5 MOST INFLUENTAL BUSINESS MODELS

business model

Henry Ford, famous for using the assembly line in his car factories, neither founded the world’s
� first car company nor invented the assembly line. Borrowing the idea originally used in the meat-pa�cking industries, Ford was able to go after a new market in his industry to great success. It goes to show that in the dog-eat-dog world of business, it’s often not as much about the product as it is about the process.
�Bu�siness strategy may not be a science, but using the right method with the right materials in the right place at the right time can create explosive results. We’ve gathered some examples of the most successful business models that have gone on to make lasting impac�ts on industry, consumers and the world at large. What’s particularly fascinating is how each of the following companies rode to success largely on the strength of their business models. Sure, McDonald’s has a great-tasting burger, but it was the business model that catapulted of the company (and ultimately the fast-food industry) to widespread popularity and renown.
�Keep in mind that the following list isn’t exhaustive and is in no particular order. Rather, the purpose of this list is to offer a smattering of some of the most interesting, influential business models and the major companies that implemented them successfully.
With that said, let’s get down to business.

 

dell
Chris Hondros/Getty ImagesWant a made-to-order computer in a week? Go to Dell.

� “A huge inventory!” You hear companies boast this on commercials, and it sounds like a great thing. However, for many businesses, inventory is a bane. Until Dell came along, a vast inventory was considered a necessary evil for computer companies, who watched as their shelves of pre-ordered parts grew outdated by the� second.
Dell adopted a process Toyota used first in the 1960s called the Just-in-Time (JIT) method. Under this process, Dell no longer had to predict the right parts to order. Instead, it almost completely eliminated inventory. At one point, this meant keeping one week worth of inventory on hand, and later as little as two hours’ worth of supplies [source: Holzner].
The JIT method combined with Dell’s direct-to-consumer process made for a dynamite business model. In the end, Dell was able to cut out the retail middleman and instead sell its products directly to the consumer. This cut down on costs (resulting in a competitively low price for the consumer), and it also contributed to faster service.
Customers order what they want, and after they pay, Dell orders the necessary parts from suppliers and builds the custom PC. Dell can wait up to a month before paying its suppliers, so the company earns interest on customer payments in the meantime.
Dell raised consumer expectations for good, fast service in the PC industry — and companies such as Apple are following suit. The Dell business model paved the way by streamlining and increasing efficiency on the supplier end [source: Breen].

amazon
TORU YAMANAKA/AFP/Getty Images
Why pore through bookstores for an unpopular title when a click can get it delivered to your door — and for a competitive price to boot? Jeff Bezos knew his website would pay off.

� In the mid-1990s, entrepreneurs were scrambling to find ways to take a�dvan�tage of a tool emerging from infancy and bound for great things: the Internet. Although it was thought to be� a considerable gamble at the time, Jeff Bezos’s plan was one of the few that ultimately worked. His business model proved the axiom “slow and steady wins the race” — even on the information superhighway.
Challenging brick-and-mortar bookstores, Bezos started Amazon, an Internet company that sold a wider collection of books than stores could carry. Bezos bought warehouses to hold a vast inventory so Amazon could offer direct-to-consumer service. The catch? He and his investors had to postpone seeing profits [source: Roncal]. Bezos allowed readers to criticize products through reader reviews, and he built a faithful community of users. And like Dell, Amazon earned interest on immediate customer payments before paying its suppliers.
Although it didn’t see profits until the early 2000s, Amazon survived the burst of the dot-com bubble. It began offering products ranging from CDs and electronics to apparel. Amazon also fueled profits by acting as a portal for third-party affiliates, who handled the warehousing while the company took a share.
�Putting off profits for the sake of growth earned Bezos plenty of critics, but his model ultimately paid off. By creating a business that sought customer convenience first and foremost, Bezos defied the odds and came out swinging.

mcdonalds
Scott Olson/Getty Images
Although there’s no denying the great taste of its fries, McDonald’s built its empire on real estate.

