What is a Business Model?

Once you have a general idea of what your new business is going to be, you will need to further develop that idea into a viable business model.

So what is a business model?

Simply put, a business model describes what problem a business intends to solve or the value that will be provided for customers and how it will do so profitably. In the first instance, a business model is a clear concise statement of what your business intends to do.

But it is much more than that.

Your business model defines your business. It describes what your business will provide (goods and or services), and it specifies who your customers will be and why they buy from you. It also outlines the methods you intend to use to sell to those customers.

In your enthusiasm to get started you may be tempted to skip this step - DON'T - business models matter!.

By working your way through the process of developing your business model, you will gain a far better understanding of of what you are trying to achieve and how to go about it!

So, how do you go about developing a business model?

As defined previously, a business model describes what problem a business intends to solve (the value provided for customers) and how it does so profitably.

Osterwalder, Pigneur and Tucci (2005, p.4) offer the following definition of a business model:

"A business model is a conceptual tool that contains a big set of elements and their relationships and allows expressing the business logic of a specific firm.

It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams."

Developing a comprehensive business model is an iterative process, where you start with a basic idea, which is clarified, redefined and expanded as you do the work to fully investigate the potential of your model.

You generally start the investigation of your business idea with a relatively simple description of your business model, which should include:

• What you plan to sell,
• Who you will sell it to, and
• How and where you will sell it.

“My business sells coaching sessions to middle level managers in the private sector looking to improve their skills to enable them to advance their careers.

The sessions will be delivered once a week for a twelve week period using the telephone, and will be supplemented with email communication between sessions on a just-in-time basis.”

Types of Business Models

There are a great number of different business models that you can choose from, you are really only limited by your own imagination!

The variations in business models center around the three dot points above, what you are selling - hards good, information or services, who you intend to sell it to - the public or other businesses, and how you intend to sell it - online or offline, in a retail outlet, party plan, through network marketing etc.

Your business model is really just a starting point. Once you have a clear idea of what you want to do, it its time to put in a little bit of sweat and tears to evaluate the potential of your model!

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