A business model is a bare-bones outline of how a company does business to make money. The business model is the core to business success.
Companies that thoroughly understand their business model and know how the building blocks of the business model relate to each other will be able to constantly analyze how the business model is working, either successfully or unsuccessfully and to make the appropriate changes and refinements to realize continued success. The business model is NOT and cannot be static.
The building blocks are:
- Identify the value of what is to be offered to the market as compared to what is already on the market
- Identify the intended client segment(s); their wants and needs
- Identify the communication and distribution channels to be used to reach the client segment(s)
- Identify the relationships to be established with clients - how to identify, address and resolve customer needs, concerns; how to retain loyalty
- Identify the key resources needed to be successful
- Identify the key activities required to implement the business model
- Identify the key partners required to participate and identify how to retain their participation
- Identify the revenue streams to be generated
- Identify the costs incurred or on the horizon
Additionally, business model innovation can exist in every department of a company. It can look at the overall company, the product line or service functions of the company, for example, accounts receivable, payroll, maintenance. This insures the participation and understanding at all levels of the business by employees.
The business model basically: describes what the company is offering; who the company offers value to; identifies how the company reaches the customer; describes the relationships the company builds; identifies how the company makes money; identifies the activities required; describes the partners desired; and identifies the costs of the business model.
In today's highly competitive business environment, it is not sufficient to choose the right industry, a competitive business model must be designed. But the business model in not static: It is also important to continuously review and adapt the business model to gain and/or sustain a competitive edge; to identify flaws and successes in the business model. Then take appropriate action. Analyzing the competitions' business models can give the start-up company an excellent edge to gaining a foot-hold in the chosen industry.
A business model does not guarantee success; it is a tool to get there.