Understanding different types of business models can help you evaluate whether your current business has the best set-up for growth and efficiency. Businesses models can be separated into two broad categories: linear vs. nonlinear. From there, several different types of non-linear models exist, with platforms, circular and drop-shipping models representing some of the most popular.
What Is a Linear Business Model?
The vast majority of small business owners develop their company with a linear model because it's highly intuitive. Also called a pipe model, everything can be summarized sequentially and flows in the same direction.
Linear businesses use raw materials to produce something, distribute it to consumers and get paid. Then, the business moves on to another client or consumer. In contrast, anything that doesn't quite fit this pattern is called a non-linear business model.
Disadvantages of a Linear Business Model
A linear business model has its drawbacks. First, it can be very time consuming to attract new clients and customers again and again. Second, the linear business model should incorporate some sort of feedback loop in order to facilitate growth. A strictly linear approach gives no opportunity to re-sell to customers or even re-use waste generated by the business. Examples of feedback can include customer surveys to evaluate performance or recycling waste products into the production line to save money.
Circular Business Model
On the other hand, a circular business model is one type of nonlinear approach that intentionally and strategically introduces feedback loops into the process.
For example, a business using a circular model would have a strategy to reach out to customers after each purchase in order to conduct a satisfaction survey. Collecting email addresses for newsletter advertising during the purchase process also allows you to continue to market to customers and draw them back into your shop. The first purchase a customer makes requires the greatest leap of faith. Once you've established that your company is trustworthy and high-quality, it's easier to convince people to make a repeat purchase.
Another example of a circular business model would be a local hot sauce company that encourages consumers to drop off their empty sauce bottles in order to be sanitized and reused by the company for its product. This method reduces the waste that would occur in a linear vs. nonlinear business model.
Platform Business Model
A nonlinear business model that has become especially popular with growing technology is the platform business model. The unique value proposition offered by a platform company is to facilitate the connection of providers and consumers. Providers give value to the consumers, who give monetary value back to the providers. The business operating the platform service collects its fee through one or both users.
Rover, a web- and app-based platform intended to connect dog owners with dog sitters, represents an example of the platform business model. Rather than hiring its own employees to dog sit for clients, Rover acts as a liaison for people looking to find their own dog sitting or dog walking clients.
Drop-Shipping Business Model
Drop-shipping e-commerce stores represent another type of nonlinear business model. The drop-shippers source, sell and ship products without ever having to physically touch the stock. Instead, they're responsible for maintaining an e-commerce store and displaying the inventory they believe will sell. When it does, they transfer the order along to a third-party supplier who actually has the item and ships it out.
Does your company model currently follow a linear or nonlinear business model? Do you feel like the current model is working, or could switching to a different model create fresh inspiration? What are your competitors doing? Ultimately it's up to you to decide what strategy will work best after a thorough investigation into your options.