Business Model

What is a business model?

A business model describes how your company makes money. It is dynamic, fast, designed to be rapidly changed, and useful for idea evaluation, identification of gaps and key questions.

What does a business model do?

It bridges the gap from invention and innovation. It also bridges the gap from the technical domain to the social domain. It takes the technical aspects of invention (creating something that is more efficient and helps society) and shows how it will be economically viable (social domain/innovation). Innovation is invention brought to the market.

Target Market

The people that you are selling your product or service to. Successful companies have well defined target markets and sell directly to them.

Value Proposition

The value that you are offering to your customer. This is why someone would buy your product or service over others in the market.

Value Network

This describes all of the company that support you. This can include your suppliers, distributors, and any other company that you outsource a service to.

How you are going to get paid

This describes the ways that you will get paid. If you are an online subscription website, it details the types of subscription services, and how customers can get the money to you.

Costs/Margins

This is an extremely important part to a business model. This is where it details how much money the company can make. It details out what your costs are going to be (supplies, rent, wages, etc.), how much you are going to charge, and what your margins are. Margins can include gross margin, operating margin, and net margin; these are all metrics that measure the performance of the business.

Competitive Strategy

This is extremely important for the long-term life of the business. As a start-up, there may not be many competitors to worry about, but as a company gains more traction and gets more successful, competitors will file in and try to imitate what you are doing. Your strategy states what you will do to keep yourself above these competitors; you could possibly cut prices to squeeze out a close competitor, merge with another company to create synergies, or even acquire a smaller company that has new processes and have an entrance to a new market.

Value Chain

This is where you fit in the whole chain of things. This is described as what you do to add value; if you are a cereal company, you take the wheat and sugar from your suppliers and turn that into cereal (making it valuable).

Elements of a Business Model

Value Proposition, Target Market, Value Chain, How you are going to get paid, Costs/Margins, Value Network, and Competitive Strategy