Business Model Examples

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Here is a sampling of disruptive business models, many from companies that did not exist five or ten years ago, to get you thinking expansively. There are so many that I could create a full list on the web, but the point is that each one has some nuance with the capability to make a disruptive impact.

• Shared ownership / the communal economy (Zipcar, Airbnb): a generational, mega-trend shift. People are willing to share things now. Why buy a car you only use a little while? This penetrates cars, homes, offices, and shared resources, with massive disruption still ahead. It was not even thought of 15 or 20 years ago.
• Flash sales (Privé, Groupon): people use them for a really good discount. Behind it is a loss-leader model: you may lose money on the first thing you sell to attract and onboard a customer, then upsell or resell them. It can work very well, or it can fail (Groupon’s challenge is keeping a sustainable set of offers that actually make money for the merchant), so be careful. I have never invested in Groupon precisely because it is not clear they have sustainability nailed.
• Mint: there is zero value you are asked to pay (unlike Quicken from Intuit). It is a lead-generation business driving leads to financial-services providers. Nobody thought it would be successful, but it was so disruptive to Intuit that Intuit ended up buying it. Again, not a technology shift, a business model shift.
• uTest (crowdsourcing): crowdsources mobile testing around the world, an extremely effective way to test across phone types, carriers, and locations that could not be recreated in any lab, while leveraging low-cost labor globally as a lever.
• Amazon (product or service?): it sells lots of products, but what it really has is an extraordinarily efficient service for getting and processing orders, so frictionless it feels like a product. One-click buy was one of the biggest differentiators (much of Amazon’s IP is patented around process, not product), and Amazon Prime keeps customer attention as a win-win.
• Yelp (content) and Facebook (data): Yelp would be useless without the content of local merchants and reviews, so its core is content; Facebook’s value is the network and the data it monetizes through advertising. Both chose to give the core experience away and monetize something specific.

Non-profit business models (Diagnostics for All). Jason Rolland’s Diagnostics for All (DFA) is a registered non-profit (founded 2007, about 18 employees, mostly scientists and engineers, $14 million raised) disrupting how healthcare is delivered, with an emphasis on the developing world. The technology platform is paper (developed in George Whitesides’s lab in Harvard’s Department of Chemistry): pattern channels into one of the cheapest materials possible to manipulate fluids and make a new generation of diagnostics inexpensively. Their founders recognized that academics are historically terrible at product development, so DFA sits between the innovators and commercial partners: take innovative concepts, build products for specific developing-world needs, and hand them off to commercial partners (diagnostic manufacturers in Africa), while also handing simple, easy-to-use technology to for-profit companies in the developed world to generate revenue. Their multiplier is fundraising; their lever is getting products out the door and creating customers actually using them (you would not donate to relief efforts if you did not think the organization could do anything with your money, and products create more fundraising opportunities). The lead product is a paper-based liver function test costing about 10 cents to make: a single finger-stick drop of blood filters through patterned paper layers to give a color readout you compare to a guide or read with a mobile app (which can embed instructions and transmit data to physicians and databases). It is a companion diagnostic for people on HIV medications in the developing world, and it also addresses drug-induced liver injury (the leading cause of acute liver failure in the US, with no home monitoring test today). DFA is closing a strategic partnership with a major Japanese pharmaceutical company whose drug has a liver-toxicity problem: home monitoring makes the FDA more comfortable (catch the 3 percent of patients with toxicity via monthly, simple testing), and the partner sells more drugs, a nice validation where a developing-world need becomes valuable to a major pharma company. Non-profit funding is unusual: venture capital has no place (no financial return), but charitable donations (DFA raised about $1.5 million, mostly from high-net-worth individuals, discretionary and flexible but slow and relationship-dependent, or via crowdfunding like Wikipedia’s $20 million in 2012 by annoying millions of people for $10), grants (like the Gates Foundation, but often non-discretionary, so they will not fund IP portfolio management or sometimes even rent), and strategic partnerships (resources, FDA regulatory guidance, and potential revenue, at the cost of possibly answering to a partner’s direction). The pipeline also includes agriculture (aflatoxin, bovine pregnancy) and Department of Defense work (the biothreat agent brucellosis, and monitoring immunity/vaccination status in the developing world). Can such a model work? PATH in Seattle is a non-profit with a $35 million annual operating budget (mostly grants, contracts, and charitable funds from Gates and USAID), exclusively focused on technology and product development for the developing world, with 1,200 employees in 22 countries and 55 success stories of products they can step away from (all of PATH could collapse and the product cycle still continues). The major difference: PATH does not maintain an extensive IP portfolio, and DFA does, seeing that as a third revenue stream by licensing like any biotech. (One Laptop Per Child, whose president Chuck Cain also sits on Demandware’s board, is another well-known non-profit initiative to spread IT to the developing world.)

Hardware plus consumables (FormLabs, Max). FormLabs is trying to make 3D printing like 2D printing: a 3D printer on every desktop, so anytime you want to see something in 3D you just press print without worrying about the cost or process. 3D printing had been around a while, but mostly as big machines (roughly $10,000 to $100,000) sold by salesmen who come to your office for a demo and explain the ROI and TCO. There are about 10 million 3D CAD users but only around 30,000 installed professional 3D printers, so the market is not mass consumer yet, it is everybody designing in 3D. FormLabs built the Form 1 machine, plus the software that runs it (the printer driver), plus the materials (predictable consumables revenue), and sells it as a “prosumer” product at a price point around $3,000 through the web, where the end-user engineer or designer makes the decision (maybe with a quick email approval from the boss), a completely different sales process. It is a razor-and-blade element (consumables) combined with the machine sale. Where is the core, the printer, the software, or the consumables? Right now they invest evenly across all three, because them working together is the value. Longer term there is more price competition on hardware (eventually made cheaply in China with little margin), so partnerships matter: a strategic partner who needs a 3D printer to sell everything that goes with it (custom earbuds as a mass-consumer product, thousands of installations each with a printer, or education with a proven curriculum) would be an instant multiplier and a win-win.