As a kid growing up I loved Legos and working to make the pieces fit together like the picture on the box. Then I got into model cars and putting those together as I dreamed of owning and driving my first Porsche.
Business is based on models, so as an adult, I am happy to explore the world of business models on an ever deeper level. I think a large part of why we built Uncommon Wealth and focused on the 7 Sources of Residual Income is related to business models. There are so many ways to structure a business, package a product, and make money – so many models!
Maybe you are locked into one business model based on the industry you are in. At Uncommon Wealth Partners, Phillip and I have been challenging the traditional financial advisor model. We don’t want to lock people’s money into complex products or strategies that they cannot touch for decades at a time. We want people to have control of their money, to invest in themselves, and to grow their wealth. So while our industry tends toward a service and investing model, we want to push those boundaries and find the value in doing business via other models – and we definitely love to encourage our clients to (carefully!) explore this way as well.
Here’s a quick list of some of the most prevalent business models: manufacturing, wholesaling, retailing, e-commerce, business to business, subscriptions, affiliates, service, royalty, licensing, coaching, sales, rentals, network marketing, and investing. Let’s take a deeper dive into some of these common business models:
Manufacturing – Consider Boeing. They make airplanes and some aeronautic equipment. They build complex machines (and sometimes run into big challenges in the process, like with the 737 Max). It is a highly complex business. It is a highly capital intensive business with high barriers to entry.
Wholesaling – This model takes goods and/or services and distributes them wholesale instead of retail, letting other people put it on the shelf. You sell large quantities to other businesses and they sell directly to consumers.
Retail – Retailers get their goods from wholesalers. These are the businesses you know, like Kohl’s, Target, Bed Bath & Beyond – you get the idea. Brick and mortar retail is feeling the squeeze from the next category.
E-Commerce – Think Apple, Amazon, and eBay. Smaller companies can also set up portals to sell online, either with their own shipping infrastructure or by leasing a larger company’s (Amazon, most notably) fulfillment operations.
Business to Business – This could be a company in multiple categories, but it sells products/services to other businesses. In IT, think SalesForce CRM, Oracle, or IBM. It could also be as unglamorous as a corrugated cardboard box company selling to Amazon or any company that needs boxes for shipping.
Subscription – This is becoming a larger and larger segment among business models. Think Fab Fit Fun, Costco, Amazon Prime, Sam’s Club, or Netflix. You pay a monthly fee for discounts on products or services, or to stream endless content like movies, music, etc.
Affiliates – Influencers use the affiliate model to recommend a product or service. Think of all the people on Youtube and Instagram telling you why they like specific products, or people posting blogs about their favorite recipes and kitchen appliances. They earn a commission when someone makes a purchase based on that recommendation.
Service – This might be the place where you get your oil changed. It can be your cleaning company, trash service, plumber, or electrician.
Royalty – think Meghan Markle, now Duchess of Sussex. No, I’m kidding! Royalties as a business model are when you get paid for the creative content you produce. Musicians, writers, singers, and actors earn royalties from the content they have created and licensed for others to purchase, view, or otherwise use.
Licensing – If you have a patent and you don’t want to build a company to make a product, you can license it. This allows an existing company to make the product and sell it in exchange for an agreed upon percentage of every sale.
Coaching – A coach is basically trading their time and expertise for a fee. They might hold large events like Tony Robbins, or work one-on-one, like a life coach, a business coach, or a therapist.
Sales – Here I’m talking about commission-based work like your Realtor or car salesperson.
Rentals – You purchase investment properties and making money from this real estate by charging your short or long-term tenants to rent the property.
Investing – This is where you are investing in the stock market or another business and betting that the investment will increase in value over time.
When looking at building a business, or diversifying a business, are there other business models that could complement the business you already have? In an earlier post, I wrote about creating multiple streams of income using several business models flowing from one primary business. Using multiple models, there are ways to create multiple income streams, yet stay within the sweet spot of your expertise.
Why make money just one way, when you can earn from multiple sources? Just another reason I still love models!