the more a company is able to tap into its customers without the need of an intermediary, the more this model will work in favor of the brand, which is able to control the perception of its customers via massive marketing campaigns.
Indeed, this kind of model implies a massive activity of branding and marketing to make sure consumers have your product on top of their minds. A successful example of a direct-to-consumer business model is Unilever:
Unilever is the second-largest advertiser in the world in 2017, based on media spending. Alongside more conventional advertising, Unilever creates and delivers tailored content through several digital channels.
When building up a direct-to-consumer business model it is critical to emphasize marketing rather than sales processes:
Indeed, consumer products have a low pricing point. Thus, to make sure to generate enough revenues for the company, marketing activities will be the key ingredient.
Direct sales business model
Nowadays, with the advent of AI, machine learning, and a new form of advanced technologies, it might seem demode to talk about direct sales. In fact, for many, this is a thing of the past.
However, the opposite is true. In an era where everything is getting automated the personal touch is becoming critical. Of course, once technology produces machines to the point of seeming human (see the Google Duplex experiment) that might be a different story.
Yet as of now, companies like ConvertKit use direct sales as a powerful weapon to grow their business, fast! Below you can see a simple Trello board put up by Nathan Berry, founder of ConvertKit when he decided to create a mail marketing tool from scratch just to see it grow to over a million dollars in monthly recurring revenue in only six years:
Thus, direct sales can be a powerful way to develop a business if done correctly. One of the secrets to a successful direct sales strategy is the qualification of your target audience.
If you try to sell your service or product to anyone, this is more spamming. The more you qualify your audience, the more you create value.
E-commerce marketplace business model
With almost $23 billion in revenues and nearly $7 billion in profits. While in North America and the western world in general, Amazon is the synonym of “e-commerce.”
When it comes to the Chinese industry, Alibaba is the market leader! In 2016 the company recorded over 423 million active buyers. Alibaba, just like Amazon has a diversified business model, with many moving parts. However, as of 2017 most of its revenues still came from core commerce.
As building up a website and e-commerce has become inexpensive, and it buries no particular cost for the traditional brick-and-mortar business, more and more small businesses join in and make the marketplace their primary source of revenue following Amazon’s leadership at the global scale. In fact, in many cases brick-and-mortar stores opt to become Amazon sellers:
In fact, by becoming a seller on Amazon, you allow your products to be directly picked, packed and shipped. Amazon takes a cut of the revenue, and the seller retains the rest. As Amazon puts it:
We offer programs that enable sellers to grow their businesses, sell their products on our websites and their own branded websites, and fulfill orders through us. We are not the seller of record in these transactions. We earn fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination thereof, for our seller programs.
Built by one of the smartest persons on earth (Stephen Wolfram), Wolfram Alpha is a computational engine, able to provide complex mathematical questions and way more advanced (at least until a few years ago) compared to any other search engine.
Wolfram Alpha has built its business based on education. The primary targets remain students or teachers, which with a subscription can get unlimited access to Wolfram Alpha features.
Wolfram Alpha makes its computational engine free and open to anyone. Yet to get advanced features (such as full mathematical procedures) you will need to subscribe to the paid version. In short, that is a mixture of a freemium and subscription-based model that targets the educational industry.
Family-owned integrated business model
The family-owned integrated model starts from the assumption that even if you’ve built a multi-billion dollar company you can control it in its entirety, while you also keep an agile decision-making process based on an ownership structure that keeps the control of the organization in the hands of the family.
Prada generated over three billion euros in revenues in 2017, and it managed to integrate its overall chain, from the creative process to the distribution to consumers via its directly operated stores:
Source: Prada annual report for 2017
They’ve also managed to keep the ownership of the firm in the hands of its two founders and partners in life, Miuccia Prada and Patrizio Bertelli:
Source: Prada annual report for 2017
With 100% of Prada Holding, the couple controls 80% of Prada! Their word is law within the organization. Although Prada as a multinational has complex management systems, Miuccia Prada and Patrizio Bertelli are the key decision-makers on strategic initiatives.
Feeding model
HyreCar is a peer-to-peer marketplace where owners of cars can rent their idle vehicles to drivers that want to make an additional income via ride-sharing services like Uber, and Lyft. As a two-sided marketplace, HyreCar makes money by charging drivers for direct insurance and a 10% fee on the weekly rental expense. And by taking a 15% fee from owners’ weekly rental income.
As platforms arise, they create ecosystems, becoming unexplored markets. Those markets can be surfed by feeding your business model on top of that. A good example is how HyreCar feeds its business model on top of Lyft and Uber networks of drivers.
People that want to make some extra bucks can rent temporarily a car and connect to Lyft and Uber to generate some extra income. In a sort of “tit for tat” relationship HyreCar “cooperates” and surfs the drivers’ network of Uber and Lyft, to create more liquidity, by making more cars available on the road for drivers, thus improving the supply, and therefore generating more demand.
Franchising business models
We’ve already mentioned here a couple of franchising business models, however, it’s worth having an overview of how these evolved over the years.
