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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

  • Business Model FAQs

The Bottom Line

Learn to understand a company's profit-making plan

why create a business model

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

why create a business model

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

  • A business model is a company's core strategy for profitably doing business.
  • Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
  • There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
  • The two levers of a business model are pricing and costs.
  • When evaluating a business model as an investor, consider whether the product being offer matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

  • Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
  • Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
  • Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
  • Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

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What is a Business Model? A Short Guide to Developing Successful Business Models

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You’ll often hear professionals discuss how important it is to have a clearly defined business model . A company’s business model can literally make or break their chances of success

But what is a business model exactly? Let’s take a look.

what is a business model

What is a Business Model and Why is It Important?

In essence, a business model is how a company plans to make a profit. This scope includes the business’s value proposition, key expenses, products or services, and its target market.

The value proposition, a central part of any business model, defines the company’s key offering or offerings, whether products or services. Importantly, it also describes what differentiates this offering from existing products, and what makes it attractive to the business’ target market.

Business models can be broadly grouped into categories, such as:

  • Manufacturer
  • Marketplace
  • Subscription
  • Fee-for-Service

It’s also important to note that one company may operate more than one business model concurrently. For example, eCommerce giant Amazon acts as both a retailer and a marketplace.

It is essential for new companies to define their business model, as it allows them to attract more investors and talent, as well as develop effective strategies . 

However, it’s equally important that established businesses regularly review and update their business model in the face of changing market trends and as their company grows.

What Makes a Strong Business Model?

A strong business model must clearly lay out how your business is going to generate revenue, including drilling down into your target market and value proposition.

Key elements of a good business model include:

  • A well-defined value proposition
  • The business’ target market
  • Start-up costs anticipated expenses
  • Revenue projection
  • Key competitors and how they measure up against the company
  • Marketing strategy
  • Key stakeholders and partnership opportunities

Additionally , the business models of successful companies generally share certain common characteristics. They often have a unique selling point, or unique selling proposition (USP), that sets them apart from their competition and meets their target customers’ needs, which they offer at an attractive price point. 

Furthermore, successful business models are financially sustainable and adapt to meet changes in the market or in the business’s own needs.

How to Create a Successful Business Model

1. conduct market research.

The best business models are based on a thorough understanding of current market trends, opportunities, and challenges. Start by conducting research into the latest trends, your top competitors, and what is and isn’t currently working well in the industry.

2. Define your Target Market

Next, you’ll need to identify who your business’ target market or customer base will be. Dig deeper into your ideal customer’s needs, and especially their key pain points. These will become the problems that your product or service will solve.

3. Develop Your Service Offering

Once you have a clear picture of your target audience and their main pain points, you can use this to develop a service offering that will most effectively address this.

Be sure to tie this back to your business’s value proposition: what makes your products or services not only desirable to your target market, but what differentiates you from your competitors?

4. Make a Road Map

Once you’ve defined your target market and the product or service you’re going to offer them, the next step is to work out what you need to make that happen. It’s essential to create a clear picture of the resources you’ll need to get your business up and running. 

At this point, you should also consider potential challenges you may face along the way, and how you plan to address them. 

Document all of these elements as part of a well-defined road map to launch your business.

5. Start Developing Partnerships

Another essential part of any business model is the partners who will help the company achieve success. This could be suppliers, service providers, contractors, advertising partners, collaborators, or other stakeholders. 

Having an idea of who these partners will be and how you will work together will help you to shape your business model.

6. Define Revenue Streams

Revenue is central to any business, and any strong business model must clearly define where revenue will come from. You’ll also need to consider how you will increase revenue over time, such as specific strategies to build your customer base and close sales.

7. Do Testing

The final step of this process is testing your business model to ensure you’re in the strongest possible position to go live. This could involve test surveys within your target market, or soft launches. The idea is to gauge how well your business model will perform and help you to reach your goals.

8. Continually Review and Adapt

Avoid taking a “set it and forget it” approach to your business model. There are many reasons why you may need to adapt your business model over time. Not only may the market change, but as your business begins to operate and grow, you may find you need to reassess some of your original ideas and assumptions.

Therefore, it is essential to take a flexible position and continually review and adapt your business model to reflect evolving circumstances, whether internal or external to your business.

What does a business development manager do?

Get the Skills You Need to Develop a Successful Business Model

It’s not enough to understand what a business model is: you also need to be familiar with the various push and pull factors that will allow you to create a winning model.

Experience is an essential part of being able to develop a successful business model. Knowledge of the latest industry trends, data insights , and strategic thinking are also critical. 

EDHEC Online Master of Science in International Business Management can help you develop your strategic thinking in order to use data insights to create business models that are sustainable, inclusive, and impactful.

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How to Design a Winning Business Model

  • Ramon Casadesus-Masanell
  • Joan E. Ricart

Smart companies’ business models generate cycles that, over time, make them operate more effectively.

Reprint: R1101G

Most executives believe that competing through business models is critical for success, but few have come to grips with how best to do so. One common mistake, the authors’ studies show, is enterprises’ unwavering focus on creating innovative models and evaluating their efficacy in standalone fashion—just as engineers test new technologies or products. However, the success or failure of a company’s business model depends largely on how it interacts with those of the other players in the industry. (Almost any business model will perform brilliantly if a company is lucky enough to be the only one in a market.) Because companies build them without thinking about the competition, companies routinely deploy doomed business models.

Moreover, many companies ignore the dynamic elements of business models and fail to realize that they can design business models to generate winner-take-all effects similar to the network externalities that high-tech companies such as Microsoft, eBay, and Facebook often create. A good business model creates virtuous cycles that, over time, result in competitive advantage.

Smart companies know how to strengthen their virtuous cycles, undermine those of rivals, and even use them to turn competitors’ strengths into weaknesses.

The Idea in Brief

There has never been as much interest in business models as there is today; seven out of 10 companies are trying to create innovative business models, and 98% are modifying existing ones, according to a recent survey.

However, most companies still create and evaluate business models in isolation, without considering the implications of how they will interact with rivals’ business models. This narrow view dooms many to failure.

Moreover, companies often don’t realize that business models can be designed so that they generate virtuous cycles—similar to the powerful effects high-tech firms such as Facebook, eBay, and Microsoft enjoy. These cycles, when aligned with company goals, reinforce competitive advantage.

By making the right choices, companies can strengthen their business models’ virtuous cycles, weaken those of rivals, and even use the cycles to turn competitors into complementary players.

This is neither strategy nor tactics; it’s using business models to gain competitive advantage. Indeed, companies fare poorly partly because they don’t recognize the differences between strategy, tactics, and business models.

Strategy has been the primary building block of competitiveness over the past three decades, but in the future, the quest for sustainable advantage may well begin with the business model. While the convergence of information and communication technologies in the 1990s resulted in a short-lived fascination with business models, forces such as deregulation, technological change, globalization, and sustainability have rekindled interest in the concept today. Since 2006, the IBM Institute for Business Value’s biannual Global CEO Study has reported that senior executives across industries regard developing innovative business models as a major priority. A 2009 follow-up study reveals that seven out of 10 companies are engaging in business-model innovation, and an incredible 98% are modifying their business models to some extent. Business model innovation is undoubtedly here to stay.

why create a business model

  • RC Ramon Casadesus-Masanell is a professor at Harvard Business School and the author, with Joan E. Ricart, of “How to Design a Winning Business Model” (HBR January–February 2011).
  • JR Joan E. Ricart ( [email protected] ) is the Carl Schroder Professor of Strategic Management and Economics at IESE Business School in Barcelona.

