What is Business Model?- Understanding Components, and Examples

Have a core concept but wrap it in a full business model.

Scott D. Anthony

Explore These Innovative Business Models for Your Next Venture

A business model is a structure for how a company will generate value. Finally, it refines the potential of a business down to its essence. It answers elementary questions about the problem you are going to solve, how you will solve it & the growth opportunity within a given market. A business model describes how a business plans to make money. It explains who your customer base is & how you deliver value to them and the related details of financing.

Business Models

Business models of the future will sail the complexity of tomorrow’s world to help build social & economic systems where ingenuity, inclusion & creativity come together to help people unlock their potential & live well. Creating a business model is crucial, whether you are starting a new venture, expanding into a new market, or changing your marketing strategy. You can use a business model to seize fundamental beliefs & decisions about the opportunity in one place, setting the direction for success.

Read also: Customer-Centric Approach – The Only Way To Success

What is the Importance of Business Model for Businesses?

In many senses the possibilities of the list of business model innovations today are infinite. And with higher experimentation becoming more common, business models can iterate & evolve better than ever.  So, The main goal here is to create a specific realistic evaluation of the success of your idea that you have for the business.

A business model canvas lays out the master plan behind an investment & presents unique approaches to delivering value that have the potential to entirely disrupt industries. Moreover, Creating a business model needs deep thought & analysis. So, Company & product developers must think from the outside in, concentrating on market requirements & what is customers need. Once built, sharing your business model across the organization motivates alignment. This keeps everyone liable for what they are working on and why, as well as guiding investments of time & resources. You will be able to figure out the strengths & weaknesses of the business.

What are Characteristics of Business Model?

Behind the innovative models & techniques being engaged in many different industry settings and contexts around the world are a set of common characteristics – technology and values-led – that allow organizations of all kinds to set themselves up to bloom. Here are some characteristics that business models of the future are putting together in various combinations. These are:

1. Participatory –

An expectation of participation, over transactional consumption alone, means that organizations can rethink how they interact with customers & other stakeholders. 

2. Multi-layered-

Owns the ability to have various components come together & cooperate to create value.

3. Platform-ready–

Online platforms provide an opportunity to unbolt value through empowering individuals, building communities & benefitting from network effects.

4. Restorative–

Being able to fix, renew & repair is not only more efficient but has the potential to unlock new sources of value.

5. Data sensible-

Acknowledging the importance of data, its sensitivity & its owners’ rights, involving being portability ready, is key.

6. Open–

Openness allows for more sharing & collaboration.

7. Multi-capitalist-

Understanding that value creation through a business model is not just created by financial capital but also includes other capitals like intellectual, relational, natural, and many others.

8. Purposeful–

Causing a sense of purpose – and communicating these sincerely to customers, employees & partners – builds resilience & long-term value.

9. Potential enhancing-

Providing tools for people & places to realize their potential creates outsized returns for all.

10. Boundary-testers-

Going beyond perceived natural boundaries to create sustainable value in areas previously considered beyond an organization’s domain.

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What are Key Components of Business Model?

The business model and business model templates are not just about finishing your business plan. It’s about framing how you will generate continuing value for the customers. Where will your business idea start, how should it progress & when will you know you’ve been successful? Thus, Here are some components or steps that make a strong business model.

1. Customer Segment- 

These are the groups of people or companies that you are trying to target & sell your product or service to. Dividing your customers based on personas such as geographical area, age, gender, interests, behaviors, etc. allows you to better serve their needs, particularly by customizing the solution you are providing them.  So, There are various customer segments a business model can target & they are: 

• Niche market: The concentration is on a particular group of people with distinct needs. For example, buyers of sports shoes.
• Mass market:  The focus is on the general population or a large group of people with similar needs. For example, a product like a laptop.  
• Diversified: A diversified market segment includes customers with very different needs. 

2. Value propositions– 

This is at the heart of the business model and business model canvas. So, How will your company stick out amid the competition? Do you provide a rebellious product or ingenious service? It represents your unique solution for a problem faced by a customer segment.

A value proposition should be different from that of your competitors. After getting a few value propositions defined, associate each one with a product or service delivery system to discover how you will abide valuable to customers over time.

3. Key Activities- 

Before your business can go live, you need to have an understanding of the activities needed to make your business model work. So, What are the activities that need to be finished to realize your business purpose? 

These key activities should focus on attaining its value proposition, maintaining customer relationships, reaching customer segments & and generating revenue.  Key activities include designing, manufacturing & delivering a product in notable quantities and of superior quality. For instance, in the case of Ticketbis, an online ticket exchange marketplace, key business processes include marketing & product delivery management.

4. Key Business Resources– 

What does your company need to carry out daily activities to create your value proposition, find new customers & reach business goals? Make a list of necessary business resources to make sure your business model is completely prepared to endure the needs of your business. Thus, Common resource types are employees, cash, lines of credit, brands, patents, IP, copyright, equipment, inventory, buildings, etc.

5. Key Partners- 

Key partners are the external companies or suppliers also, that will help you execute your key activities. When generating a business model, select key partners, like strategic alliances, suppliers, or advertising partners. 

