There was a time where the fortune of the 1% were made in asset-heavy industries such as construction, oil, and mining. Capital and resources were owned, and whole businesses vertically integrated. But not anymore. Whether it is Airbnb or Uber, asset-light models based on rent rather than ownership, are the new formula for success.
For example, top hotel chains such as The Taj Hotels now do not actually own their properties ( which often remain under the ownership of private families- royals, establishment families, etc) but operate them as a part of a franchise or licensing deal. This trend is rising even in traditionally asset-heavy businesses such as electronics with Apple not owning semiconductor factories of its own but rather outsourcing it to Qualcomm in Taiwan.
There are several benefits to an asset-light model:
- Higher profits: BCG analysis showed that even after accounting for factors such as rent, on average, asset-light businesses tended to generate a higher rate of return than their asset-heavy counterparts, across 24 industry sectors.
- Lesser volatility: Businesses with high fixed costs rely heavily on revenues, which are often highly volatile as they are tied to sales. This makes asset-heavy businesses much riskier and unstable compared to their asset lighter counterparts. This affords more free cash flow and financial freedom to make investment decisions.
- Avoiding diseconomies of scale: Franchising and licensing ensures that the business remains “lean” and avoids the difficulties in coordination and communication that significantly increase costs in a large vertically integrated conglomerate.
- Franchise versus ownership: Asset light businesses often operate branches as a franchise rather than directly owning them. This means that individual branch staff feels ownership for that respective branch, rather than merely feeling like employees, ensuring that they will be highly motivated and productive at work.
If you want to take a step towards making your business asset-light, begin by collaborating with freelancers! Working with freelancers gives you the flexibility and customisation you desire for your business. Often the problem with big agencies is their fixed procedures that might not be compatible with your business. Freelancers are cost-effective since they are not as expensive as your traditional agencies or employees and also bring in a fresh perspective that could be crucial in setting you apart from your competitors. They are cost-effective and work based on the guidelines you give them. There are several platforms that can help you hire freelancers such as Upwork, Fiverr, Toptal (tech freelancers), Freelancer, 99designs (for design, logo work), College recruiters (for smaller-scale work) and many other such platforms.
The key to tap into the asset-light model industry is in understanding the art of outsourcing. Most often, entrepreneurs are caught up in doing everything on their own because they believe ‘they know it best’. As true as that could be, it is detrimental to the growth of their business. Businesses can flourish when their leader focuses on the big picture and the scalability of the business rather than worrying about their logo’s font.
And this is the mindset change that entrepreneurs need in order to take full advantage of the asset-light model.
With some strategic planning and supply chain management, you too can implement this lucrative model in your business. Ecom Consulting’s Zero Pocket Model is our unique product that takes advantage of the gig economy and ensures positive cash flow from day one as there are no fixed costs so that you can devote your efforts to expanding your business, risk- free. Sign up for our course or private consulting to get an insight into how you can start a flourishing international business based on the capital-light business from the comfort of your home!
Written by Bhavi Shah