9 business models for billion-dollar startups
Some startups become so successful they’re worth billions of dollars – these are called "unicorns."
What makes them special isn’t just the new products they create but the way they build their businesses. They choose business models that are designed to grow quickly and keep working well as the company gets bigger.
If you look at successful companies, you’ll notice a pattern: they don’t always try to create something completely new when it comes to how they make money. Instead, they use business models that have worked for others, adapting them to their own ideas.
Many of the world’s most valuable startup – based on data from Y Combinator top 100 funded companies – use nine specific types of business models. These models are proven to help companies grow fast and succeed.
Here's what you need to know about each model so you can use it for your startup.
1. SaaS (Software as a Service)
SaaS (Software as a Service) is a way of selling software where customers pay for access on a subscription basis, usually monthly or yearly. Instead of buying the software outright, they pay to use it over time, which makes it more affordable and accessible.
SaaS is powerful because it creates recurring revenue. This means companies (like Salesforce, Microsoft, and Adobe) can predict their income each month. It’s a stable and reliable way to grow a business.
However, the real magic lies in how SaaS companies make the most of this model. They aim to keep customers for as long as possible (this is called reducing "churn"), as long-term customers become more profitable over time. This is especially true if they upgrade or buy more services.
With a SaaS company, you should track:
Monthly Recurring Revenue or Annual Recurring Revenue: These measure how much predictable income the company earns. Investors love these because they show stability and growth potential.
Churn Rate: This tracks how many customers stop subscribing. Lower churn means better business.
Net Revenue Retention: This checks how much money the company keeps after accounting for lost customers and any extra income from upgrades. It’s a strong indicator of a healthy business.
SaaS works as a model because it’s simple and convenient. Customers only pay for what they need (including updates and support), and businesses get a steady income. It’s a win-win model that’s driving the success of many tech giants.
2. Transactional
A transactional business acts as a middleman, helping people or businesses complete payments. For every transaction made through their platform, the company takes a small cut. Examples include companies like PayPal, Stripe, and Square.
These businesses grow by handling more transactions. The more money that moves through their platform, the more they earn.
Trust is the backbone of this model. Once customers feel confident using a platform, they stick with it, creating repeat business and steady revenue.
As transactional model startup, the key metrics to track include:
Gross Transaction Value: This is the total value of all transactions coming through the platform, a sign of how big the company is.
Net Revenue: This is the company’s actual earnings after taking a percentage of those transactions.
User Retention: It’s essential to keep users coming back, as regular customers mean stable, long-term growth. This metric tracks that.
The transactional model is incredibly scalable. As transaction numbers grow, revenue grows automatically. There’s no need to produce physical goods or expand a sales team.
What’s more, the model benefits from a “flywheel effect” where happy customers lead to more users, which leads to more transactions, and so on. Over time, trust becomes the biggest advantage, locking in loyal users who don’t want to switch platforms.
3. Marketplaces
Marketplaces, like Uber, Airbnb, and Etsy, connect buyers and sellers and take a fee for making those connections. They can cater to people (like Airbnb for travellers and hosts) or businesses (like B2B wholesale platforms).
Their biggest challenge – and opportunity – is solving the "chicken-and-egg" problem: building both supply (sellers) and demand (buyers) at the same time.
The magic of marketplaces lies in network effects. As more buyers join, more sellers are attracted, creating a cycle of growth. Once the marketplace reaches a critical size, it can grow almost automatically.
Here's how you can track your success:
Gross Merchandise Value: The total value of goods or services sold through the platform. This shows the scale of the marketplace.
Take Rate: The percentage of Gross Merchandise Value that the marketplace keeps as revenue.
Growth Rate and User Retention: These indicate how quickly the marketplace is expanding and whether users return to transact again.
Marketplaces are hard to get off the ground, but once they’re established, they become powerful and defensible.
Their success depends on balancing supply and demand. If one side grows too quickly, the experience may suffer (e.g., too many sellers but not enough buyers).
What makes marketplaces even more appealing is their scalability. With low operating costs, they can grow quickly and generate significant value. Established marketplaces are hard to disrupt because of their built-in buyer and seller networks, giving them a competitive edge.
4. Subscription
Subscription models, like Netflix, Spotify, or Dollar Shave Club, charge customers a recurring monthly or annual fee for access to a product or service. Consumers enjoy the predictability and convenience, while businesses thrive on stable and recurring revenue.
While subscriptions create predictable income, keeping customers subscribed long-term is the real test. Once the initial excitement fades, businesses must consistently provide value to justify the ongoing cost.
Some important numbers for you to track:
Monthly Recurring Revenue or Annual Recurring Revenue: These show how much predictable revenue the company generates.
Churn Rate: Tracking and reducing how many customers cancel their subscriptions is essential for sustainable growth.
Customer Acquisition Cost vs. Lifetime Value: This balance determines profitability. If acquiring customers is too expensive compared to the revenue they generate over their lifetime, the model becomes unsustainable.
Subscriptions appeal to consumers because they’re affordable, predictable, and convenient. For businesses, the recurring revenue provides financial stability and enables better planning for growth.
The secret to success is having low churn rates by constantly delivering value, whether through fresh content, superior service, or innovative products. Done right, subscriptions build long-term customer relationships and generate consistent profits.
5. Enterprise
Enterprise businesses sell to other businesses (B2B), focusing on large contracts with big companies. These contracts can be worth hundreds of thousands – or even millions – of dollars annually. Examples include Slack, Salesforce, Zoom and Australia's own success story Atlassian.
The sales process is challenging. It often involves: long sales cycles, multiple decision-makers, and pilot programs to prove the value of the product or service. While it takes time and effort to close deals, the rewards are significant: high-revenue, high-margin contracts that provide long-term stability.
