Asset Light Business Model
It is common knowledge that the worlds largest cab service Uber does not own any vehicles. Similarly, one of the worlds largest boarding and lodging solution providers, Airbnb does not own any hotels either!
The largest and the most profitable companies of the world such as Microsoft, Google, etc. do not own any tangible assets.
It is important to note that this did not happen by coincidence. All this has happened because of a concerted effort of entrepreneurs to focus more on asset-light business models.
Asset-light business models have become a buzzword today. It is almost impossible for any new enterprise to get funded unless it classifies itself as an asset-light business model.
In this article, we will closely examine what an asset-light business model means and will also look at some of its salient features.
What is an Asset Light Business Model?
An asset-light business model, as the name suggests, is a business model where the company focuses on reducing the amount of capital that is invested in assets.
In financial terms, this would mean that the size of revenue generated by the company would be very high as compared to the amount of capital tied up in assets.
Finance enthusiasts will say that these companies have a very high asset turnover ratio.
Entrepreneurs carefully study the value chain of a business in order to identify the key functions which need to be kept in the house. Any other functions which are not mission-critical are outsourced to vendors in order to increase efficiencies.
For instance, in the case of Nike, manufacturing is generally outsourced. The company decides to focus on marketing.
On the other hand, in companies like Uber, the tech function is given a very high priority. Asset light business models are a smart way to deploy business capital to build a competitive advantage and then use that competitive advantage to run all non-critical functions efficiently.
Salient Features of the Model
Asset light business models are not really new. They have been in existence for many years. However, with the resurgence of tech-based businesses, asset-light business models have come to the forefront once again.
Here are some of the salient features of asset-light business models which have been mentioned below:
Asset light business models have transformed the way businesses function. These businesses are now present everywhere from grocery shopping to real estate brokers.
Asset light business models are able to utilize the existing setup that small and medium businesses already have in order to provide the last mile reach to the customers.
These companies are highly focused on their competitive advantage which is what makes them highly successful.
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