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Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

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FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

  • 11.2 Designing the Business Model
  • Introduction
  • 1.1 Entrepreneurship Today
  • 1.2 Entrepreneurial Vision and Goals
  • 1.3 The Entrepreneurial Mindset
  • Review Questions
  • Discussion Questions
  • Case Questions
  • Suggested Resources
  • 2.1 Overview of the Entrepreneurial Journey
  • 2.2 The Process of Becoming an Entrepreneur
  • 2.3 Entrepreneurial Pathways
  • 2.4 Frameworks to Inform Your Entrepreneurial Path
  • 3.1 Ethical and Legal Issues in Entrepreneurship
  • 3.2 Corporate Social Responsibility and Social Entrepreneurship
  • 3.3 Developing a Workplace Culture of Ethical Excellence and Accountability
  • 4.1 Tools for Creativity and Innovation
  • 4.2 Creativity, Innovation, and Invention: How They Differ
  • 4.3 Developing Ideas, Innovations, and Inventions
  • 5.1 Entrepreneurial Opportunity
  • 5.2 Researching Potential Business Opportunities
  • 5.3 Competitive Analysis
  • 6.1 Problem Solving to Find Entrepreneurial Solutions
  • 6.2 Creative Problem-Solving Process
  • 6.3 Design Thinking
  • 6.4 Lean Processes
  • 7.1 Clarifying Your Vision, Mission, and Goals
  • 7.2 Sharing Your Entrepreneurial Story
  • 7.3 Developing Pitches for Various Audiences and Goals
  • 7.4 Protecting Your Idea and Polishing the Pitch through Feedback
  • 7.5 Reality Check: Contests and Competitions
  • 8.1 Entrepreneurial Marketing and the Marketing Mix
  • 8.2 Market Research, Market Opportunity Recognition, and Target Market
  • 8.3 Marketing Techniques and Tools for Entrepreneurs
  • 8.4 Entrepreneurial Branding
  • 8.5 Marketing Strategy and the Marketing Plan
  • 8.6 Sales and Customer Service
  • 9.1 Overview of Entrepreneurial Finance and Accounting Strategies
  • 9.2 Special Funding Strategies
  • 9.3 Accounting Basics for Entrepreneurs
  • 9.4 Developing Startup Financial Statements and Projections
  • 10.1 Launching the Imperfect Business: Lean Startup
  • 10.2 Why Early Failure Can Lead to Success Later
  • 10.3 The Challenging Truth about Business Ownership
  • 10.4 Managing, Following, and Adjusting the Initial Plan
  • 10.5 Growth: Signs, Pains, and Cautions
  • 11.1 Avoiding the “Field of Dreams” Approach
  • 11.3 Conducting a Feasibility Analysis
  • 11.4 The Business Plan
  • 12.1 Building and Connecting to Networks
  • 12.2 Building the Entrepreneurial Dream Team
  • 12.3 Designing a Startup Operational Plan
  • 13.1 Business Structures: Overview of Legal and Tax Considerations
  • 13.2 Corporations
  • 13.3 Partnerships and Joint Ventures
  • 13.4 Limited Liability Companies
  • 13.5 Sole Proprietorships
  • 13.6 Additional Considerations: Capital Acquisition, Business Domicile, and Technology
  • 13.7 Mitigating and Managing Risks
  • 14.1 Types of Resources
  • 14.2 Using the PEST Framework to Assess Resource Needs
  • 14.3 Managing Resources over the Venture Life Cycle
  • 15.1 Launching Your Venture
  • 15.2 Making Difficult Business Decisions in Response to Challenges
  • 15.3 Seeking Help or Support
  • 15.4 Now What? Serving as a Mentor, Consultant, or Champion
  • 15.5 Reflections: Documenting the Journey
  • A | Suggested Resources

Portions of the material in this section are based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.

Learning Objectives

By the end of this section, you will be able to:

  • Define a business model and its purpose
  • Describe a business model canvas
  • Describe a lean model canvas
  • Describe a social business model canvas

According to Alexander Osterwalder and Yves Pigneur , the authors of Business Model Generation , a business model “describes the rationale of how an organization creates, delivers and captures value.” Nevertheless, there is no single definition of this term, and usage varies widely. 29

In standard business usage, a business model is a plan for how venture will be funded; how the venture creates value for its stakeholders, including customers; how the venture’s offerings are made and distributed to the end users; and the how income will be generated through this process. The business model refers more to the design of the business, whereas a business plan is a planning document used for operations.

Each business model is unique to the company it describes. A typical business model addresses the desirability, feasibility, and viability of a company, product, or service. At a bare minimum, a business model needs to address revenue streams (e.g., a revenue model), a value proposition, and customer segments. In non-jargon English, this means you want to address what your idea is, who will use it, why they will use it, and how you will make money off it.

A canvas is a display that would-be entrepreneurs commonly use to map out and plan different components of their business models. There are several different types of canvases, with the business model canvas and the lean canvas being the most commonly used. There are hard-copy canvases modeled after an art canvas as well as digital versions. The original physical canvases are meant to serve as visual tools, used with sticky notes and sketches.

As developed by Osterwalder and Pigneur, the business model canvas has nine components, as shown in Figure 11.6 .

Link to Learning

Visit this site to see examples of completed Business Model Canvases for a variety of industries for a deeper understanding of how the different categories are filled in.

Osterwalder and Pigneur wrote Value Proposition Design as a sequel to Business Model Generation . Their value proposition canvas is a plug-in that complements the business model canvas, going in depth on activities such as encouraging entrepreneurs to address and tackle customer pains, gains, and jobs-to-be-done trigger questions, and designing pain relievers and gains. The complementary and accompanying activities and resources can be useful for a deeper dive into and understanding of customer value creation in the form of value proposition, although there are other approaches to conceptualizing your value proposition. For Christensen, the originator of the disruptive innovation and jobs-to-be-done theories, a value proposition is a product that helps customers do a job they’ve been trying to do more effectively, conveniently, and affordably.

Finding the intersection of your customers’ problems and your solutions is how you create a unique value proposition, according to the entrepreneur Ash Maurya , the author of Scaling Lean and Running Lean . In Running Lean , Maurya offers the following formula for creating an initial value proposition in the canvas, as shown in Figure 11.7 .

Maurya deviated from the standard business model canvas to create the lean canvas. It overlaps the business model canvas in five of the nine components: customer segments, value proposition, revenue streams, channels, and cost structure ( Figure 11.8 ]. Rather than addressing key partners, key activities, and key resources, the lean canvas helps you tackle problems, solutions, and key metrics instead.

Visit this site to see examples of completed Lean Model Canvases from some major companies for a deeper understanding of how the canvas can be applied.

While the business model canvas and the lean canvas are similar in format, there are differences in how they are used. It is generally accepted that the lean canvas model is a better fit for startups, whereas the business model canvas works well for already established businesses. The lean canvas is simpler; the business model canvas provides a more complete picture of a mature business.

Watch this Railsware video that demonstrates how the lean canvas model might be applied to startups to learn more. In the case example in the video, the lean canvas model is applied to the successful P2P ride-sharing app Uber, as if it were a startup.

Both the business model canvas and the lean canvas are designed for constant iterations, allowing for multiple versions and changes throughout the entrepreneurial process. Part of that process involves customer discovery; thus, the canvases invoke customer-focused design. The target customer is integrated into the canvas from the start through the use of a customer empathy map and a number of design-thinking ideation activities. 30 The customer empathy map is a portrayal of a target customer —the most promising candidate from a business’s customer segments—that explores the understanding of that person’s problems and needs ( Figure 11.9 ). Osterwalder and Pigneur used a customer empathy map as part of the design ideation phase of developing a business model canvas. There are differing versions of customer empathy maps, but most seek to answer common questions pertaining to the customer, such as:

  • With whom are we empathizing?
  • What do they need to do?
  • What do they see?
  • What do they say?
  • What do they do?
  • What do they hear?
  • What do they think?

Phillips, Proctor & Gamble, Microsoft, and Yeti are examples of well-known companies that make use of customer empathy mapping because, according to the journal Entrepreneur , every transaction can be turned into a meaningful and valuable customer interaction. 31 Once a company analyzes the results of customer mapping exercises, it may very well lead to new products that serve customer needs and/or wants.

