Starting a business is exciting. You’ve got the idea, the passion, and maybe even a prototype. But here’s the question most new entrepreneurs forget to ask: How will your business actually make money?
It’s not enough to have a great product or service. What really determines long-term success is your business model—the blueprint for how your company creates, delivers, and captures value. Think of it as the engine under the hood. A brilliant car with no engine won’t get you far. The same goes for your startup.
In this article, we’ll break down the most common business models used by successful startups today. You’ll learn how each one works, their pros and cons, and—most importantly—how to choose the right one for your venture. Whether you’re launching a tech app, a sustainable fashion brand, or a local service business, understanding your business model is the first step toward sustainable growth.
We’ll explore real-world examples like Netflix, Amazon, and Airbnb, showing how their business models shaped their success. You’ll also get practical tips on testing and refining your model before going all-in. By the end, you’ll have a clear roadmap to align your vision with a strategy that works—not just in theory, but in the real world.
Let’s dive in and discover which business model could be the perfect fit for your startup.
What Exactly Is a Business Model?
Before we jump into types and strategies, let’s clarify what a business model actually is. In simple terms, it’s the way your company makes money. But it’s more than just pricing. A solid business model answers key questions:
- Who is your customer?
- What problem are you solving for them?
- How do you deliver that solution?
- How do you charge for it?
- What are your costs?
- How do you scale?
One of the most popular tools for mapping this out is the Business Model Canvas, developed by Alexander Osterwalder. It breaks your business into nine building blocks: customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.
For example, imagine you’re launching a meal-kit delivery service. Your customer segment might be busy professionals. Your value proposition? Healthy, pre-portioned meals with easy recipes. You’d deliver via subscription (revenue stream), using partnerships with farms (key partners), and your main costs would be ingredients and logistics.
The beauty of defining your model early is that it forces you to think critically about sustainability. Too many startups fail not because the idea is bad, but because the business model doesn’t support it. A viral app with no clear path to profit? That’s a product, not a business.
So, before you spend thousands on development or marketing, take the time to design a business model that aligns with your goals, resources, and market reality.
The Subscription Model: Predictable Revenue, Strong Loyalty
One of the most popular and scalable business models today is the subscription model. You’ve seen it everywhere: Netflix for entertainment, Spotify for music, Dollar Shave Club for razors, and even software like Adobe Creative Cloud.
The idea is simple: instead of charging customers once, you charge them regularly—monthly or annually—for continued access to your product or service. This creates recurring revenue, which is gold for startups. Predictable income helps with cash flow, planning, and attracting investors.
Take Netflix, for example. In 2007, they shifted from renting DVDs by mail to a streaming subscription. That move transformed them from a niche service into a global powerhouse. Why? Because subscriptions build customer loyalty and reduce the need for constant new sales.
But here’s the catch: you must deliver continuous value. Subscribers expect something new or useful every billing cycle. If they don’t feel they’re getting their money’s worth, they’ll cancel. That’s why companies like MasterClass keep adding new courses, and fitness apps like Peloton update their workout library weekly.
For startups, the subscription model works best when:
- The product or service is used repeatedly
- There’s a clear ongoing benefit
- Customer acquisition costs can be offset over time
It’s not just for digital products, either. Companies like BarkBox (dog toys) and Blue Apron (meals) prove that physical goods can thrive with subscriptions too.
However, churn—customers canceling—is a real challenge. A 5% monthly churn means half your customers are gone in a year. So retention is key. That’s why many subscription businesses invest heavily in onboarding, customer support, and personalized experiences.
If you’re considering this model, start small. Offer a basic plan and a premium tier. Test pricing. Use feedback to refine your offering. And always ask: Are customers excited to renew?
The Marketplace Model: Connecting Buyers and Sellers
Imagine a digital platform where freelancers find work, travelers book unique homes, or artists sell handmade goods. That’s the marketplace model in action.
