What is a business model

A business model is a description of how your business intends to operate and make money. At the most basic level, it involves a producer making something and selling it directly to customers at a profit (but this simple model has propagated into numerous diverse models in recent years).

Alexander Osterwalder, co-author of the book Business Model Generation, defines a business model as:

‘… 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.’

The development of a business model is essentially a strategic perspective rather than an operational assessment, and focuses on how you capture value i.e. it includes a description of the value proposition. Deciding upon a business model becomes particularly important as a concept when it is not a simple ‘make and sell direct‘ model and you are looking to create value through a non linear route.

 

The Business Model – An Introduction

In days of old, business was arguably a lot simpler; you produced something and sold it for a profit, building up a good reputation over time so as to ensure ongoing patronage. Before the industrial revolution most sales were essentially local, and you had a much greater steer on competition, demand levels and pricing. You probably sold your products directly to consumers as the butcher, baker or candlestick maker.

Fast forward 200 years and business has changed considerably. A lot more creativity is needed to get noticed in a time-pressed world (not to mention in making a sale). You are probably facing global competitors, and in many instances a widely dispersed audience who are increasingly difficult to reach in a cost effective manner. As a result, numerous alternative strategies have emerged to get your product to market, safely into the hands of the consumer and business model innovation has become increasingly popular.