For example, Philips used empathy mapping to detect a high level of fear in young patients immediately before an MRI medical procedure, so it invented a miniature version of the CAT scan equipment used in the procedure called the “kitten scanner” along with toy animal characters that were used to dispel the fear of MRIs among children. Proctor & Gamble created a new advertisement that was released for the 2012 Olympics visualizing the trials and tribulations of mothers raising young athletes, demonstrating Proctor and Gamble’s awareness that some of its customers wanted or needed empathy for the sacrifices they had made to help their children succeed. Likewise, Microsoft has attempted to demonstrate empathy with customers’ privacy concerns by developing an interactive website that explains not only how data is stolen but also how we can better protect our own data. 32

On their company website, the now-famous Yeti cooler company publicly extols the value of empathy mapping, explaining that it leads to better products. Yeti doesn’t just create one on its own, it actually asks its clients to work with the company to create an empathy map. 33 Thus, empathy mapping for Yeti is part of its product development process.

Customer empathy maps also strive to address customer pains (in this case, fears, frustrations, and anxieties) and gains (wants, needs, hopes, and dreams). 34

Strategyzer offers six videos outlining the business model canvas that total about 12 minutes; specifically they cover the prototyping journey from ideation to visualization of conceptualization.

Business Model Canvas 35

As Osterwalder and Pigneur describe it, according to Media Innovation and Entrepreneurship , their business model canvas blocks include revenue streams, customer segments, value propositions, cost structures, channels, key activities, key partners, key resources, and customer relationships.

Early on, your greatest focus should be on the right side of the canvas because:

  • These are, in many ways, the most critical aspects of starting a new venture (customer segments, value propositions, channels, and revenue streams).
  • The most fluid (revenue streams, channels, and value propositions will likely differ for the differing customer segments and, as you iterate and adapt throughout the customer discovery process, could likely change).
  • These follow a logical temporal order (there’s no need to focus on the costs of building a company if you won’t have customers).

In a follow-up to business model generation, the Strategyzer team created a second canvas, the value proposition canvas: https://www.strategyzer.com/canvas/value-proposition-canvas. The value proposition canvas is a new tool that pulls out the customer segment and value proposition blocks of the business model canvas, and encourages more in-depth exploration of those blocks to achieve a good fit between the two. The value proposition canvas tool looks at customer pains, gains and jobs to be done on the customer side and painkillers, gain creators, and products and services on the value proposition side. 36

Read this blog that provides a walk-through of how to fill in a value proposition canvas to learn more.

When you peel away the language used to describe business models, the early startup planning stages come down to a series of questions. When it comes to formulating a business model for a startup concept, another popular framework used in entrepreneurial circles is that of desirability-feasibility-viability Figure 11.10 ). This framework forces the entrepreneur to address broad questions about the startup concept:

  • Desirability: How desirable is the product? Who will use it and why?
  • Feasibility: How feasible is this idea? What are the costs of making it? How practical is the concept?
  • Viability: Will this idea remain viable? How will it make money? How will it be sustained over time?

These questions then begin to connect to form a narrative about where the startup concept came from, whom it serves, why it’s needed, how it will make money, and how it will be sustained in the future.

The value propositions, customer relationships, customer segments, and channels address the assumptions that will create customer value (desirability). The cost structure and revenue stream blocks are aimed at viability, or overcoming flawed business models. The key partners, key activities, and key resources are about execution and address feasibility. The risk of poor execution can undermine your assumptions that you chose the right infrastructure to execute your business model (feasibility). The risk of solving an irrelevant customer job (sometimes derisively labeled “a solution in search of a problem”) undercuts desirability in your business. The risk of a flawed business model would hamper the financial assumption that your business will earn more money than you spend (viability). Adaptability is about the assumption that you chose the right business model within the context of external factors such as technology change, competition, and regulation.

The business model canvas is not an exhaustive planning tool by any means. 37 , 38 The risk of such external threats is not specifically addressed on the canvas blocks. The external threats not specifically covered by the canvas blocks can be designed for adaptability, that is, the business model canvas is a necessary but insufficient component of determining the viability of the business idea/concept. There are many elements not included in the canvas that entrepreneurs must address. Industry analysis, including a competitive analysis, for example, falls “off canvas” but is important nonetheless.

The Lean Model Canvas

The lean model canvas is Ash Maurya ’s adaptation of the original business model canvas. As we noted earlier, gone are the customer relationships, key activities, key partners, and key resources blocks. Instead, a problem block is added, because as Maurya explains, “Most startups fail, not because they fail to build what they set out to build, but because they waste time, money and effort building the wrong product. I attribute a significant contributor to this failure to a lack of proper ‘problem understanding’ from the start.” Maurya next added a solution block to the lean model canvas, which corresponds well with features on a minimum viable product (MVP), which you will recall was covered in depth in Launch for Growth to Success . The lean model canvas also adds an “Unfair Advantage” block, similar to the block for competitive advantages or barriers to entry found in a business plan. 39

Social Business Model Canvas

As you’ve noticed by now, the core canvas components are common throughout the various versions. Many of the blocks of the social business model canvas are similar to those used in the business model canvas and the lean model canvas. 40 A few differences, as developed by Tandemic , focus on areas unique to social entrepreneurship ventures. For example, the new areas added include measures of what kind of social impact you are creating or developing, measures of surplus to address what happens with profits and where you intend to reinvest them, and measures of beneficiary segments, and social and customer value propositions. 41 These could be measures such as the number of trees planted, number of refugees housed and fed, jobs created, or investments made—depending on the venture. Social impact looks at an organization’s social mission beyond the bottom line. Measurement can differ among social entrepreneurs, but in terms of the canvas, impact measures are an effort to establish quantifiable metrics.

Social impact can be hard to measure, but nonetheless, many social entrepreneurs aim for long-lasting impact. 42 A 2014 report by the think tank, consultancy, and member network SustainAbility lists cooperative ownership, inclusive sourcing, and the “buy one, give one” model as three forms of social impact. 43 In addition to the Tandemic social business model canvas, there are other versions of similar canvases used for social entrepreneurship. For instance, Osterwalder adapted the business model canvas for mission-driven organizations into a mission model canvas. 44 There’s also a social lean canvas that adds purpose (explaining your reason for creating the venture in terms of social or environmental problems) and impact sections (describing the intended social or environmental impact). 45

This completed social business model canvas for the popular peer-to-peer lending platform Kiva illustrates how the business model canvas can and perhaps should be adapted for social entrepreneurship ventures.

What Can You Do?

Toms Shoes is perhaps one of the best-known companies for adopting a social entrepreneurship purpose into its business model. Part of its early success hinged on the fact that for every pair of shoes a customer bought, the company donated a pair of shoes to someone in need. The company won a prize in 2006 for its innovative solution to poverty. This “ 1-for-1 business model ,” sometimes commonly called the “Toms model” after the shoe company that popularized it, gained traction among other companies that followed suit in similar fashion, seeing both the social and the financial successes in the Toms model. Warby Parker is another example of a company that does essentially the same: A customer purchases a pair of eyeglasses, and the company donates a pair (although Warby Parker pays a third party to procure the glasses, as eyeglasses require an individual prescription, whereas shoes do not).

  • Can you think of an innovative social entrepreneurship business model?

The Birthday Party Project

Paige Chenault wanted homeless children in Dallas to feel special on their birthdays. Many have never experienced a birthday party. So this professional event planner sprang into action in January 2012. She launched the Birthday Party Project (https://www.thebirthdaypartyproject.org/), a nonprofit group whose mission is to celebrate the lives of homeless children (ages one to twenty-two). The group organizes monthly birthday parties with partner shelters. Since its inception, the concept has spread beyond Texas to cities across the United States, including Atlanta, Chicago, Los Angeles, New York, and San Francisco. In six years, the Birthday Party Project has celebrated 4,800 birthdays with 30,000 kids in attendance, eaten 40,000 cupcakes, cracked 30,000 glow sticks, and performed 1,100 renditions of “Happy Birthday.”