Marketplaces don’t own inventory. Instead, they connect two or more groups—buyers and sellers—and take a cut of each transaction. Examples include Uber (drivers and riders), Airbnb (hosts and guests), and Etsy (craftspeople and shoppers).
The power of this model lies in network effects: the more users join, the more valuable the platform becomes. More hosts on Airbnb mean more choices for travelers, which attracts even more hosts. It’s a virtuous cycle that can lead to explosive growth.
But building a marketplace is notoriously hard at the start. You face the “chicken-and-egg problem”: sellers won’t join without buyers, and buyers won’t come without sellers. So early traction requires heavy lifting—often starting with one side of the market.
For example, Airbnb’s founders initially focused on hosting their own apartment and convincing other hosts to list. They even went door-to-door in New York to sign up users. Only then did demand begin to grow.
Revenue usually comes from transaction fees (e.g., 10–15% per booking), subscription fees for sellers, or listing charges. The key is balancing value for both sides. If fees are too high, sellers leave. If quality is low, buyers leave.
For your startup, the marketplace model makes sense if:
- There’s unmet demand for better connections
- You can verify quality or build trust
- You have a way to attract early adopters
It’s not for everyone. It requires strong tech infrastructure, trust-building mechanisms (like reviews and payments), and patience. But when it works, the rewards are massive.
The Freemium Model: Hook, Engage, Convert
Want to get millions of users fast? The freemium model might be your answer.
“Freemium” combines free and premium. You offer a basic version of your product for free, then charge for advanced features. Think of Slack, Dropbox, or LinkedIn. Millions use the free tier, but teams and professionals pay for more storage, integrations, or analytics.
This model is perfect for digital products, especially software (SaaS). It lowers the barrier to entry, letting users experience value before paying. It’s like a test drive for your product.
The strategy works because of psychological ownership. Once people invest time setting up files in Dropbox or building a network on LinkedIn, they’re less likely to switch—even if a competitor offers similar features.
But here’s the challenge: conversion rates are usually low. Only 2–5% of free users may upgrade to paid. That means you need a huge user base to make money. And you must design the free version carefully—not so limited that it’s useless, not so good that no one feels the need to pay.
For example, Dropbox gives you 2GB free. Enough to try it, but not enough for serious use. Slack limits message history and integrations. These “friction points” encourage upgrades.
To succeed with freemium:
- Focus on virality (easy sharing)
- Deliver real value in the free tier
- Make premium features highly desirable
- Use data to guide users toward paid plans
It’s a long game. But if you can scale user growth and optimize conversions, freemium can fuel rapid expansion with relatively low customer acquisition costs.
The Direct-to-Consumer (DTC) Model: Cutting Out the Middleman
Remember when you had to buy sneakers from a mall store marked up 300%? The direct-to-consumer (DTC) model changed that.
DTC brands sell straight to customers online, bypassing retailers and distributors. Think Warby Parker (eyewear), Casper (mattresses), or Glossier (skincare). By cutting out the middleman, they can offer better prices, control branding, and collect customer data directly.
This model exploded with the rise of e-commerce and social media. Platforms like Instagram and TikTok let brands build communities and launch products overnight. No need for shelf space—just a great story and a Shopify store.
The benefits are clear:
- Higher profit margins
- Direct customer feedback
- Faster iteration based on real data
- Stronger brand loyalty
But it’s not without risks. DTC brands often spend heavily on digital ads to acquire customers. When ad costs rise (like after Apple’s privacy updates), profits can shrink fast. Plus, standing out in a crowded market is tough.
So how do successful DTC brands win? They focus on storytelling and experience. Warby Parker didn’t just sell glasses—they offered a home try-on program and a social mission (buy a pair, give a pair). Glossier turned customers into brand ambassadors by co-creating products with them.
If you’re considering DTC, ask:
- Can you build a brand people love?
- Do you have a unique product or angle?
- Can you afford customer acquisition costs?
