Your business model describes what your company does and how it makes money doing it. Companies tailor their business models to their specific needs and circumstances, so naturally, each firm's model is different. Even so, researchers who study what makes businesses tick have identified four broad categories that fit most models. Those categories are creators, distributors, landlords and brokers.
The four basic business models were first described in a landmark study from the Sloan School of Management. Researchers there recognized that while companies can and do blend elements of different models, every company has one model that it most closely identifies with. Say you own a shoe store. You might repair shoes, too. Maybe you rent your spare storage space to another company. However, your business is selling shoes. So you're a distributor. Thinking in terms of creators, distributors, landlords and brokers can help you keep your focus on your core mission, understand who your competition is and devise growth strategies for the future.
Creators are companies that make things and sell them to their customers. They buy raw materials, ingredients or components from suppliers and then assemble them into finished products. Manufacturers are obviously creators, but so are small business owners such as farmers, restaurant owners and artists. An important consideration with creators, as defined by the Sloan researchers, is that when they sell something, they sell all rights to it. The creator doesn't tell customers how they can and can't use it. In the researchers’ model, if they retain control over how the product can be used, they’re really landlords.
Distributors buy things from suppliers and then turn around and sell them to customers. Just about all retail store owners are distributors, as are the wholesalers they buy from. A defining characteristic of the distributor model is that distributors do not make significant changes to a product between the time they buy it and the time they sell it. They might add value through packaging, marketing or servicing the product, but not by modifying the product itself. For example, a kid who buys lemonade at a store and then sells it at a lemonade stand is a distributor — all he does is assume temporary ownership of the lemonade and market it before passing it along. By contrast, a kid who buys lemons, sugar and ice from a store, makes lemonade with them and then sells the lemonade at a stand is a creator, not a distributor. He uses the materials he bought to make a different product.
A landlord makes money by renting the use of something to someone else. Property owners who rent to tenants are obviously landlords, but so are taxi drivers and theater owners — they rent a seat for a ride or a show to their customers. Lenders are landlords, too; they let people “rent” their money for a fee. Service businesses qualify as landlords. When someone hires a lawyer or consults with a doctor, he's effectively renting that person’s expertise. An important distinction with landlords is that they do not transfer ownership of any assets. A rental apartment always belongs to the landlord, a taxi seat always belongs to the cab company, and the doctor’s medical knowledge remains with the doctor.
Brokers make transactions possible by bringing together buyers and sellers. The main distinction between brokers and distributors comes down to ownership. Distributors take ownership of things and make money by selling them for more than they paid to buy them. Brokers, by contrast, make money by arranging sales and charging for their services. The item being sold goes directly from the seller to the buyer. Real estate agents, independent insurance agents, staffing agencies, classified ad services and auctioneers are all examples of brokers.
With over 20 years of professional writing and editing experience, Cam Merritt specializes in writing about business and personal finance, health care and tax law. He previously worked at publications including The Boston Globe, The Des Moines Register and USA Today.
All content provided herein is for educational purposes only. It is provided “as is” and neither the author nor Office Depot, Inc. warrant the accuracy of the information provided, nor do they assume any responsibility for errors, omissions or contrary interpretation of the subject matter herein.
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