Some of the best ways to track the success of your enterprise model include:
Bookings: The total value of signed contracts – essentially the company’s sales.
Annual Contract Value: The average yearly revenue a business earns from each customer contract.
Sales Pipeline: Tracks the progression of potential deals, helping forecast revenue and plan for growth.
Although enterprise startups take longer to get off the ground due to the complexity of the sales process, they become very stable once established.
Big contracts often include long-term commitments, and switching to another provider can be costly and time-consuming for customers, making them more likely to stick around.
To succeed, enterprise businesses must navigate complex organisational structures, build trust, and clearly show the return on investment (ROI) their solution provides.
When done right, this model can generate stable, high-margin revenue streams that are difficult for competitors to disrupt.
6. Usage-Based
In a usage-based business model, customers are charged based on how much they use a service. It’s commonly seen in cloud services and infrastructure companies like AWS and Twilio. For example, a business might pay AWS more as their data storage or computing needs grow.
This model is incredibly flexible and scalable. Customers love it because they only pay for what they need, and businesses benefit because the more their customers succeed and grow, the more they’ll use the service—and the more revenue they generate.
Two key numbers to track for a usage based startup are:
Revenue Retention: Tracks how much revenue comes from existing customers as their usage increases over time.
Gross Margin: As usage grows, so do costs, so it’s critical to keep gross margins (the money you keep after covering costs) healthy to stay profitable.
This model aligns the success of the customer with the success of the business. As customers grow and use the service more, businesses see natural revenue growth without needing constant upselling or contract renegotiation.
Combined with strong customer retention, usage-based pricing can create a powerful engine for sustainable growth.
7. E-commerce
E-commerce businesses sell products directly to customers online, either by owning inventory or partnering with manufacturers. Examples include Amazon, Warby Parker, and Shopify. Unlike marketplaces, e-commerce businesses control the inventory, allowing them to manage profit margins and the customer experience.
E-commerce is all about scaling sales while maintaining strong profit margins. Success depends on how well a company can attract customers, manage logistics, and deliver a great shopping experience.
Numbers worth tracking in e-commerce include:
Revenue Growth: Tracks total sales over a specific period, a sign of how well the business is growing.
Gross Margin: Measures profit after subtracting the cost of goods sold. It’s critical for tracking profitability.
Customer Acquisition Cost vs. Lifetime Value: Tracking this helps keep the cost of gaining new customers lower than the value they bring over their lifetime.
E-commerce is attractive because it scales well with demand, offering global reach and operational flexibility. However, competition is intense, and companies must excel at logistics, supply chain management, and customer acquisition.
The best e-commerce businesses invest heavily in their brand and customer experience. This creates loyal customers who are more likely to return, boosting profitability and sustaining growth over the long term.
8. Advertising
Advertising models are the foundation of companies like Google and Facebook.
These platforms provide free services to users while earning money by selling advertising space to businesses. They use their large user bases and engagement levels to attract advertisers, who pay for access to targeted audiences.
The key to success in advertising is scale and engagement. The more users a platform has—and the more time they spend on it—the more valuable it becomes to advertisers.
For advertising models, it's worth watching:
Daily Monthly Active Users and Monthly Active Users: Tracks how many users are engaging with the platform. High engagement leads to better ad performance and more revenue.
Average Revenue Per User: Measures how much revenue is earned per user, showing how well the platform is monetising its audience.
Advertising thrives on large audiences and high engagement. As platforms grow, they can charge more for ads because advertisers value access to engaged, targeted users.
The biggest challenge for ad-based businesses is balancing revenue with user experience. Too many ads can drive users away, so companies must find the right balance to keep users engaged while generating revenue. Platforms that can engage users while offering advertisers strong ROI build highly profitable businesses.
9. Moonshots / Deep Tech
A moonshot startup is all in on tackling bold, ambitious goals that seem nearly impossible but, if achieved, could change the world. Think about missions like self-driving cars or curing diseases—it’s high-risk, high-reward work.
Deep Tech startups, on the other hand, focus on how to achieve these big ideas, using advanced technology and scientific breakthroughs. Examples include artificial intelligence, quantum computing, and biotech innovations.
Companies like SpaceX or Stone & Chalk member Quantum Brilliance take on massive technical challenges. They aim to create entirely new markets, but their journey often involves long development timelines and significant upfront investment.
In these types of companies, you should track:
Milestones: These are the critical development steps that show progress and help reduce risk.
Letters of Intent: Early agreements from potential customers or partners show market interest and help attract more funding.
These startups may seem risky, but when they succeed, they redefine industries and create entirely new markets. Their breakthroughs often give them a competitive edge (a "moat") that’s hard for others to replicate.
The challenge is balancing technical progress with securing enough funding to keep moving forward during long development cycles. But for those who pull it off, the rewards – both financially and in terms of impact – are immense.
Final thoughts
The journey to building a billion-dollar startup isn’t necessarily about creating a groundbreaking invention. Instead, it often comes down to picking the right business model and executing it exceptionally well.
Models like SaaS, marketplaces, and transactional platforms dominate because they offer a combination of recurring revenue, scalability, and defensibility. This is why you rarely see models like consulting or affiliate marketing producing unicorns – they lack these critical ingredients.
Unicorn startups succeed because they master these dynamics while delivering a product or service that customers genuinely love. The formula is simple: grow quickly, generate predictable income, and build a moat that protects the business from competitors.
If you’re building a startup, remember: it’s not just about the product. The business model you choose can be the difference between staying small or scaling to a billion-dollar valuation. The right model might just unlock your startup’s true potential.