Franchising is a business model where the owner (franchisor) of a product, service, or method utilizes the distribution services of an affiliated dealer (franchisee). Usually, the franchisee pays a royalty to the franchisor to be using the brand, process, and product. And the franchisor instead supports the franchisee in starting up the activity and providing a set of services as part of the franchising agreement. Franchising models can be heavy-franchised, heavy-chained, or hybrid (franchained).
From the FourWeekMBA research, we identified three primary franchising models:
Heavy-franchised: where franchisees own the business operations, but the franchisor controls the land development and the lease, as a tweak to control the standards followed by franchisees over the franchising operations (McDonald’s).
Heavy-chained: where the franchising company takes care of the investment and costs to open a new unit, yet the company also takes higher royalties and profits get split up (Chick-fil-A).
And franchained (or reverse franchained): in a franchained model, a company leverages the ownership model to establish new operations. Once established, the company reverts back to franchising. This model is extremely suited for those operations that require extreme expertise and leverage on the company’s scale to open up new markets (Coca-Cola). In a reverse franchained model instead, the company leverages the franchising model in the short, and it reverts back to an ownership model in the long run. This is extremely suited to quickly testing new markets, by increasing speed and reducing the cost of growth. For the model to work, there must be built-in incentives for the franchisee to sell back the operations at a premium, if they turn out successful.
Franchained and reverse franchained
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
In a reverse franchained business model, the franchising company can leverage franchising to test whether new markets are profitable, by reducing the operational costs required to open new units, and by speeding up the growth while internalizing them in the long run, if they turn out to be successful and strategic for the company by making it easy and convenient for franchisees to sell back the operations.
Freemium model (freemium as a growth tool)
The freemium is usually a growth and branding strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through either marketing or sales funnel. The free users not converting in customers help spread the brand.
Free can be a powerful weapon for growth. Many in the tech industry and more specifically in the SaaS business model use Freemium to grow their business. The freemium is a mix of free and paid services.
The company offers a basic version of the product that works just like the premium product but it either has limited usage, or it has limited features. Thus, the free version is used for lead generation (capture contacts of people) and invite them to upgrade to the paid version or have the users with a free account to advertise their product.
Take SumoMe, a tool that allows you t grow the audience of a blog through newsletter forms, pop-ups, A/B tests, and heat maps:
If you get the freemium version of the tool, you still have a lot of features for free. SumoMe will invite you to upgrade over time, and it will show a small link “powered by SumoMe.”
In short, the free product can be leveraged in several ways. First, for lead generation. Second, as a way to trigger upsells for non-paying customers.
Third, as a virality tool, with CTAs and links placed in strategic places to have free publicity from non-paying users.
If appropriately implemented the freemium model can be a great way to grow a brand and a business fast.
While freemium can be considered in certain circumstances a key element of a business model, it influences all its aspects. In many other cases, a freemium model is a growth tool that has an incredible potential in spreading the brand of the company offering it.
Companies like MailChimp and Slack, have strengthened their brands and marketing funnels by leveraging the freemium model.
Free-to-play model
Fortnite developed by Epic Games is available in three modes. Save the World follows a premium model, where the game is sold, starting at $14.99- Battle Royale follows a free-to-play model, available for free. Still, gamers can buy things or customize characters with its digital currency (V-Bucks), and Creative Mode. As reported by Variety, Fortnite made $1.8 billion in 2019 and $2.4 billion in 2018.
The free-to-play model has become widely adopted in the gaming industry. Where companies like Microsoft and Sony sold their consoles at cost (Xbox and PlayStation) with a locked-in logic (gamers could not play in teams across those consoles) as they made money primarily by selling games.
Epic Games with Fortnite flipped this model. It made the game free, and up-sold products within the game.
Fortnite isn’t just a traditional freemium model, which we usually find in the software world. It had three modes of consumption, which helped shape its overall business model:
Save the World, premium model: built as a player vs environment game, is structured as a mission-based game. Contrary to the Battle Royal mode, which is the one that enabled Fortnite success, Save the World is available at $14.99.
Battle Royale, free-to-play model: built as a Player versus Player, or PvP, game mode this free-to-play game sparked virality and made Fortnite the success it is today. This game mode enabled up to 100 players, to play in several formats, alone, in duos, in squads, and more. The built-in group dynamics, and the fact it was freely available, helped sparkle the Epic Games’ ecosystem. And it is also lucrative for the company, as gamers can buy V-Bucks (Fortnite’s virtual currency) to customize their characters or else.
Creative mode: in the Creative mode, players gain access to a private island, where they can design the whole thing as they want and invite others. This mode is pretty interesting as it enables not only gamers but also creators or aspiring so to build their own gaming environment.
Freeterprise model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
As consumer brands showed the freemium model could be both a great go-to-market strategy and generate a continuous flow of qualified leads (however, only after the whole organization would be organized around identifying those opportunities), other B2B/Enterprise companies (those primarily selling to other companies or larger corporations) also mastered the freemium model but on a B2B scale.
