
In today's business world, there are multitudes of companies employing seemingly endless innovations of business methods. But upon closer inspection, business boils down to just a few time-tested models, with monor variations employed by different entrepreneurs. An intimate understanding of these models is vital for anyone in business.
The Trading Model
This is the flagship of business models, the initial representation of what business is. When little kids are introduced to the concept of business, it is the trading model that adults most commonly use as an example. The Trading Model is simple. Traders strive to buy for as low a price as possible, then sell the same item for as high a price as possible. Opportunities to do this arise for several reasons. In ancient times, if a certain product that is demanded by the masses is located far away, consumers will pay higher prices to buy from traders who have brought the product back, rather than search for the product themselves. Or maybe the trader gets discounts for buying in bulk, and individual consumers of course wouldn't want to buy in bulk. Another opportunity lies with knowledge and packaging. Buyers would be more willing to buy certain products from knowledgable traders who can explain the product to them and guide them through the buying process, rather buy at a cheaper price without knowing enough about the product. Innovative packaging and mixing of products by traders will also provide opportunities to sell at a profit. In today's globalized world, it has become more difficult to rely on geographic distance as a provider of trading opportunities. It is important for traders to add knowledge and related services to enhance the product they sell, maximizing the value of the product to consumers. For example, instead of just displaying the product (which is likely to be highly commoditized) and waiting for customers to come, you have to educate customers and explain to them how the product will help them. The main determinant in the success of trading ventures is not exceptionally good buying deals or opportunities to fleece customers, but the consistent provision of advice, support and a pleasant buying experience to the customer. This type of business has the potential to get very big... Think Wal-Mart. (Trading in financial markets does not fit in comfortably in this model, because in financial trading, buyers are also sellers, and sellers are also buyers - there is no customer experience to speak of)
The Service Model
This model is another classic along with the trading model. Practitioners of this model often gain the respect of the public for their skill and abilities. Included in this model are all manner of skilled labour such as cooking, plumbing, wiring, medicine, bookkeeping, hair styling, undertaking and lawyering (the honest type). The first requirement of this model is to provide a service which has natural demand (pipes will always leak, people will always die, people always need to eat, cars always break down etc). If your service has no clear value to the consumer, you will spend more time finding customers than actually working to produce income. The best type of marketing is NO marketing; to have customers come to you because of natural need or favorable referrals. Which brings us to the next point. After finding a service with natural demand, the next step is to provide your customers with great experiences. Service businesses are all about customer service. Be pleasant and efficient and referrals will come. Just think to yourself; how do you normally find mechanics and plumbers? More often than not, you'd call a friend and ask if he knows a good one. In the service business, promotions and advertisements cannot compare to the power of a trusted referral. However, this sort of business does not easily get big, as it relies on the skill of the owner. And if any of your staff becomes proficient, there is a high probablity that he will choose self-employment.
Combined Models
The two classic models above have spawned many businesses operating on a combined model. Traders add services to their repertoire and service providers sell goods in addition to services. Restaurants are a classic example. Other than charging you for cooking and serving, they also sell you packaged drinks/liquor and other stuff to go with your dinner. Mechanics sell you spare parts and then charge you for installing them. Doctors sell medicine in addition to charging medical fees. Computer traders add installation services to their menu. Only poor ol' lawyers and accountants do not have regular products to sell in addition to their services. I don't think clients will be inclined to buy the latest version of the Tax Act or something. So they end up selling A4 paper and postage stamps in the form of 'disbursements'.
Manufacturing
Makers of goods started out in history as carpenters and blacksmiths, then slowly evolved to the Boeings, Dells, and Acers of today. The model is as follows:- Design a product that would be useful to people - Buy the materials needed to make that product - Make the product - Sell the product. This is more complicated than trading because instead of buying and selling, you have to make what you sell. Manufacturers are the providing source to traders, working together to move a product from the mind of the inventor to the factory floor to the hands of the consumer. Manufacturers have become some of the biggest businesses in the world.
Subscriptions
The Informational equivalent of manufacturing. Instead of making things to sell, you write things to sell on a regular basis. Your customers will pay you for regular updates. The most common subject is News. Other than the written word, you can also sell software and tv shows this way. But because it deals with information, the Information Revolution is wreaking chaos in this sector. Great opportunities are popping up while older variations of this model get wiped out. How do you make money when everything on the Internet is free? Solve this problem and your money will come.
Agriculture
Buy/Lease land. Plant things on land. Sell the stuff that comes out. Obviously, profitability depends a lot on what you choose to plant. Agriculture is a provider of raw materials, so it is at the very start of the business process. Unlike mining however, it is a renewable source of raw materials. If you replace the word planting with digging, you'd get the model for mining businesses... Only that with mining, you have to get new lands once you deplete the present ones.
Agencies & Brokerages
With this model, Connections is the word. You enable transactions between people or represent a party in selling their stuff. It differs from trading because you do not need to buy anything, and it differs from manufacturing because you don't have to make anything. It is closer to the service industry, but instead of what you know, it is more WHO you know that counts. The model is like this:- Represent a party to sell their stuff (eg. Insurance Company) - Sell the stuff to as many people as you can - The party you represent gives you a cut for your troubles. If you have a good network and you're good at networking, this is the way to go. Like Services, it is not easy for this type of businesses to get big, as it relies a lot on the network of the owner.
Transport and Utilities
This model is dominated by one word. Assets. Be it electricity or water or telecomms or plane flights, these services can be brought to you only by the use of extensive assets. These services are made possible not by the skill of the practitioner, but by the technology of the planes, dams and towers. The model is as follows:- Buy/Lease assets - Charge customers for use of those assets.
Builders
Along with food, transport and clothing, having a roof over your head is one of the great necessities of life. And builders aim to meet this need. This is actually a form of the Service model, but it defers due to the scale of the projects, and the fact that there is less interaction with the end-user.
Usury
I lend you ten, you pay me back eleven. Nuff said...
Well, there is the small problem of financial meltdowns... But that happened because bankers DEVIATED from the model by going into stupid deals and not doing proper credit checks. So its not the model that is the problem.
Gaming
One of the simplest and most sure-fire ways to make money. So simple and sure in fact, that it is sometimes considered a 'sin' industry and is illegal in some places. This model works based on probality theory. Every throw of the dice would more probably bring profit than loss. With this on your side, how can you lose?
Andrew Chua
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