In Patterns That Work, I compiled a short list of patterns that describe how the vast majority of businesses make money:
- Product: make a physical product, then sell and deliver it for more than it cost.
- Service: provide a useful service, then charge a fee.
- Shared Resource: create a shared resource that can be used by many people (like a gym), then charge for access.
- Subscription: offer an ongoing subscription, then charge a recurring fee.
- Insurance: write an insurance policy against some specific bad thing happening, collect premium payments up-front, then pay out claims only when the bad thing happens.
After thinking about this subject a bit more, I thought of five more common patterns…
- Resale: acquire an asset, then sell the asset to another buyer at a higher price.
- Lease: acquire an asset, then allow another person to use that asset for a certain amount of time in exchange for a fee.
- Audience Aggregation: create and distribute information that appeals to a specific set of people, then sell access to that audience (advertising, direct mail, etc.) to an interested third-party.
- Commission: sell an asset you don’t own on behalf of a third-party, then collect a percentage of the sale price as a fee.
- Dividend: purchase an ownership stake in a business, then collect a corresponding portion of that business’ profit over time as a dividend.
You can describe 99% of all businesses – past and present – using one (or more) of these core patterns. If you want to create a successful new venture, start looking for ways to do one (or more) of these things.
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Great piece of information, I just hope people read it.
The book “The Profit Zone” by Slywotzky Morrison, & Andelman was used in some executive education I took a couple of years ago, and lists a number of ways to think about how your business produces value and profit.
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