� Two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame-seed bun: That’s good food. But speed, quality, consistency and real estate? That makes for a great business model. When the McDonald brothers had the brilliant idea to incorporate the assembly line into the restaurant business, they c�reated fast food — and it was a match made in business heaven.
However, it wasn’t until a salesman named Ray Kroc came along that this new industry discovered its full potential. By partnering with the brothers and eventually taking over the business, Kroc started the McDonald’s Corporation, a company dedicated to franchising the restaurant. Franchising wasn’t a radical idea: McDonald’s and other restaurants had been doing it before Kroc came along. But Kroc took a different slant on the concept.
Kroc kept strict control over his franchises, making sure that every restaurant across the country upheld his business practices and standards of cleanliness. His business methods turned off large investors, and the cost of leasing land made it hard for Kroc to turn a profit. So he adopted a policy of subleasing his properties to the franchisee. Real estate provided the cash flow Kroc needed for more down payments on additional land for his growing franchises.
As a landlord, McDonald’s Corporation has built the largest restaurant chain in the world, and its business model inspired enough imitators to launch the fast food industry.

microsoft
Justin Sullivan/Getty Images
Microsoft dominated software during the rise of the computer age.�

� Whether you l�ove it or hate it, you can’t deny that Microsoft has had a sweeping impact. At the emergence of the computer age, the company got a head start by developing the operating system (OS) for IBM’s personal computer (PC) in 1981. Since then, Microsoft’s ability to adapt to new developments and challenges has kept it at the top of the industry.
In the race to develop software for the non-techie community, Microsoft used its OS to dominate the market — specifically, its Office suite of applications for word processing (Microsoft Word) and spreadsheets (Microsoft Excel). What’s more, any other company that wants to develop software that’s compatible with the OS has to pay royalties (licensing fees).
This market dominance allowed Microsoft to get in on the rising Internet phenomenon in the 1990s. Though Microsoft was a relative latecomer on the scene, the company developed a Web browser, Internet Explorer (IE), and pitted it against Netscape, which was considered a superior browser [source: Marks]. But by attaching IE to the rest of its successful applications in the Office suite, Microsoft gained a stronghold in the information superhighway and beat out its competition.
In “Business Darwinism,” author Eric Marks explains that Microsoft’s business model is strengthened by the company’s forays into other markets [source: Marks]. And as Microsoft spread its software influence, the company outpaced competitors in other arenas, which today includes not only operating systems and Internet browsers but also gaming.


wal-mart
Jeff Zelevansky/Getty Images
Sam Walton was able to take an emerging idea and apply it to a new market.

�Like Henry Ford, Sam Walton was a businessman who recognized a good idea when he saw it and, more importantly, knew how to apply it in a way that would have the biggest impact. As a result, the company he founded, Wal-Mart, is now the largest retailer in the world.

The advent of supermarkets in the 1930s proved to the business world that cutting costs to deliver low prices can turn a profit. Retailers brought this logic over to general stores soon afterward. By sparing the frills and getting back to the bare necessities, stores could save money on presentation. They also saved money by cutting back on personnel, which meant less personal service. But saving money in these areas meant the store could charge competitively low prices, which drew customers in despite the bare-bones setup.

Walton saw that general stores were turning a good profit, but he found a way to perfect the business model. Instead of catering to heavily populated areas, which conventional wisdom would advise, Walton started building stores in rural areas. Specifically, he built stores in towns with populations of 5,000 to 25,000 people [source: Magretta]. Customers preferred to shop at these stores rather than drive to the nearest city. Because Walton was the first to go after these small markets, he had a significant advantage over any competitor that dared enter that terrain afterward. Today, Wal-Mart wields so much power that a company’s survival may depend on landing a deal with the retailer.

Despite their successes, none of these companies is infallible. Next, you can browse lists of embarrassing failures as well as tips for managing your own finances.