Start small. Test your product with a pop-up shop or a limited online launch. Use feedback to refine before scaling. And remember: in DTC, your brand is your business model.
The Razor-and-Blades Model: Sell the Handle, Profit from the Refills
You’ve probably heard of this one, even if you didn’t know the name. The razor-and-blades model involves selling a primary product at a low price (or even a loss) to lock customers into buying high-margin consumables later.
The classic example? Gillette. They sell razors cheaply, but the replacement blades are expensive—and you need them again and again. Printers work the same way: cheap hardware, costly ink cartridges.
This model thrives on repeat purchases. Once a customer buys the “handle,” they’re locked into your ecosystem for refills. That creates long-term revenue with minimal extra sales effort.
For startups, this can work in niches like:
- Pet care (cheap toy, expensive treats)
- Beauty (affordable device, pricier serums)
- Home tech (low-cost smart hub, subscription refills)
Dollar Shave Club used a twist on this: a cheap razor handle with a subscription for blades. They combined razor-and-blades with subscription—double the recurring revenue.
But beware: customers hate feeling trapped. If your consumables are overpriced or hard to cancel, you’ll damage trust. And competitors can disrupt you by offering universal refills (like third-party printer ink).
To make this model ethical and sustainable:
- Keep initial pricing fair
- Ensure consumables are high quality
- Offer flexibility (pause, cancel, switch)
When done right, it’s a powerful way to build loyalty and steady income. Just don’t make your customers feel like they’re being “bladed.”
The Licensing Model: Earn While You Sleep
What if you could make money without selling a single product? That’s the promise of the licensing model.
In this model, you allow another company to use your intellectual property—like a patent, design, or brand—in exchange for a fee or royalty. For example, Disney licenses its characters to toy makers. Dolby licenses audio technology to phone manufacturers.
For startups, licensing is attractive because it requires little overhead. You create something valuable once—like a unique algorithm, a fashion design, or a mobile app concept—and then earn passive income as others use it.
It’s especially useful if:
- You’re great at innovation but not at scaling
- Your idea can be applied across industries
- You want to test demand without building a full business
But licensing isn’t easy. You need strong IP protection (patents, trademarks) and legal agreements. And you must find partners willing to pay.
A real-world example: GoPro. Before becoming a camera brand, they licensed their wearable camcorder tech to surfers and sports teams. That early validation helped them refine the product and eventually launch their own line.
If you’re exploring licensing:
- Start with a pilot deal
- Protect your IP early
- Focus on partners who can scale
It’s not the flashiest model, but for the right idea, it can be a quiet path to profit.
The Franchise Model: Scale Fast with Other People’s Money
Want to grow fast without opening every location yourself? The franchise model lets you do just that.
In franchising, you create a proven business system (like a restaurant or fitness studio), then license it to independent operators (franchisees) who pay an upfront fee and ongoing royalties. McDonald’s, Anytime Fitness, and 7-Eleven all use this model.
For the startup founder, franchising offers rapid expansion with minimal capital. Franchisees invest their own money, manage operations, and bear most of the risk. You get a cut of sales and brand growth.
But success depends on consistency and support. Franchisees need training, marketing, and supply chain help. If one location fails, it can hurt the whole brand.
This model works best for:
- Service businesses with repeatable processes
- Brands with strong recognition
- Founders who can systematize everything
Before franchising, you need a proven concept. Run a few company-owned locations first. Document every process. Then, test with a few pilot franchisees.
It’s not for every startup. But if you’ve got a scalable, local service with high demand, franchising could turn your idea into a nationwide brand.
How to Choose the Right Model for Your Startup
Now that you’ve seen the options, how do you pick the best one for your business?
Start by asking these five questions:
- Who is your customer?
- Are they individuals or businesses?
- Do they prefer ownership or access?
- How often do they need your solution?
- What’s your value proposition?
- Are you saving time, money, or effort?
- Is your product consumable, digital, or physical?
