A business model is a set of interrelated activities that create a unique order or system and define the production, distribution, supply, and cost structure by which an organization creates, delivers, and captures value. Business models are the central organizing principle of any enterprise that seeks to develop products or services for targeted customers.
Frequently, a business model is used to help define the organizational processes involved in an organization’s operation.
What Is a Business Model?
A business model describes how a firm creates, delivers, and captures value to customers and customer experiences. A business model is defined by a firm’s core activities, including its value chain, internal operations, and interactions with its environment.
The business model can be used to describe the relationship between different kinds of entities that are involved in the delivery of goods and services to consumers – most important customers, producers, business operations, business partners, business transactions, production costs, human resources, Key metrics, and intermediaries (or distributors).
The model captures the strategic logic of how value is created, captured, and delivered to customers (and other stakeholders) and how competition in this target market is shaped. It can also describe any organization in terms of the logic or practices that govern its activities.
Business models can shape an organization’s marketing and operations processes and overall business strategy. The function of the organizational structure is often founded on the business model.
A business model may incorporate digital technology, which can be a tool for innovation. A typical example is customer relationship management (CRM) software for managing customer information. Such software assists in streamlining these processes and allows for faster delivery and more effective communication with customers.
What is the Business Model Canvas (BMC)?
Alexander Osterwalder and Yves Pigneur developed Business Models Canvas. BMC was designed to support the development of business models. It is a tool that helps people visualize, understand, analyze and improve business models.
It is a visual representation of all the elements that make up a business model. These elements include actors, capabilities, content, context, economics, infrastructure, information, innovation, interaction, process, resources, structure, technology, and value proposition: (customer segment, Customer relationships, Key resources…)
How to choose the right type of business model for you?
There are many types and examples of business models: Product-based businesses, Service-based businesses, Network-based businesses, Platform-based businesses, Marketplaces, Crowdsourcing, Social enterprises, Open source software, …., with different revenue models: subscription model, freemium models…
In general, there are different approaches to choosing the right business model type for your startup:
1) Do you want to sell something directly to end-users? If yes, you should consider selling your product/service directly to end-users.
2) Do you want to provide some service to others? If yes, consider providing a service to others rather than selling a product.
3) Do you want to build a platform on top of which other companies can develop their products and services? If yes, creating a platform on top of another company’s product/service is probably not the best idea.
4) Do you want to become an intermediary between buyers and sellers? If yes, becoming an intermediary between buyers and suppliers is usually a good choice.
5) Do you want to offer access to a network of partners who have complementary skills and resources? This is probably a better option than providing direct access to consumers.
6) Do you want to develop new technologies? If yes, developing new technologies is probably a better choice than selling existing ones.
7) Do you want to create a community around your product/service? If yes, creating a community around your product or service is probably a better choice.
8) Do you want to use the Internet to reach out to potential customers? If yes, using the Internet to reach out is probably a better choice than traditional advertising methods.
9) Do you want to start a new industry? If yes, creating a new sector is probably a better choice than entering an already established one.
10) Do you want to be a pioneer? If yes, being a pioneer is probably a better choice as it gives you more freedom and flexibility.
Some organizations have a single business model, while others have multiple business models. In some cases, a company may create a new business model by changing certain aspects of its previous one (for example, launching a virtual store). Business models are also referred to as business models for short. Organizational transformation is an initiative of altering the organization’s culture, structures, and processes to “match” the business model’s vision, mission, and strategies.
How do you know if your business model will be successful?
A company that follows a multi-model approach often uses its initial business model as a base from which to develop other models. It can then work in several different markets using multiple business models and may potentially be able to get into niche market conditions where it would not have been possible under one primary model. Some examples of this include Amazon.com and Dell.
Both companies follow a multi-model approach by offering multiple services from their respective platforms, providing a solid market advantage.
Successful business models are key elements in organizational design. The business model is related to critical organizational structures and processes such as marketing and sales, customer segment, target market, Market analysis, Market analysis, and service delivery models. But it also plays a central role in the strategic direction of an organization.
This is because it determines the nature of the organization’s products or services, how it will create them, market them, distribute them and charge for them to be profitable. It may also help accountants understand how assets will be utilized or deployed.
