Business Model

Business Models

  • A business model is a plan that outlines how a business creates, delivers and captures value. It’s like a blueprint for how a business will operate and make money.
  • Developing a consistent business model is crucial for a business’s sustainable success.

Types of Business Models

  • Manufacturer business model: This involves creating a product from raw materials or component parts. Companies like Ford or Apple fall into this category.
  • Distributor business model: This involves sourcing completed products from suppliers and selling them to customers. Many retail businesses operate on this model.
  • Franchise business model: This involves licensing a brand and operational model to a franchisee, who pays the franchisor a fee or royalty. Systems like McDonald’s or Subway use this model.
  • E-commerce business model: This involves selling goods or services online. E-commerce businesses might sell directly to consumers or to other businesses. Examples include Amazon or eBay.
  • Subscription business model: This involves offering a product or service for a regular fee. Subscribers typically pay on a monthly or annual basis. Many software as a service (SaaS) businesses use this model.
  • Freemium business model: This involves offering a basic product or service for free, then charging for premium features or capabilities. Examples include Spotify or LinkedIn.
  • Crowdfunding business model: This involves sourcing funding for a business idea or project from a large number of people, typically via the Internet. Platforms like Kickstarter or Indiegogo facilitate this type of model.

Developing a Business Model

  • Companies start by identifying a customer need they can meet with a product or service.
  • They then devise a way to generate revenue from offering this product or service. This could involve direct sales, subscription fees, ad revenues, or a mixture of various streams.
  • The chosen business model may also include plans for distribution, such as selling via ecommerce, through physical stores, or using third-party retailers.

Importance of Business Models

  • A well-chosen business model can provide a competitive advantage. It allows a company to differentiate itself and can help attract customers, partners, and investors.
  • Remember, the cash flow projected by the business model should be enough to sustain the business. It’s important to make sure that your model is financially viable in the long run.

Changing Business Models

  • While it’s essential to have a stable business model, it’s also important to be flexible. Changes in technology, customer behaviour, or market conditions might make a business model shift necessary.
  • Successful businesses are those that can adapt their business models in response to changes in the business environment.

Evaluating Business Models

  • When analysing a company, it’s important to evaluate its business model. This can help reveal its strengths and weaknesses, as well as identify potential opportunities and threats.
  • The key to evaluating a business model is to ask: Is it built on a compelling value proposition? Does it create and deliver value in an efficient way? Does it generate sustainable profits?