  • Identify a need in your community that could become a social entrepreneurship business, as Paige discovered with an initial passion project.
  • 29 Alexander Osterwalder and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, NJ: Wiley, 2010.
  • 30 Charlene Perrin. “Create A Customer Empathy Map in 6 Easy Steps!” Conceptboard . March 28, 2019. https://conceptboard.com/blog/create-a-customer-empathy-map-in-6-easy-steps/
  • 31 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
  • 32 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
  • 33 Mike Godlewski. “The Secret to Knowing What a Client Is Thinking? Empathy Maps.” Yeti. February 8, 2016. https://yeti.co/blog/the-secret-to-knowing-what-your-client-is-thinking-empathy-maps/
  • 34 Germán Coppola. “What Is an Empathy Map, and Why Is It Valuable for Your Business?” Medium . November 28, 2017. https://medium.com/swlh/what-is-an-empathy-map-and-why-is-it-valuable-for-your-business-14236be4fdf4
  • 35 This material is based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.
  • 36 Michelle Ferrier and Elizabeth Mays. Media Innovation and Entrepreneurship . The Rebus Foundation, 2017. https://press.rebus.community/media-innovation-and-entrepreneurship/.
  • 37 Jennifer van der Meer. "Do You Suffer from Value Proposition Confusion?" Linkedin . October 19, 2016. https://www.linkedin.com/pulse/do-you-suffer-from-value-proposition-confusion-jennifer-van-der-meer/
  • 38 “The Value Proposition Canvas.” Strategyzer . n.d. https://strategyzer.com/canvas/value-proposition-canvas
  • 39 Ash Maurya. “Why Lean Canvas vs Business Model Canvas?” Medium . February 27, 2012. https://blog.leanstack.com/why-lean-canvas-vs-business-model-canvas-af62c0f250f0
  • 40 "Social Business Model Canvas.” Business Model Toolbox . 2013. https://bmtoolbox.net/tools/social-business-model-canvas/
  • 41 “The Business Model Canvas Reinvented for Social Business.” Tandemic . n.d. http://www.socialbusinessmodelcanvas.com
  • 42 Ayse Guclu, J. Gregory Dees, and Beth Battle Anderson. “The Process of Social Entrepreneurship: Creating Opportunities Worthy of Serious Pursuit.” Duke/Fuqua case . 2002. https://centers.fuqua.duke.edu/case/knowledge_items/the-process-of-social-entrepreneurship-creating-opportunities-worthy-of-serious-pursuit/
  • 43 Lindsay Clinton and Ryan Whisnant. “Model Behavior: 20 Business Model Innovations for Sustainability.” SustainAbility . February 2014. https://sustainability.com/wp-content/uploads/2016/07/model_behavior_20_business_model_innovations_for_sustainability.pdf
  • 44 Alexander Osterwalder. “The Mission Model Canvas: An Adapted Business Model Canvas for Mission-Driven Organizations.” Strategyzer . February 25, 2016. https://blog.strategyzer.com/posts/2016/2/24/the-mission-model-canvas-an-adapted-business-model-canvas-for-mission-driven-organizations
  • 45 Social Lean Canvas. n.d. https://socialleancanvas.com/

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  • Authors: Michael Laverty, Chris Littel
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  • Book title: Entrepreneurship
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Ten tips for researchers surfing the web, openmind books, scientific anniversaries, are we a simulation, featured author, latest book, what is a business model and how to make it effective.

The concept of  business model  changed substantially over the last few years. It can no longer be defined as the way a company generates money or a person attracts clients. Its definition has gone farther and now refers to the pure needs of users and clients.

How is it possible that the largest private transportation company does not own a single vehicle? How is it possible that the largest accommodation company in the world does not own a single hotel?

Alex Osterwalder,  in his book “Business Model Generation” , states that innovation in business models consists in  creating value for companies , clients and society in general, i.e. in  replacing obsolete models.

“A business model describes the rationale of how an organization creates, delivers and captures value for the client”

Alex Osterwalder

These are some examples of the new business models: the digital player iPod and the online store iTunes.com , which Apple used to create an innovative business model that made it the undisputed leader in online music. Skype offered international calls at very low rates as well as free calls between service users with an innovative business model based on P2P technology.

With the help of  Zipcar , residents in many cities no longer need to own a vehicle; instead, they can rent any car for a few hours or days in exchange for a membership fee. This business model results from  the new needs of users  and the worrying environmental conditions.

Three mandatory elements in a Business Model

  • Profitability:  No business is created to lose money; consequently, it must be profitable.
  • Scalability:  Being able to create one now, another tomorrow and so on and so forth until you have a model that takes over the market.
  • Repeatability:  Being able to standardize them to be able to replicate them anywhere, e.g. franchise products.

In other words, when you release a product or service , it must feature the three elements that should guarantee its market success: Desirable, Viable and Profitable.

How to create value with a business model

By being close to the client. By creating very close relationships from the very beginning so as to know the client’s needs or problems, while always listening to them and co-creating with them. And once the product has been released, it must be possible to receive feedback to be able to discern the model that allows clients to find the added value it brings.

“Customers comprise the heart of any business model. Without customers, no company can survive for long”

Alexander Osterwalder

Flexibility is the key to a business model’s success . For this reason, we highly recommend the Canvas Model because, using this method, you employ nine blocks to test whether you are targeting your product at the right segment or whether your value proposition really meets the needs of your clients.

“Businesspeople mistake objectives, mission and vision for strategy. And strategy is the path toward being unique,” Michael Porter. / Image: Daria Nepriakhina on Unsplash

How can I offer added value when compared to my competition?  By providing a better solution to an existing need (adding value to your client) and improving how you deliver this solution. As a consequence, a good business model means finding a different way of competing.

9 Business models recommended by  Guy Kawasaki

  • Multicomponent.  A good example is  Coca-Cola , which is sold in supermarkets, neighborhood stores and vending machines. The same product is sold in different settings, for different prices and with different presentations.
  • Market leader.   Apple  is the personification of a market leader that creates innovative and attractive products for its clients.
  • Valuable component.   Intel  manufactures valuable elements for other products; these elements are not sold directly to the client but they differentiate the company from its competitors.
  • Switcher.   De  Beers   controls the supply of diamonds; this model involves several challenges: to win control of supply and to convince the consumers that this control is desirable.
  • Printer and Toner.  Also called Bait and Hook. This business model consists in selling a product that needs consumables, such as  Nespresso machines.
  • Freemium .  Consists in giving services away up to a certain limit; after that, the clients need to pay. For example,  Evernote, Spotify, Dropbox , etc.
  • Eyesballs .  Consists in offering a platform to create or share content that attracts visitors, normally selling advertising, e.g.  Facebook, Huffington and Instagram .
  • Virtual products.  Consists in selling digital codes for products with almost nil costs and maintenance in terms of inventory. For example, Candy Crush and other videogames.
  • Handcrafted.  Furniture is an example of this business model that prioritizes quality and handcraftsmanship.

Other business models in the market:

  • Affiliation:   A company that wishes to sell a product and defines some kind of reward for suppliers, companies or people that attract clients or orders for its products.
  • Long tail:   The long tail business model is innovative because it offers a wide range of little sought-after items that may become profitable businesses and generate profit on the basis of a large volume of small sales.
  • Franchising or licensing.  This business model allows entrepreneurs to “exploit” a proven business that works and is replicated where it does not exist yet.
  • Subscription.  This business model consists in having the user pay a subscription in exchange for a value proposition. Classic examples are subscriptions for paid TV, magazines, newspapers and Netflix.

