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Industry Associate Marie McQuade shares her knowledge of the available business models.
How will you create cash from your business and what financial relationship will you have with which customers? Answer these two questions and you have your business model. Your business is likely to be a mix of one or more of the following four models:
The marketplace model is where you bring two different customer groups together and charge them both for the privilege. Your business is being the intermediary link for these. Airbnb is an example of this. They are intermediary matching middleman between those with a bed for the night and those that want one. A marketplace model takes a customer group’s product/service and offers this to another separate customer group. Galleries can be marketplaces keeping a percentage of art works sold.
The multi-sided business model, as the name implies, is another business model involving multiple customer groups. Charities, many arts organisations and Facebook are multi-sided. In this model one group – supporters, advertisers and sponsors fund the other group of beneficiaries and Facebook users. There are more than two customer groups in this model hence its ‘multi-sided’ name and your activity as business owner is to generate from one audience to pay for what you offer the other.
The oldest and most obvious business model is ‘products’ where you have a material item that you sell in units to customers. As a creative business your products will have a high element of design, which you need to both protect intellectually and through the ‘value’ you place on them in terms of price. Your customer’s trust in your product(s) is key here and is what your business will be known for and your reputation will be based upon.
Solutions is a model where you solve customer’s requirements directly through a solution that you bring. You are likely to be the trusted solution here offering yourself and/or other consultants as a service. You generally have an hourly rate or price per job rather than a unit price. Some industries have well protected rates of pay such as architects whereas others you will need to benchmark and decide on a value that you need and where you are in relation to the competition and their practices.
Watch Sarah Young, John Gibson and Ian Moir of Fire Station Creative, talk about their chosen business model and how this resulted in the arts hub becoming self-sustainable.
You may start as one business model and then need to be flexible to adjust to being another when you know your customers and market needs better or when external circumstances change. Expansion can be about growing your current business model – selling additional product ranges, employing other consultants, expanding your marketplace role or getting more advertisers/funders. Business modeling also allows you to see what others with the same model outside of your sector are doing to remain relevant and successful with their core customers.