Also Read: What is Digital Twin In Digital Transformation

6. Cost structure- 

You have to identify all the costs associated with running your business model. Focus on calculating the creation cost & delivering your value propositions, creating revenue streams & maintaining customer relationships. Hence, Businesses can either be cost-driven (concentrates on reducing costs whenever possible) & value-driven (concentrates on providing maximum value to the customer). 

7. Customer relationships- 

In this section, you need to set up the type of relationship you will have with each of your customer segments oas well as how you will interact with them all over their journey with your company. There are various types of customer relationships such as interacting with the customer in person or by email, phone call, or other means.

You may assign a dedicated customer representative to an individual customer. So, You can generate automated processes that help customers perform services themselves. You can also allow the customer to get involved in the design or development of the product. For instance, YouTube permits its users the opportunity to generate content for its audience.

8. Revenue streams- 

Revenues streams are the sources from which a company generates money by selling its product or service to customers. Hence, There are various ways you can generate revenue from-

1. Subscription fee: by charging the customer for using its product habitually & constantly as well.
2. Asset sales: selling the rights of ownership for a product to a buyer.
3. Licensing: customer pays to get permission to use the company’s intellectual property.
4. Brokerage fees: revenue generated by acting as an intermediary between two or more parties.
5. Advertising: by charging the customer to advertise a product, service, or brand using company platforms.

9. Distribution Channels- 

This section describes how your company will communicate with & reach out to your customers. Channels play a role in raising awareness of your product or service among customers & delivering your value propositions to them. Channels allow customers the path to buy products or services & offer post-purchase support. Further, the types of channels can be social media sites, company websites, in-house sales, wholesale distribution, retail, etc.

The Business Model of Amazon

Amazon is a chick company with a multi-billion-dollar business. If Amazon can rise even at half the pace that its goals, it will be the world’s most valuable company in no time! Let’s study the Business model used by this innovative company along with business model examples:

1. Value Proposition-

The value proposition provided by Amazon is simple. Further, They offer the largest range, the most convenience & the lowest prices. Their prices are so low that they have replaced Walmart as the leader in the low-price category! In addition to this, Amazon offers goods & services at a very low cost without compromising on quality by any means & I make the lowest prices possible by holding technology.

Firstly, it has held technology in such a way that it does not have to stock inventory of any kind. As other stores are staggering under the wide cost burdens of stocking inventory while Amazon can afford to undercut the competition on this. Therefore, It is a fusion of a retail & technology company. Unlike, retail companies, Amazon rarely hires stock clerks & floor managers. And also, Their employees have high technological skills like data mining.

2. Revenue Model-

Amazon has a manifold revenue model.

• The key source of revenue for Amazon is the commission as well as fees that it gets by making a meet between borrowers & sellers. So, Amazon doesn’t sell most of the stuff on its own. But, it just provides a marketplace promising a systematized experience for both the sellers & buyers.
• Amazon also sells advertising space on its website. So, Amazon’s site is the most-hitting page.  Hence, sellers can expect to amplify sales by advertising on it. This is a tiny portion of the revenue that is generated by this company but is nevertheless notable.
• Amazon also achieves a vast nub of its revenues from affiliate programs. Amazon unites with stores within their sites & then asks for a bigger commission on their sales.

Also, See- What is Organization Change Management?

• Amazon also makes a vast nub of money from the Kindle marketplace. Amazon has developed & sold a device called Kindle. Kindle can be used to read books in the electronic format which provides 75% market share to Amazon in the eBook market. And, This market is very beneficial for Amazon. No need to publish or transport the books made by this model & Amazon takes the share of the publisher as well as the logistics firm. 
• Lastly, Amazon has also developed subscription-based business models via its Amazon Prime service. Users get two benefits for a fixed subscription. Firstly, users can stream movies & other video content via the internet. Secondly, Amazon Prime members are qualified for lightning-quick delivery of the products purchased from Amazon.

Therefore, the revenue model of Amazon is energetic. Also, technology is the backbone of these newer sources of revenue which many retailers had not thought about previously.

3. Extensible–

The type of business model of Amazon is not very capital or human-intensive. This makes it extensible. Amazon can easily enter another country & begin selling products. Very few preparations have to be done. That’s why Amazon went from being an American company to being a multinational swiftly.

4. Technology–

Amazon has always been at the center of various technological advancements. In 2016, they developed a new technology called contactless stores & these stores have been branded as “Amazon Go” stores. So, The special selling point of these stores is that there are no humans engaged. Instead, Amazon has attained such high levels of automation, that they can operate a whole departmental store without having any employees! Moreover, It is technological advancements like these that will allow Amazon to reach its aspiring revenue targets. 

Amazon has a distinct list of business models. Even today, Jeff Bezos pays no dividends & reinvests all the extra profits back into the operations.

Conclusion

Thus, There is not any doubt about the fact that the business model and type of business models for start-ups are some of the most important things that people need to remember when they want to ensure the success of the company. So, make sure that you can create these models in the best way.

Frequently Asked Questions

Key Takeaways

• Clarity on the product proposition, target market, income sources, and cost structure is provided by a well-defined business model.
• Aligning the business model with the broader strategy, encouraging innovation, and embracing flexibility are all aspects of effective leadership.
• To stay current, take advantage of market trends, and promote sustainable business growth, regularly assess and modify the business model.