Netflix seems to make less profit with its content than other companies. However, this comparison does not take into account the value of data that are used to reduce the cost of buying new content. Source: Investopedia

It should be noted that the axis of a business model is the Value Proposition , which consists in knowing what you have that others do not have and that people are willing to pay for. The best enterprises happen when the entrepreneur has first-hand experience of the need they wish to meet and offers a solution.

Consequently, if entrepreneurs and businesspeople want to dominate the market, rather than worrying about creating the ideal product they should worry about designing the “Business Model” that allows them to have profitable companies over time and that survives with residual income while making them the leaders in demand among their clients and consumers.

Guiovanni Quijano

@MktQuijano

Related publications

  • Business Models for Clients of the 21st Century
  • 22 Visions for Understanding the Company of the 21st Century
  • Business Models, Information Technology, and the Company of the Future
  • Business Models for the Companies of the Future
  • Internet of Things: Opportunities and Challenges

More about Economy

Geopolitics, global economy, comments on this publication.

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  • Business planning

What is a business model? (Plus, how to define yours)

Last updated: September 2023

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Business model large

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

15 elements of a brilliant business strategy

This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

why create a business model

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

  • What is value-based product development?
  • What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Business model in Aha!

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

Lean canvas example in Aha!

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

Deliver more with Aha! — try it free for 30 days .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

  • How to price your product
  • How to position your product

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Why is a business model important?

why create a business model

Learning & Academics

A business model may seem like a straightforward concept. But the term has shifted and changed over time. Today, if a company is incapable of creating an innovative and flexible business model, that could be its downfall.

Today, technology and innovation are the main players in how successful businesses are run and reinvented. With an explosive amount of information available through big data and the resources provided by digital tech, companies can more easily create and continue to capture value for stakeholders.

Businesses that want to start and stay at the cutting edge use design thinking, strategy, and continuous, fearless change in their business models. Some of the most successful businesses today are those that have reinvented the model, disrupting the industry that was and creating the kind of value customers are looking for in the digital era .

Adults analysis brainstorming

What is a business model?

Does a business model have a simple definition? Yes and no. Business models are the logic behind a company, but the concept can be framed in many different ways. And today, the way the idea has been reframed is inspiring the business owners and CEOs of companies from startups to well-established multinationals.

In his book The New, New Thing , Michael Lewis explains that the business model has been thought of as simply the way a business plans to make money. Expanding upon this idea, Peter Drucker talks about the business concept in terms of flexible assumptions about what a company will and will not do: what they get paid for; markets, customers, and competitors; values and behaviors; technology; and a company’s strengths and weaknesses. Joan Magretta adds that a business model is basically a story about how the company will operate, including the activities involved in making and selling a product or service.

Alex Osterwalder offers a simplified format for thinking about these hypotheses adopted by startups and established businesses alike, called the busi n ess model canvas. This business map is a one-page template that includes space for designing, discussing, and reinventing business models. The nine building blocks included are customer segments, value propositions, channels for delivering value, customer relationships, revenue streams, key resources, activities and partners, and cost structure. The idea of having everything mapped out on one page enables forward-thinking leaders to keep things light and flexible in order to invent or innovatively reiterate their business models as situations change and evolve.

why create a business model

Types of business models and tech

Business models have been transformed by technology . Interconnectivity , globalization , and a digital, tech-driven world have all allowed innovative thinkers to rethink traditional models in sectors from travel to retail.

One example of an age-old business model that has been transformed by tech is the platform business model. In the simplest terms, this model brings buyers and sellers together in one space. An in-person marketplace, auction house, or shopping mall are examples of this model that have been around for decades or even centuries. But digital tech has meant these platforms are no longer confined by time and space. Technology has allowed innovative business owners to use this type of model to create enormous digital networks enabling participation and collaboration across the globe. Some of the most successful companies today, including Airbnb , WhatsApp , Facebook , Google , and Alibaba , are examples of reinvented platform business models that use tech to their advantage.

Accounting banking calculator

The global business model is another example of one which has been inspired by technology. These models focus on producing and selling globally in a short period of time, relying on the fast pace of globalization and interconnectivity to thrive. The clothing brands Mango and Desigual are good examples of successful models based on selling to small target segments globally in order to achieve economy of scale, in a way that is only possible in a globalized world.

Interconnectivity and the digital world has also led to the availability of big data, allowing businesses to make sure they are offering the goods and services customers are actually looking for. The “seeking-excellence” business model depends on creating innovative products or services that consumers didn’t even know they wanted. The most disruptive thinkers today can use big data to analyze trends and find new value propositions that reinvent the business model—like Apple did with the iPod and iTunes store in the early 2000s.

Inspiring business models that have broken the status quo

Airbnb is one of the most disruptive businesses of the digital era. Founded by a couple of young startupers in 2008, it is the result of a recognized opportunity (when no hotel rooms were available in San Francisco during a conference held in the city), and the technology capable of connecting hosts and renters from around the globe.

Airbnb Room

As they put it on their About Us page, “ Airbnb uniquely leverages technology to economically empower millions of people around the world to unlock and monetize their spaces, passions, and talents to become hospitality entrepreneurs. ” It is a sharing-economy-based business , eliminating the overhead of owning the rooms that are rented out, like traditional hotels do. And its platform business model—which uses advances in digital tech to create networks that continuously improve—has allowed the business to boom around the world.

Uber is at the top of the list as another example of a business that has taken an existing business model and reinvented the wheel. By looking at how a current business model—taxis—could be improved, Uber was able to take a share of a preexisting market using a disruptive, tech-based model for grabbing a ride.

Uber

Now they have expanded and continue to grow through reiterations of their model, including Uber Eats for food delivery; Uber Freight offering shipping services; Uber Health providing rides for patients and healthcare providers; and even technology groups working towards self-driving vehicles and shared air transportation.

In the fast-paced digital world, innovation is a key element of any business model. Executives and CEOs are not responsible for maintaining the status quo defined in one iteration of the business model, but rather for experimenting, learning, and continuously improving to stay ahead of the competition.

Author: IE University

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2X

MANAGEMENT • 4 MIN READ

How To Create The Perfect Business Model In 8 Steps

image-of-business-man-creating-a-perfect-business-model

Get your Business Model wrong…

And you’re %&$#?@!

But if you get your Business Model right, Things become WAY easier.

After working with hundreds of entrepreneurs and business owners over the past few years, I’ve realized:

Nearly everyone is making their business model…

  • Too complex …
  • Horrible for cash flow (which is kind of important; more on that later) …
  • Creating a job for themselves (and not a real business) …
  • And trying to combine multiple business models into one …

Long story short, they’re setting themselves up for failure right from the start.

My focus with this article (and what we do at 2X ) is to help get your Business Model dialed in so you have the best odds of accomplishing your goals – freedom, profit, impact, growth .

This is why it’s the FIRST STEP we take when working with a new client.

image-of-2x-triangle-focusing-strategy

Strategy sits at the core of our 2X Formula , and your business model is a huge part of this. So if there’s ONE thing we can get right when working with a new client, it’s making sure they create a simplified, focused, and VERY strategic business model!

Yet, I’m guessing YOUR business model is far from optimized.

How do I know this?

Well… We work with a lot of successful entrepreneurs at 2X.

These are not people who have just started out; these are 6 and 7-figure business owners, and although they’re already having some success…

100% of Them Had An Unoptimized Business Model!

That’s right! Even though these are already successful businesses, EVERY SINGLE ONE OF THEM needed a more simple, more focused, more strategic business model… and in today’s article I’d like to show you how we help them do this.

So if you feel like you’re doing everything “right”, but you’re not:

  • Seeing the traction you would like …
  • Experiencing the growth and numbers you planned for …
  • Getting the most out of your team, or your own time management …

And you’re generally working harder and longer than ever, and beginning to think you’re stuck in ‘hustle mode’… there’s a very good chance it comes back to your business model.