That is why I like to call that “Freeterprise.” Companies like Slack and Zoom are great examples of how you can build a valuable business with a Freeterprise model.
Zoom is a video communication platform, which mission is to “make video communications frictionless.” Leveraging on the viral growth from its freemium model, Zoom then uses its direct sales force to identify the opportunity and channel those in B2B and enterprise accounts.
This sort of looks like magic, as you can start from a single free professional account, and pull a whole organization into that, to transform it into an enterprise
As I explained in the Zoom business model though, the whole organization needs to be structured around the freeterprise model, where on the one end the company seamlessly uses the free product as an entry point within companies.
And on the other end, salespeople with the ability to build a strong relationship with the account can get the whole company on board, thus transforming a free professional account into a potential enterprise customer.
Of course, this leads the organization to skew its resources toward building an army of qualified salespeople to handle the volume of leads generated by the free offering (in 2019 Zoom spent 54% of its revenues primarily in salespeople headcounts).
Gatekeeper model
In the gatekeeper model, the dominant company has become the main middleman between the market and millions if not billions of potential customers. In the previous era, many middlemen captured value and retained distribution power, by fragmenting the market.
In the gatekeepers’ era, the market has been unified, and as such, it has become much bigger, yet the single middleman (the gatekeeper) is also the one who locked the distribution pipelines, thus retaining control over the access to millions of consumers.
Thus, the whole gatekeeper business model is about becoming the unlocker to final customers for millions of small businesses.
Heavy-franchised business model
McDonald’s is a heavy-franchised business model. In 2021, over 56% of the total revenues came from franchised restaurants. The long-term goal of the company is to transition toward 95% of franchised restaurants (in 2020 franchised restaurants were 93% of the total). The company generated over $23 billion in revenues in 2021, of which $9.78 billion from owned restaurants and $13 billion from franchised restaurants.
McDonald’s follows what could be defined as a “heavy franchised business model.” 92% of its restaurants are franchised. With a long-term objective to reach 95% of franchised restaurants.
The franchising business model is quite effective for the expansion of the organization. A franchisor licenses its know-how (which might comprise procedures, training materials, brand, and more) for a franchisee, which has the right to sell the franchisor products and services in exchange for a royalty. In some cases, the franchisor also gets a percentage of the revenues.
Humanist enterprise business model
The most prominent advocate for the humanist enterprise business model is Brunello Cucinelli. Indeed, Brunello Cucinelli business model is based on three key pillars:
Italian Craftsmanship,
Sustainable Growth,
and Exclusive Positioning and Distribution.
The company generated over €503 million in 2017:
The humanist enterprise is based on the premise that “profit is made without harm or offense to anyone, and part of it is set aside for any initiative that can really improve the condition of human life: services, schools, places of worship, and cultural heritage.”
EdTech: enhanced education through digitalization ad tech platforms
EdTech is the attempt to make education more effective by leveraging on digital and tech. Several players are tackling this problem in different ways. Below are some examples.
For instance, the Udemy business model is trying to make everyone an instructor.
Udemy is an e-learning platform with two primary parts: the consumer-facing platform (B2C). And the enterprise platform (B2B). Udemy sells courses to anyone on its core marketplace, while it sells Udemy for Business only to B2B/Enterprise accounts. As such, Udemy has two key players: instructors on the marketplace, and business instructors for the B2B platform.
On the opposite spectrum, the Masterclass business model is trying to transform world-class experts into instructors:
Started as an attempt to transform education, MasterClass finds top talents and turns them into instructors. With a straightforward membership model of $180 per year, the streaming online education platform gives access to all its courses and the new releases on the platform. In 2020, it got valued at over $800 million.
Duolingo is an EdTech platform leveraging gamification to enable millions of users to learn languages. Duolingo leverages a hybrid between ad-supported and freemium models. Indeed, the free app makes money through advertising. Free users are also channeled into premium subscriptions with an ad-free experience and more features.
Udacity’s business model instead leverages partnerships with universities, to offer different kinds and formats of education, based on “nano-degrees.”
Udacity is a freemium EdTech platform, offering MOOCs (courses open to anyone for enrolment). Udacity partners up with companies and universities to offer nano-degrees (short-term online education programs focused on specialized skills in computer science). The user either pays a one-time or subscription fee to access one or all courses.
Enterprise business model built on complex sales
In an enterprise business model, a company focuses on large clients, usually Fortune 500 clients that have a massive budget of millions or billions of dollars. This kind of business is primarily based on complex sales.
As Peter Thiel explains in his book Zero to One, when it comes to a company’s distribution it is critical to understand where you stand. Indeed, in an enterprise business model, it’s all based on closing large deals.
Therefore, it is crucial to have senior salespeople with competence in managing those large deals to guarantee the success of the company.
In this respect, drawing a clear line between Marketing and Sales is the key point when trying to build up an enterprise business. That’s because you need to identify the right target with a laser focus.
Most of the time a large enterprise business might have only a few dozens of potential clients. Once identified those potential clients you need to put the proper resources to close those deals.
