Business models are easier to understand aspects of a company’s operations, and how they earn profit. Business models can range from very simple to very complex, but all of them share one thing: they’re all different. In this blog, we will discuss how business models affect companies — including startups and big corporations alike.
What is a business model?
“Business model” is a broad term, so to truly understand what one is, it’s important to know why they matter. You might be familiar with the business models of some of the biggest companies in the world, but let’s take a moment to dig deeper into this concept and see how it can help you grow your business.
A business model is a company’s plan for generating revenue and making a profit. It explains what products or services the business plans to sell, to which customers, at what price. It identifies the products or services that will generate the most profit for the company. It also describes how the company will reach its customers and deliver products or services to them.
Why is it important to understand?
A business model is sometimes referred to as a firm’s “theory of the business” — in other words, it represents what a company believes will allow it to succeed. When executed well, it is the engine through which a company generates revenue and profits. A business model should enable a company to define its strategy and help determine if that strategy is financially viable.
In today’s competitive environment, companies need to innovate their business models so they can compete effectively with rivals on multiple fronts. The traditional view of the reason for success was that good products and services are enough for success in the market. In recent years, however, companies like Apple have demonstrated that good products alone are not sufficient; it is equally important to figure out how you will make money by offering those goods or services.
Use the business model canvas
The Business Model Canvas is a simple, visual, 9-block business model template that scaffolds the building and testing of new assumptions about your business model to improve company performance.
It’s a great way to:
• Organize your current business model
• Test new assumptions about your business model
• Analyze the structure of other businesses’ models
The canvas is structured around nine building blocks: value proposition, customer segments, distribution channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.
It’s clear that having a solid business model—or at least one that works for you—is essential to the success of any company from a large corporation to a small local business. Without it, your company is likely only treading water until something awful happens, like running out of money or losing valuable employees. Naturally, the right business model will look different depending on your industry and goals, but having a vision in mind will help you build a strong business model that makes your business successful.
Why not take our FREE Startup Scorecard
This Scorecard has been designed to show entrepreneurs, startups and small businesses their blind spots and provide instant, actionable steps on how to improve