- What are your costs?
- High fixed costs? Then you need recurring revenue.
- Low overhead? Maybe licensing or marketplace fits.
- How will you acquire customers?
- Can you go viral? Freemium might work.
- Need trust and relationships? Consider DTC or subscription.
- What’s your long-term goal?
- Want to build a lifestyle business? Simpler models like DTC or licensing may suit.
- Aiming for rapid scale? Marketplace or subscription could be better.
Don’t be afraid to mix models. Many successful startups do.
- Spotify: Freemium + subscription
- Amazon: DTC + marketplace + subscription (Prime)
- Apple: Product sales + licensing + subscription (Apple Music, iCloud)
The key is alignment. Your business model should support your mission, not fight it.
Test Your Model Before You Commit
You wouldn’t launch a rocket without testing the engine. So why launch a business without testing your model?
Start with a Minimum Viable Business Model (MVBM). Offer a simplified version of your idea and see how people respond.
For example:
- If you’re testing a subscription, offer a 3-month pilot to 10 customers.
- For a marketplace, manually connect buyers and sellers (called a “concierge MVP”) before building an app.
- With freemium, launch a free tool and track how many users ask for premium features.
Use feedback to iterate. Maybe customers want annual billing, not monthly. Or they’d pay more for a family plan. These insights are gold.
Tools like Google Analytics, Typeform surveys, and Stripe for payments can help you track behavior and refine your approach.
Remember: Your first model doesn’t have to be perfect. It just has to be testable. Some of the biggest companies pivoted their models after launch.
- Twitter started as a podcasting platform.
- Instagram began as a check-in app called Burbn.
- YouTube was originally a video dating site.
Be open to change. The best business model is the one your customers actually want to pay for.
Final Thoughts: Your Business Model Is a Living Strategy
Your business model isn’t set in stone. It’s a living, evolving strategy that should grow with your startup.
The most successful companies don’t just pick a model—they refine it continuously. They watch customer behavior, test pricing, and adapt to market shifts.
Think of it like a compass. It won’t tell you every turn to make, but it keeps you headed in the right direction.
So, take a moment to reflect:
- Does your current model truly reflect your value?
- Are you making money in a way that’s sustainable?
- Could a small tweak unlock bigger growth?
Don’t wait until you’re stuck to rethink your approach. The best time to evaluate your business model is now—before you scale.
Conclusion: Choose Smart, Start Small, Grow Confidently
Choosing the right business model isn’t about copying the latest trend. It’s about matching your strengths, your customers’ needs, and your long-term vision.
We’ve explored eight powerful models—from subscriptions and marketplaces to freemium and franchising. Each has its place. The key is knowing which one fits your puzzle.
Remember:
- Subscriptions offer predictable income but need retention.
- Marketplaces scale fast but are hard to launch.
- Freemium drives growth but requires massive user volume.
- DTC builds brand power but needs strong marketing.
- Razor-and-blades creates loyalty but risks customer frustration.
- Licensing generates passive income but needs strong IP.
- Franchising enables rapid growth but demands consistency.
There’s no single “best” model. Only the best model for you.
So, take action. Sketch out your current model using the Business Model Canvas. Test it with real customers. Tweak it. Improve it. And don’t be afraid to pivot.
Your startup’s success doesn’t depend on having the perfect idea—it depends on having the right way to bring it to life.
Now, over to you: Which business model resonates most with your startup? Have you tested it yet? Share your thoughts in the comments—let’s learn from each other and build better businesses, together.
Danilo Ferreira é um entusiasta apaixonado por empreendedorismo, viagens e liberdade financeira, sempre em busca de novas formas de expandir seus horizontes e viver com propósito. Movido por uma mentalidade de alto desempenho, ele combina disciplina e curiosidade para alcançar objetivos ambiciosos, explorando o mundo enquanto constrói projetos que refletem sua visão de independência e crescimento contínuo.
