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Business

Low Investment, Big Business

Asset Light Model

The business world has new trends. People are more turning to start ups than a job. Specially in last decade we have seen tremendous changes in business. Technology is at the boost and youngsters are also finding opportunities in opening new start ups. Basically it’s about creating jobs and get rid of your boss. Government is also supporting budding entrepreneurs who are having good ideas and they are backed up by investment companies finally to support their financial needs.

While many of the youngsters are going for start ups, we have some good ideas which can help them not only maintain a sustainable model but also move towards a successful venture. Let’s explore ‘Low Investment and Big Business’ which is also called as ‘Asset Light Model’…

So to understand this, let’s take an example of a kite. A flying kite which is very low in weight can fly high only when it is free and is light. If we have a weight attached to it, this can’t even fly, what to speak of fly high. Here are some examples of business following this model.

1. WhatsApp, they don’t have to have keep all the data in their servers and that’s how reducing the cost.
They have only 200 employees working to manage an application used by millions across the globe.

2. Ola, Uber. They don’t have their own taxis. They are just facilitating the cab owner and cab riders.

3. OYO. They don’t own any hotel. They just provide their services and sometimes they take them on lease.

4. Alibaba. World’s biggest retail business but they have zero inventory of their own.

5. Apple. Apple is one of the premium mobile manufacturers but they are not making their own mobile. Foxconn is actually manufacturing for them.

So if we see above examples, the companies are not making capital expenditure (CAPEX) but they are making operational expenditure (OPEX). That means they are not putting money on major expenditures involved in their business but they are mainly acting as a bridge between two parties. Of course, there are companies which are operating on CAPEX also but we don’t have any competition with them and nor do we want to follow their footsteps at the risk of capital investment. CAPEX is suitable for big players who are already in the field and has good back up.

Benefits of Asset Light Model

1. High return on asset.

We tend to invest less and get high returns in this model.

2. Controlled profit fluctuation.

Earlier we used to have crows as carriers for exchanging the letters. Soon, it was replaced by messengers and postman. Further by telegram followed by courier and then we had email, social media, WhatsApp coming in line. By seeing this, we can understand there may be lot of fluctuations in profit because of change in current trends but if you are using asset light model, you will not be at any loss.

3. Scalability driven cost.

If we have used asset light model then we don’t have to think about costs involved in scaling up our business.

Methods of Asset Light Model

1. Franchising

This helps both. Franchiser and franchisee. Franchiser doesn’t have to make capital investment and for franchisee also lot of cost saving in terms of sales marketing, proprietary tools, training/learning, development, operational expertise intelligence.

Franchiser gives manpower training, corporate strategy, sales, marketing and branding support. Franchisee gets trademark, system, signage and software at immediate basis. Franchiser also gets licensing fee and monthly royalty.

2. Outsourcing

We can shift our tasks to external party or vendor and thereby reducing the cost.

3. Asset sharing

Like how OYO is sharing the hotels of others, a business can share the assets of others making a win-win strategy for both parties.

4. Pay per use

We can have services given by other vendors on pay per use basis so that we don’t have to invest spare amount. Like if we want to open a small office in a city then we don’t have to open a separate office in that city instead we can use co-working space.

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