---
title: "Common business models of startups"
subject: "Entrepreneurship Development"
chapter: 4
key: "semester_7/entrepreneurship_development:different-business-models"
source: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/different-business-models
site: BCT Engineering
---

# Common business models of startups

Entrepreneurship Development · Chapter 4: Business Model

- Asked in: year not given, 5 marks
- Video: [10 Business Models for Every Entrepreneur](https://www.youtube.com/watch?v=6dKIOSe2A2o) — Valuetainment
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/different-business-models
- Whole chapter: https://www.bctengineer.com/md/semester_7/entrepreneurship_development/chapter-4

## Question

Explain any four business models used by modern startups, with examples.

## Short answer

Subscription model charges recurring fees (e.g., streaming). Marketplace connects buyers and sellers for a commission (e.g., ride-hailing). Freemium gives basic free service with premium upgrades (e.g., music apps). Franchise licenses brand for a fee and royalty (e.g., fast food).

## Answer

A **business model** describes how a company creates, delivers and captures value. Four common models:

#### 1. Subscription model
Customers pay a regular fee for continuing access. It gives predictable income and high lifetime value. Example: video streaming, software-as-a-service.

#### 2. Marketplace (platform) model
The firm connects buyers and sellers and earns a commission or listing fee. It owns no stock, so it scales fast, but must solve the "chicken-and-egg" problem of attracting both sides. Example: online shopping and ride-hailing platforms.

#### 3. Freemium model
Basic service is free; advanced features cost money. Free users give scale and word of mouth; a small share (often 2-5%) pays. Example: music and productivity apps.

#### 4. Franchise model
The owner licenses brand and system to local operators for a fee and royalty. It grows with others' capital. Example: fast-food chains.

Other models: **razor-and-blades** (cheap device, costly refills), **pay-per-use**, **advertising-supported**, and **direct-to-consumer**.

| Model | Revenue source | Main risk |
|---|---|---|
| Subscription | Recurring fee | Customer churn |
| Marketplace | Commission | Needs both sides |
| Freemium | Premium upgrade | Low conversion |
| Franchise | Fee and royalty | Quality control |

**Answer:** Subscription, marketplace, freemium and franchise models earn through recurring fees, commission, premium upgrades and royalties respectively.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. The main risk of the subscription model is:
   A. Customer churn
   B. Needing both sides
   C. Quality control
   D. Low conversion
   Answer: A. Recurring revenue depends on keeping customers. (Key point: Subscription)

2. The 'chicken-and-egg' problem refers to:
   A. Pricing eggs
   B. Attracting both buyers and sellers
   C. Hiring staff
   D. Raising capital
   Answer: B. A marketplace needs both sides to be useful. (Key point: Marketplace)

3. In freemium, typically what share pays?
   A. Everyone
   B. About 90%
   C. A small share, often 2-5%
   D. None
   Answer: C. Most users stay free. (Key point: Freemium)

4. A franchise earns through:
   A. Commission
   B. Advertising
   C. Subscription
   D. Fee and royalty from local operators
   Answer: D. Brand and system are licensed for fee and royalty. (Key point: Franchise)

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