I have 8 Business Model tips for you, which I’ve discovered after working with dozens of entrepreneurs and CEOs, so you can:

Scale and grow easier (and faster) … Get A LOT more productivity out of your team … Have more time to work “on” your business (instead of being stuck inside it) … Finally remove yourself as the bottleneck …

So let’s dive into the first tip, although if you prefer to watch, here’s an accompanying training video…

1. Cash Flow… The Lifeblood Of Your Business.

When you’re coming up with your strategy, you NEED to take cash flow into account. No exception, no matter who you are — whether you run a 7-figure business or are just starting out.

It blows my mind how few entrepreneurs think about cash flow when creating their business model, and it’s an issue we run into again and again when working with clients at 2X.

They come to us with a really solid business, and they are great at what they do, but they’re stuck on the six-figure hamster wheel because they don’t have a hold on their cash flow.

And this isn’t just about how much money you have in your account. This is important, sure, but what’s more important is that you have more money coming in than what’s going out. Not only that… the money coming in should come in quickly, whereas the money going out should leave over a period of time.

Take how we approach cash flow at 2X…

The majority of our clients pay in full, up front. Whereas a good portion of our team gets paid later based on results.

This means we always have really healthy cash flow, because the majority of our expenses come on the back of great results, which allows us to reinvest into our team and business, so we can acquire more customers… who give us more money up front… and this whole epic cycle continues.

It really is a beautiful thing, but we were VERY intentional about this when building our business model.

image-of-quote-its-not-only-how-much-money-is-going-in-and-out

And doing this is easy, but so few entrepreneurs do it.

Take one of our recent 2X clients : a great agency run by Thomas and Catherine, who produce amazing results for their clients.

They should have grown month-on-month, but didn’t. They’ve been flat for a while and struggled to get to the next level because they never had enough cash flow . This wasn’t surprising, because they:

  • Charged a small fee up front…
  • A few weeks later, charged a ⅓ of the project fee…
  • And then, at the end of the project ( often two months down the line ) charged the rest…

This meant they didn’t get paid the majority of their fee until AFTER they did all the work.

Well… we helped them fix this straight away!

Once they did, they more than doubled their business ( practically overnight ), and did this while Catherine went on maternity leave ( and the whole family went on a big vacation ).

2. Make YOU Replaceable… Don’t Be Your Own Bottleneck.

Last year I sat around a table of entrepreneurs, sharing stories, challenges and ideas.

Five of us were all around the same level, but two of the guys were way ahead in term of success and business size. It was a talented table, and everyone around it shared great ideas.

But I noticed something important when we all answered this question:

“What’s the number one thing that’s holding you back at the moment?”

We went around the table, and one person said cash flow and another said acquiring customers, and we all had our own excuses.

But then it got to the two most successful guys, and they both said without hesitation,

“ME! I’m The Bottleneck.”

The biggest bottleneck ( almost without exception, in any business ) is the CEO.

The reason is, most businesses are built around the founder. They rely on them to come up with the ideas and scale and grow, and often to even get everything done. When you’re at the beginning this is fine…

But the most successful businesses are those that create a business model that does the opposite: uses the founder as leverage instead of as a bottleneck .

The entrepreneurs I know who are making the biggest strides and growing the fastest are those who have designed their business model so it can scale without them (not rely on them to do all the work).

This means…

You need to make sure you’re replaceable. You have to hire a team and create processes that allow you to work “on” the business, not in it.

And a good way to gauge this is to ask yourself:

image-of-what-would-happen-to-your-business

For most, just thinking about that creates a lot of anxiety, so if your answer isn’t that it would survive and thrive without you, then you DO NOT have a business model designed for true, scalable growth.

3. Focus On ONE Audience… Stop Chasing Three.

The saying goes that the “person who chases two rabbits catches neither.”

The same applies to business, but it’s crazy how many entrepreneurs I speak to that tell me about their different offers and products … and really, all they’re saying is that they have 3 different audiences who all want and need 3 different solutions.

This is crazy.

image-of-serve-one-audience-and-do-it-well

It’s easy to try and please everyone, but in the same way you can’t catch two rabbits at once, you cannot truly impact more than one audience at any one time.

So let me ask you… what would happen if:

  • You focussed on one audience…
  • You knew this audience on a deep level…
  • You communicated to, and built messages specifically for them…
  • You designed a specific solution that creates true transformation…

You would make a massive impact, right? Of course you would, and your business would go through the roof!

This is how powerful it is when you design your business model around ONE audience, because when you build ONE offer they need, you create magic. This leads us to the next step…

4. Build ONE Core Offer… And Be Known For That.

Once you know who your ONE audience is, the next step is to build ONE core offer for them.

Sounds simple, and honestly… it is!

But the reality is that most entrepreneurs struggle with this because they worry about niching down and committing to the wrong audience or offer.

You have to fight this.

The business model your company needs should be SIMPLE. It should be specific to one type of person, and solves their problem in a specific way.

image-of-become-know-for-your-flagship-offering

Because as soon as you offer more than one solution, you dilute your marketing and message, and you create a ‘paradox of choice’ where your audience doesn’t know what they should choose — so they do nothing because it’s easier than trying to figure out the “right” answer.

This doesn’t help them and it doesn’t help you, so figure out what your ONE offer is for your ONE audience, and build your entire business model around this.

We Practice This At 2X, Because We Have ONE Core Offer For One Type Of Business Owner.

Our core offer that everyone knows us for is our 2X Accelerator program . It’s the same price for everyone, and it offers the same guarantees to all members. This keeps things SIMPLE, and helps us drive better results by optimizing and mastering ONE offer.

(we’ll do 7-figures in our first year with high profit margins, largely in part to this laser-focus on one core offering)

Most entrepreneurs think that ‘new’ and ‘more’ will save them. Often times, it won’t. Double down and make something great and you’ll be much better off.

image-of-a-simple-successful-business-model

5. Own A Phrase… Become The “Go To” Expert.

Once you have your ONE audience, you want to remove all competition and become the only “go to” expert they need (or even think about).

The best way to do this is to…

… OWN A PHRASE!

Let me explain…

Your ONE audience needs to see you as the ONLY solution to their problem, and the best way to do this is to own a relevant phrase so you remain top of mind, all the time.

I saw how crucial this is first-hand with one my previous businesses: From 6 to 7-Figures.

We intentionally built our business model around becoming the “go to” solution for self-published, non-fiction, business authors when launching their book.

So We Began To Own The Phrase… “Book Launch”

Everything we did focussed on “Book Launch”:

  • Marketing …
  • T-Shirts we wore …
  • Copy (both inside our marketing, and sales pages ) …
  • Program names …
  • Talks / Events / Networking …
  • Internal communications and team meetings …

Everything we did focussed around the phrase, “Book Launch”.

And before long, anybody who had a friend who mentioned their book launch, and they were:

  • Self-Published.
  • Non-Fiction.
  • Business Author.

… straight away they would say, “you need to speak to Austin at Epic Launch.”

We owned this phrase, and it lead to consistently qualified ‘hot’ leads every single week.

But this didn’t just happen. We consciously focussed on our ONE audience with ONE core offer, and made sure we became ‘top of mind’ by owning a relevant phrase so they saw us as the only solution.

These Three Elements: Audience + Offer + Phrase = Insane Results, And A Business Model That Works!

So once you know your audience and what your core offer is, think about the phrase you can own that will keep you top of mind with them.

  • What phrase will help you attract the right people?
  • What phrase is both memorable and relevant to you?
  • What phrase creates a positive association between your core audience and core offer?
  • And how can you become the go-to for this phrase?

6. Define Your Core Marketing Channels… And OWN Them.

This is one of the biggest mistakes we see entrepreneurs make when it comes to their business model…

… They go all in, into one platform.

I love the focus and you should dial in one core lead source at a time… … but putting all your faith into (and relying solely on) ONE marketing channel…?

A disaster waiting to happen!

