The business model it is the structure that defines how an idea generates value for its customers and how it is rewarded for doing so. With it, we will be able to know and communicate if our idea is viable, sustainable and scalable.
If a key partner asked you for your “business model” and someone like the one in this image crossed your mind, take a seat, because today you will learn something new. And it is that knowing what it represents and can do for you a business modelwill give you a great tool to improve existing businesses or generate new businesses that are much more profitable and with more solid strategic foundations.
And by the way, we will teach you how to use Canvas, one of the most popular methodologies to graphically represent that business model What will be your next great entrepreneurial project? Bring some Post-its and continue reading.
What is the business model of a company?
The business model of a company it is the structure that explains how, through a product or service, an organization creates, delivers and receives value in its relationships with its customers, in addition to explaining the reward it receives for completing this process.
Think of it as the plan that allows you to organize in a very specific way what your company does to be considered a business, based on what you give to customers and what you get as a profit.
in his book Generation of Business Models (2010), —Swiss business and innovation expert— makes it even simpler: “A business model describes the foundation of how an organization creates, delivers and captures value”.
What is a business model for?
A business model It helps to understand and clearly define what makes your business work. By being clear about them, it is possible to analyze them separately or together in order to better manage each one of them and adjust or change ingredients to improve it. This way you will demonstrate if your business, in addition to being viable, can be sustained and scaled.
These are the strategic elements that you will understand thanks to the business model:
- The key elements that make your business work.
- How these elements interact with each other.
- What are your customers like and what can you offer them?
- The necessary resources for the development of your value proposition.
- The elements you require to grow and innovate.
- How much it will cost and how much you will get from the success of your business.
Let’s see each of them in detail:
1. The key elements that make your business work.
From your key activities and resources, through your channels and customers, to your costs and value proposition, all the elements that make your organization a business are present in your business model.
2. How these elements interact with each other.
How do your strategic partners help you obtain the necessary resources? How do you use certain channels to reach different types of customers? What is the ratio between your income and your costs? By having the elements mapped, it is much easier to answer questions like these.
3. How are your customers and what can you offer them.
It is essential to know what your customers are like, their behavior and habits, but above all, to know their needs. In this way, you will have the necessary information to try to solve how your company can solve those needs.
4. The necessary resources for the development of your value proposition.
Here you define the element that, in addition to making your product or service unique, helps each of your clients to solve specific needs and also, you know what you need to provide that element of value.
5. The elements you need to grow and innovate.
At some point, having all your elements in order will allow you to develop new products or services, or explore other business models for different value propositions. Having visibility of all the elements of this equation facilitates this task.
6. How much will it cost and how much will you get from the success of your business.
What parameters or indicators will help you detect if there is growth? How do your profits affect the rest of the gears of your business? Remember that, for a ‘business’ to be considered as such, there must be a remuneration that makes it viable in the medium and long term.
Here we leave you 10 keys about starting from scratch so you can get a better idea of what you will need in your venture.
What is the difference between a business model and a business plan?
The difference between a business model and a business plan lies in the function and complexity of each one; while the business model shows a general idea of how your business will work, the business plan is the detailed explanation of how that idea will be implemented so that it really works.
If you like analogies—as much as we do—here’s one: the business model it is the description of a dish on a restaurant menu; it describes it to you with enough detail and precision for you to try it. For its part, the business plan is the recipe with which they are going to prepare that dish; every ingredient, procedure and utensil needed will be there to create that delicious food.
In a conventional procedure, before starting with any , the first step would be to create that model that explains, justifies and graphically shows the elements and how they will work with each other. Then, it would be time to detail the procedure element by element, step by step, to explain how the business will work.
So he business model It should be the foundation from which the business plan starts, although in reality, this is not always the case. Both are important because, to understand your idea, communicate it to your partners, or justify a new product, you need the model. To carry out that idea, you necessarily need to delve into the method and put together the plan. If you are looking for the latter, we recommend our article that explains it to you.
What are the business models? Examples to understand
Depending on what type of product or service you sell, we can divide business models into four groups. These are:
- product or service
- B2B or B2C
- P2P
- Saas
Now, when it comes down to how you sell those products or services, business models fall into seven different types:
- Direct sale
- brick and cement
- e-commerce
- Printer-cartridge
- by subscription
- Franchise or license
- advertising
Do you know what your type is? business model? Let’s see examples one by one in detail so that you can identify them:
1. Product or service
Simple: is what you offer a physical or digital item? Or do you rather market an activity that requires the presence and time of a worker to be carried out? If the former, your model is a product. If it’s more like the latter, you have a service model.
examples: sell clothes (product) or be a video producer for social networks (service).
2. B2B or B2C
When what you offer is aimed at meeting the needs of another organization, we speak of B2B (business to business), but if your creation will be marketed directly to meet the needs of individuals, you have a B2C (business to consumer) model.
examples: a company that organizes training for corporates (B2B) and a company that rents inflatables for children’s parties (B2C).
3.P2P
The way in which your idea does business is by becoming an intermediary between two users (peer to peer, between peers): a provider of products or services and the final consumer. You achieve this by managing a personalized attention center or, much more commonly, a digital platform.
examples: an app to find language teachers or a marketplace for sales between individuals.
4. Saas
When you offer software as a service (‘Software as as service’, hence the acronym), which usually replaces the functions of one or more people in an organization, we speak of a Saas model.
examples: an application for human management and hiring or in a simple way, and that also does not charge commissions for sales. 😎
Now that you are clear about what you can sell, let’s see the models to understand how you can sell:
1. Direct sale
The most basic way to market an idea: you give your product or service directly to the consumer, without stores or intermediaries. How do you do it? As our ancestors did: contacts you know personally or by references.
examples: someone who sells chiles en nogada in season or a carpenter who sells chairs by order.
2. Brick and cement
This is how businesses that have a sales front are known, that is, a store or premises in the physical world. This was one of the most popular options until, well… the next item on this list arrived.
examples: a waterproofing store or a dance academy.
3. Ecommerce
With the advent of the internet, many brick-and-mortar businesses migrated to a larger storefront: the entire world. Whether through an online store or a marketplace, e-commerce is the best option for a large number of people to learn about your idea and buy your products or services.
examples: the website of a supermarket chain or one of the .
4. Advertising
If you use your products or services as a means to market third-party advertising, you have a business model advertising. This can be as traditional as generating some type of content to display ads and digital campaigns, or managing influencers to sponsor brands.
examples: A financial news site with brokerage listings or an Instagram personality who recommends fitness products.
5. By subscription
In this model, you charge for the use of your product or service. It is as if you rented it or rented it. Here the traditional subscription models are valid (you charge a fee for a certain period of use) and also the freemium ones (you offer a free basic version and charge for additional or versions with more functions).
examples: A company that rents computer equipment for design or a free video game that charges for transactions within the application.
6. Printer-cartridge
The objective of this model is to sell a product at a high price, which necessarily requires constant purchases of a related product at a low price, as its name indicates, which is the most famous representation of this model.
examples: the coffee machines that require individual capsules or the razors that require their blades.
7. Franchise or license
Here, business is on the strength of other merchants who share your vision. You sell the license or franchise of your company so that others can do business with it, while your profit comes from fees or payments that can be one-time or recurring.
examples: a transnational coffee shop chain that charges you to set up a business under its name or web design software that renews its license every two years.
Of course a business model it can also be a mixture of several of these types. The combinations are multiple.
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