What is a Business Model
Your business model is the blueprint for your business and works in conjunction with your value proposition. While your value proposition defines “what” your business creates, your business model describes “how” you create your value proposition. The products or services you offer are the results of a system of activities and relationships that take resources and technology as inputs, and transform them into economic value through customers and markets. Your business model describes these activities and relationships. A business model basically captures:
- Everything related to creating the value proposition.
- Everything related to selling the product, from reaching the right customers to distributing the product.
- Everything related to how customers will pay and your company will make money.
Each one of these areas involves strategic choices between different options regarding required internal resources, key partnerships, market channels, types of revenue, your profit formula, and how they all interact to create a sustainable profitable business. Thus the business model embodies your business strategy.
The business model is similar to a business plan in its makeup and content and provides the required foundation for the business plan. The business model captures all of the strategic choices made in terms of the elements required to make the business work successfully. The business plan then builds upon this foundation by adding the details needed to execute the plan such as staffing levels, organization structure, and financial proforma, as required to demonstrate the feasibility of the business model.