Many new business models have taken shape in past one decade, specifically after the advent of ecommerce platforms like Magento, Shopify, YoKart that made launch of startups easier.
Presently we have plentiful options from proprietorship to partnerships to LLP (limited liability partnership), and few unconventional models such as network models, multilevel marketing, pyramid schemes and such. Among all top models of 21st century, an innovative business model- a model that gave the idea of “how to do business” and “how much investment one needs” the much-needed make over, has become a bit more popular.
The idea evolved few years ago was to keep the capital assets less in comparison to the operations. This meant the costs of investment and running the business would be less, while the revenue and profits were assumed to be proportionally on a higher scale. Let’s know how this works in real world.
How does the asset-light model work exactly?
To understand the concept of asset-light business model, you have to forget the traditional business models first.
Suppose a person wants to start a business and needs land to build an office for it. Instead of paying a hefty amount of money to purchase the land, the business owner makes an agreement with the land owner, sharing a certain percentage of profit. This is it.
Asset-light business model is also known as the capital-light business model, as it doesn’t require a lot of money to put a venture into action.
Be it the manpower, the infrastructure, R&D or even the network; instead of spending tons of money to “own” all, you pay a certain amount of capital to get things done and share the profit.
That sounds a lot like shared economy, right?
Of course it does. And that’s because shared economy is the backbone of asset light business model. How else would an entrepreneur expect to move ahead on the success path faster?
Success of a venture is measured in terms of the proportion of the investment made and the eventual returns.
Let’s take the example of Uber. Uber has offered a platform that brings a cab driver and a passenger together, and takes the cut from the revenue generated from the ride. Uber owns the platform, but it doesn’t own the cabs or the drivers. Shared economy has become the latest trend and it is expected to be on a rise for next many years.
Some Successful Ecommerce Ventures That Thrive On The Asset Light Business Model
This is probably the most common example of an asset-light business model. Since we already mentioned how Uber works, let’s proceed to other ventures.
Airbnb lets you book an accommodation using their website/app, pay as you want and you can stay at the place for a pre-decided duration. In the end, Airbnb gets a certain percentage of the amount, and all users (buyers, sellers who use this platform) constitute a marketplace. Airbnb wouldn’t have been such a success in the given short time had they planned on building or buying hotels. They are tying up with people, and enjoying the revenues.
Formerly known as Spinlister, this interesting venture is exclusively meant for people who want to rent a bicycle.
Lyft is not a taxi booking service like Uber. Rather, it’s a ride sharing service. The service providers are not drivers, but regular people who just happen to have the same destination as that of the seeker. Or maybe the seeker’s destination is on the way of the car owner’s.
Yes, Lyft is a marketplace, and no, they don’t charge you anything. They do accept “donations” and that keeps Zimride, the parent company, up and running.
With kennels and dog hostels charging a lot of money to keep your pampered pooch with them while you are going somewhere, DogVacay came as a sigh of relief for all the dog lovers. There are other portals like DogVacay that connect a service seeker with a provider, pay for the service. And just like DogVacay, these pet care sites takes the cut. All that without having to build a kennel or renting one.
Learn more about of pet care marketplace features.
A P2P network that lets you lend money!
Borrowing money from Lending Club is cheaper than credit cards, while investors get better interest rates than their typical savings account. How do they make money? Simple, borrowers need to pay an initiation fee, while investors pay a service fee.
SideCar is a ride sharing startup that’s quite similar to Lyft. As for now, the app is focused on the populace of San Francisco and Seattle. And just like Lyft, they don’t charge a fee, and Drivers do accept donations.
A P2P marketplace, Zaarly focusses on people selling their services through the “Store” created in the marketplace. From homemade pies to home repair, you can find all on Zaarly.
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Getaround is an asset light business that lets people rent/borrow a car from other people. If a car owner is going out of town, Getaround also takes their car, cleans it up, rents it to people and returns it in the same condition as they left it.
With a million dollar insurance from Berkshire Hathaway, Getaround turns out to be a safe bet for car lenders and borrowers alike.
Pros and Cons:
The primary advantage of an asset light business model is its scalability. Given the fact that the investment made on the startup and operations is less in comparison to the profit harvested.
Growth proportion and prospects are higher in the case of the asset light business model. As more partners keep adding to the network, and starting a service in a new location is as easy as a click of a button, business expansion is not difficult.
However, there is a downside to this model. If the outsourcing business fails, operations suffer a massive blow. So, it becomes necessary to do a thorough research and enough brainstorming before deciding which service provider you should opt for.
Any and every business model has its own set of specific pros and cons, and it is important for all the aspiring entrepreneurs to make sure they take each and every factor into account before beginning such a venture.
That being said, nobody can ignore the fact that the asset light business model is enjoying an increasing popularity. And considering its global adaptability and scalability, and the ever increasing usage of internet, we can say the flaws are easily workable.
Technology will always evolve; that’s the way it is, and that’s how it should be. Asset light business model thrives on technology, and so should you.