What is a business model?

Summary: What is a business model? This article explains the importance of a business model and learn how can a business model canvas guide you with your business planning.

A business model describes how your business plans to operate and to generate revenue and profits. It details your long-term strategy and day-to-day operations.

As you construct your business model, the process becomes a business strategy as you identify elements that can increase your success.

Back in the early days, business was a lot simpler; a basic business model can be applied to many businesses. The simple model involves a producer making something and selling it directly to customers at a profit. Then, you build up a good reputation over time to ensure consistent revenue and proft.

In today’s time, business has changed significantly. Perhaps, you are facing global competitors. Your audience is widely dispersed. Many instances are making it increasingly difficult to reach in a cost effective manner. A lot of creativity is needed to get your target market’s attention.

Businesses today require more than a basic business model. As a result, business models have been innovated and numerous alternative strategies have developed to market your product to your audience.

If you are an entrepreneur starting a new business, it is very important that you consider a number of different business models. Business can operate with hybrid business models. It is possible to generate revenues from a range of different sources at various stages of the product’s lifecycle. For instance, newspapers make their money from a mix of advertising revenue and the price they obtain for the newspaper.

Without a business model, a business cannot exist. The ultimate fast-food leading company, McDonald’s has great burgers but it was the business model that got the company to the global stage.

Business model canvas

Image: Pinterest

The Business Model Canvas is developed by Alexander Osterwalder. The canvas is a visual chart that provides a holistic view of the business.

It helps with strategic management and can be deemed as a startup template. You can use the canvas to design and pivot your business model.

This template should be applicable to new and old businesses alike, across industries.

The Business Model Canvas categorizes the processes and activities into nine categories or better known as blocks. These categories represent the four major aspects of a business: customers, offer, infrastructure and viability. All nine building blocks are listed and explained below:

Key Partners

List down the people (for e.g. partners and suppliers) you need to rely on.

Key Activities

Think about the activities you need to perform well and write them down in your business model.

Key Resources
List down the resources your need for your business

Value Proposition

What are you offering to your targeted market? 

Customer Segments

Consider what is your targeted market, consumers and users.

Customer Relationships

What kind of relationships are you establishing with each segment?

Channels

This is where you think on how to reach to your consumers

Cost Structure

Think about the element that will drive your costs.

Revenue Streams

What are customers really willing to pay for?

 

Image: Startup Super School

 Next article: Types of business models

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