A business model is a description of “how you generate revenue in your company” E.g. I sell bagels from my food truck direct to customers.
You should always question if your chosen business model is the best for your
business. If one day five other food trucks line up beside you it is time to
innovate your business model.
Are your customers all in for organic bread and fillings or could you make the nearby businesses hand out pre-payed vouchers for your truck? These thoughts are developing your business model.
Today customers have more choices, variegated customer needs than 20 years ago and, online supply alternatives are more transparent. Businesses therefore need to be more customer-centric. These developments in turn require businesses to re-evaluate the business models they present to customers
This new environment has also amplified the need to consider not only how to
address customer needs more quickly, but also how to capture value from
providing new products and services.
The FAB -model can help you find value in your product or service. The business canvas is also a great tool.
A business model articulates the logic and provides data and other evidence that demonstrates how a business creates and delivers value to customers. It also outlines the architecture of revenues, costs, and profits associated with the business enterprise delivering that value.
Or as the Danish entrepreneurship professor Soren Haugaard says: The art of business is to combine product and market to a profitable form
In essence, a business model embodies nothing less than the organizational and financial architecture of a business. It is not a spreadsheet or computer model, although a business model might well become embedded in a business plan and in income statements and cash flow projections. The business model is the fundamental platform for your business. On top of this you build your business plan.
The business guru, Peter Drucker, an Austrian-born American management consultant, educator, and author, whose writings contributed to the philosophical and practical foundations of the modern business corporation, said a business model is to answer the following three questions:
Business modelling theory has many other academic researchers, who elaborate further on the above definition:
Peter Drucker has a quote saying: “Leadership is doing the right things. Management is doing things right”
• By saying that “leadership is doing the right thing” he is referring to his business model definition: To develop a good business, you must know who your customers are, what value you deliver to the customers and how you get in contact with your customers. In short “What to do”
To help you to do the right thing The Business Canvas is a good tool.
• By saying “management is doing things right” he is referring to how the entrepreneur is managing her business in terms of sales, purchase, sales channels, marketing, product development, communicating to stakeholders, setting the right price, organizing the paper work etc. In short “How to do it”.
To implement and describe how “you do things right” you will use the business plan.
The art of business is to combine product and market to a profitable form
Soren Haugaard, Danish entrepreneurship professor