A buddy of mine experienced this a couple of years ago…

He owned an ecommerce business that was on fire, growing quickly month-on-month.

But then his fast growth fell to zero as soon as his Facebook advertising costs doubled with some changes outside his control.

This, along with lower conversions and higher competition forced him to make some major investments in other forms of marketing.

image-of-those-major-investments-did-not-work-out

All this stemmed from an over reliance on a single channel, and I’ve seen countless others do the same with Google, one JV partner, etc.

But what happens if an advertising source changes their algorithm? What happens if a company goes away altogether?

You’ll wish you had multiple sources of leads … ( just like multiple sources of income is one of the keys to personal wealth ).

Please, do not back yourself into a corner like this.

A successful business model does not rely on a single platform, form of marketing, partner or client. Invest in 2-3 marketing channels that drive consistent leads, and for each one you need:

  • A great strategy — so you get the best results for the least effort…
  • A system / process — so you can repeat and consistently scale with ease…
  • An owner — someone on your team who takes charge and owns this channel…
  • KPIs & tracking — so you know the numbers, and can keep your team accountable…

7. Get Your Numbers Dialed In… From The Very Beginning.

As CEO, your decision making determines everything. But you can only make right decisions if you understand the numbers and dial them in.

And here’s the honest truth… The first time you do this, it may sting.

Honestly, most entrepreneurs don’t understand their numbers, and in the beginning when you’re hustle and grinding, you can get away with it.

But as you evolve from hustling entrepreneur into successful CEO… you need to know your numbers!

You need this dose of reality, and you need to objectively base your decisions on the:

  • Financial numbers…
  • Core KPIs and measurables…
  • Key data points…

This is why NUMBERS play a fundamental role in the work we do at 2X …

image-of-2x-triangle-focusing-numbers

When we work with a new client, we start with their vision and goals and what they plan to accomplish, but then dive into their numbers and figure out if what they’re doing will help them achieve this.

And I’m afraid to say, most of the time the numbers don’t add up.

So do the math! Does it add up to your goals?

If not, you need to change your strategy and business model, and you need to dial in your numbers so everything aligns.

Knowing your numbers is one of the most important things you will ever do as a CEO, although nothing we’ve talked about so far matters unless you do this final thing …

8. Align ALL This With Your Vision!

Building the perfect business model means nothing unless it aligns with your vision.

This is why the first thing we do with a new client is dive into what they TRULY want…

  • Want a million bucks…? Great.
  • Want more time with your family…? Fine.
  • Want to travel the world and work from a laptop…? Sure.

Whatever your vision is… build the business model that will make this happen!

Use the other seven tips we talk about in this article, sure… but none of that matters unless you:

  • Have a specific vision (that gives you purpose).
  • Align your business model to this vision.

This is why this final tip is the most important of all, because unless you get this right, everything else will fall apart as you grow and scale your business.

Which is why VISION is central to our entire 2X Formula .

image-of-2x-formula

If you align your business model with your vision, you WILL build something amazing.

We’ve seen how powerful this process is at 2X.

We work with talented people each day who have a great business, but struggle to scale to the next level (and are burning out because all they know is to hustle and grind).

Yet within 90 days we help them 2X their business, and:

  • Increase their revenue and profits like Ryan and Erik , who went from $6.5 million before they joined 2X, to more than $35 million while in the 2X program…
  • Remove their key bottlenecks holding them back like Alex did, who learned how to leverage his time and team properly while working with us, and tripled his business in just 42 days …
  • Optimize their team and improve their operations like Willem …
  • Save them time so they can work “on” the business (instead of “in” it) like Thomas and Cathrine , who scaled their business while Cathrine was on maternity leave, giving them the work/life balance they desired …

We do this by guiding them through the 2X Formula, offering them 1-on-1 business coaching and mentorship . You’ve seen part of this process in today’s article, but it only scratches the surface.

So if you want to see the entire 2X Formula in action, we’ve recorded an in-depth training that goes through it step-by-step.

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The Playbook To 7+ Figures

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8 Types of Business Models & the Value They Deliver

Stacks of coins in a garden

  • 26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

Access your free e-book today.

8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

  • Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
  • Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

  • Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
  • Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

  • Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
  • Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

  • Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
  • Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

  • Pros: You don’t have to have a novel idea to make money using a lease business model. You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
  • Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

  • Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
  • Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

  • Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
  • Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

  • Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
  • Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

So You Want to Be an Entrepreneur: How to Get Started | Access Your Free E-Book | Download Now

Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

why create a business model

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Business Models – Example, Types, Importance & Advantages

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Listen to this:

Every business or company makes a plan for generating profit. They create a model for identifying products and services to sell, the market they want to target and also take into account anticipated expenses. This is known as business models.

Even if the business is already established or even if it is a new business, a plan needs to be made. Businesses need to regularly update their plans and strategy as they need to take into account the challenges and trends for future models.

Table of Contents

What are the business models.

The strategy a business uses to turn a profit is referred to as its business model. It lists any estimated costs as well as the goods or services the company intends to sell, as well as its chosen target clientele.

Both new and established businesses need strong business models. They aid young, developing businesses in luring capital, hiring talent, and inspiring management and personnel.

Established companies must continuously alter their business models if they are to stay abreast of emerging trends and problems. Business models also assist employees in understanding the future of an organisation they might want to work for and investors in evaluating companies that interest them.

How to Evaluate Succesful Business Models

When developing their business concepts, many organisations frequently underestimate the costs of financing the venture until it turns a profit. It is not sufficient to calculate the costs of a product’s launch. A corporation must continue operating until revenues outweigh expenses.

The company’s gross profit can be used as one indicator for analysts and investors to determine whether a business strategy is successful. A company’s gross profit is its total revenue less its cost of goods sold (COGS).

The efficiency and efficacy of a company’s business model can be determined by comparing its gross profit to that of its main rival or its sector. However, relying only on gross profit can be misleading. Analysts also request access to net income or cash flow. This shows how much actual profit the company is making by taking gross profit and subtracting operating expenses.

Importance of Business Models

The business model helps to target the customer base of the company. It helps in making marketing strategies, and projections of revenues and expenses taking into account the type of Business models and clientele.

Every investor needs to review the business model in order to get knowledge about the company’s competitive edge . Understanding the business model helps investors to have a better sense of financial data.

Evaluating the business model helps the investors to get an overall view of the company’s products, its business strategies and future prospects.

Business Model Examples

For example, let’s take company A which rents and sells video games. So the company is in the business of video games. The company used to make a profit of 5 million after spending 3 million on their inventories for video games. So, the total gross profit margin is 2 million.

The Internet arrived in the market and the company now has to alter its business model by taking into consideration the Internet in order to survive in the market. So as a result the cost of holding inventory and distribution cost also gets reduced. Since expenses reduce profit increases.

Even though with the arrival of internet sales get reduced but the company was able to expand its business as technology helped it to change course.

In a similar way, there are various business models types-

What are Business Models Types?

We will discuss here 4 business models types:

Business Models - Example, Types, Importance & Advantages 2

1. Business -To- Business Models (B2B)

When dealings or transactions take place between two companies or businesses then this type of business model is known as business to the business model.

It has good market predictability and more market stability . Since under B2B sale is made in bulk amount this model leads to lower cost for the businesses.

The best example of this type of business model in India is IndiaMart InterMesh which is a wholesale B2B marketplace. It offers millions of products to its customers which includes consumer electronics, machinery, apparel and many more.

2. Business -To-Consumer Models (B2C)

The business-2-consumer business model is a model that refers to businesses that sell their services or products directly to the consumer who are the end users of the products or services.

There is an ongoing demand for the products as it provides the essential items. This thus eliminates the risk of fluctuation in demand and helps in maintaining consistency in the business. Since direct contact is there with the customers so information is shared with them directly and easily.

Customers are given products at a low price compared to their competitors for the business to run smoothly.

An example of business to consumer model is Avenue Supermart which provides goods directly to its customers.

3. Subscription-Based Models

Any application-based businesses or software companies have subscription-based business models. They offer their product as a one-time purchase, in return company earns monthly or annual revenues.

Business Models - Example, Types, Importance & Advantages 3

This type of business model allows the company to earn regular income by giving the client the opportunity to pay for the cost of the purchase in 12 equal payments rather than asking them to pay the wholesome amount in one go.

One of the leading examples is Infoedge for this type of business model.

4. On-Demand Business Model

It is the most recent form of model which is made out on the need by answering immediately. This type of business model is prepared in such a way that all the questions will be answered by just a click of a button in seconds.

It is very much convenient and easy for customers as even before customers have visited a particular city they get their hotels or places booked.

One of the examples is making my trip which allows customers to plan the holidays and make the bookings in advance.

Advantages of Business Models

  • A good business model gives the company a competitive edge in the industry.
  • A strong business model provides the company good reputation in the market place encouraging investors to remain invested in the company.
  • Making the business model strong leads to an ongoing business profit leading to an increase in cash reserve and new investments.
  • A proven business model brings financial stability to the organization.

Business models have disadvantages as well.

Disadvantages of the Business Model

  • Once a business model is created, then it restricts to implementation new ideas for the product.
  • Creating a business model is time-consuming as a lot of factors need to be considered.
  • There might be a chance that the business model may turn out to be inaccurate.

Apart from the disadvantages, the business model is mandatory to be prepared before starting of a new project.

To know more about Fundamental Analysis, you can join our course on Stock Valuation Made Easy Explore about business models and enhance your financial expertise through our premier stock investment courses . Enroll now for success!

A business is more than just a place where things are sold. It’s an ecosystem, therefore it needs a plan for who to sell to, what to sell for, how much to charge, and how much value it’s producing.

What an organisation does to consistently produce long-term value for its clients is described by its business model. A company should have a clearer understanding of how it intends to function and what its financial future looks like after developing a business model.

While preparing business and revenue models, one of the most important skills that is required is Ms Excel. Wish to learn it ? That also in Hindi? Then join our ms excel in hindi full course now!

Frequently Asked Questions

What is a good business model.

A good business model is one that provides the company with a competitive edge in the industry-leading to good business profits.

Why is a business model important?

The business model is important because it provides the investors with knowledge about the competitive edge of the company and provides better insight into the workings of the company. A strong business model leads to cash generation and future expansion.

How do you create a business model?

The business model is created by identifying the products and services that will be sold in the market to be targeted like B2B, B2C, subscription-based model or on-demand market.

What are the components of the business model?

The business model includes information about the company’s products, its target market and its future prospect related to its business type.

To get the latest updates about Financial Markets, visit  StockEdge

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How to create a business model for a startup

Business model cover photo

A lot of startups need help with creating a business model that will be successful and generate money.

Without a sound business model, your company is likely to fail, so it's essential to make one if you want to succeed.

Our blog post walks you through the process of creating a business model for your startup . We provide tips on identifying your revenue sources, cost structure, and profit models.

So don't stop—read on!

This is the eighth in a series of blog posts designed to help startup founders better understand and plan the products they build. If you wish to learn more about market research ,  desk research , and competitor analysis , read our previous posts.

TABLE OF CONTENTS

What is a business model? Definition

How to create a business model for your startup.

  • Revenue model Startup consultant's insight: what are the most popular revenue models for startups?

Total revenue model

Cost structure, profit model, growth model, final thoughts.

A business model depicts the essential components of a business or organization that, when combined, will generate profit. It pinpoints revenue sources, cost structure, and profit and growth models that will ensure continued success.

What does a business model look like?

Creating an Excel sheet is the most accessible form of putting all elements of your startup's business model together.

Business model: what it is and what it is not

A business model is not a business plan.

A business plan is a detailed document of a company's goals. It's a broader term because it includes not only a revenue-cost-profit model but also a description of your business, your marketing and sales strategy, product or service description, your management team, and market analysis.

Why is a business model important

Laying out a business model is essential for the further success of your company. Why?

Because it lets you organize your business ideas. A decent business model will help you define how your startup will make money. It will make you better understand the revenue and cost structure.

Now that we know the definition, let's get down to why you clicked this article.

Below I'll explain what your business model should include. We'll review the most popular business (revenue) models for startups. Then we'll discuss multiple revenue streams you can take advantage of and what to consider when creating a cost structure. Lastly, we'll talk about the profit model (a little bit) and the growth model (a little more).

The right business model requires including a few elements. These are your:

  • revenue model,
  • total revenue model,
  • cost structure,
  • profit model,
  • growth model.

Stick with me cause I'm sure you want to read about an example of a brilliant dog-walk app, UberPet , that charges professional dog walkers for walking dogs and pet owners for having their dogs walked. A win-win for the one who invented the app, right? 😉

Revenue model

A quick disclaimer #1

The terms "revenue models" and "business models" are used interchangeably in Google. This means that you will be shown the same or similar results if you type in the search bar any of these phrases. It's incorrect since the term "revenue models" is narrower than "business models," but the Internet has its rules, and there's nothing we can do about it. Just remember that there are two phrases you can use when researching the topic.

A quick disclaimer #2

This is super important, so let me bold the information:

There can be different types of users in one product. This means you can have many different business models within one product.

Let's look at an example of the already mentioned UberPet (a fictional application we've created for the use of this article).

UberPet is a mobile app for professional dog walking services. It enables you to find someone to walk your dog when you can't do it yourself. It's a marketplace connecting dog owners and professional dog walkers.

This app has two business models: one for dog owners and one for dog walkers.

A. Dog owners pay a certain amount of money for a dog walking service.

B. Dog walkers pay a monthly subscription to be listed on the marketplace.

So, in the first case, that would be the on-demand model (because a service—walking a dog—is provided when a consumer wants it). In the second case, the model would be a subscription.

What are the most popular revenue models (business models) for startups?

There are multiple business models to choose from, but we will discuss only those that have proved to be the most popular among startups. This is a list of revenue models selected by our startup consultant Wojtek . 

So what are the best models to generate revenue?

Marketplace model

Online marketplaces are  platforms that connect buyers and sellers . We can distinguish horizontal and vertical marketplaces. In horizontal marketplaces, multiple product categories will cater to a broader audience (Amazon). Vertical marketplaces, on the other hand, concentrate on a single, often niche market sector (Etsy - vintage, custom, DIY things).

The marketplace business model is a big one since it includes other popular models:

  • Subscription
  • Featured ad

I'll describe the first three in a second but let me shortly present the last two before.

If you're a seller in a listing marketplace, you must first pay to be featured on the platform list. You're paying for being added to a repository.

The featured ad model is often combined with other models, such as commission or listing. In this case, a seller pays extra money to have their product or service listed on the top of a search result.

Subscription model

This revenue model goes back to the 17th century but is booming today.

In the subscription model, customers pay a recurring price at fixed intervals to maintain access to a product or service . Your subscription will automatically renew at the end of each period, and your credit card or checking account will be charged for the new period.

The popularity of this model is justified.

A business's predictions for revenue become more reliable when subscribers continually pay customers throughout their agreement, so the companies feel more secure.

On the other hand, customers might enjoy being subscribed to a service or product if they think they will buy it frequently, and through subscriptions, they could save money. Also, with the help of subscription services, customers can save time.

Examples: Netflix

Freemium model

The freemium model is a common variation of the subscription business model. It combines  free and premium services . A user gets access to a basic (free) product, but money is charged for additional (premium) features or services.

Examples: LinkedIn, Spotify

Commission model

This is one of the most popular revenue models. Here, a (platform) gets  a commission from each transaction . A marketplace charges a percentage or fixed fee for its services when the customer pays the supplier.

Example: Uber

Affiliate model

Let's discuss this business model on the example of Amazon Associates—Amazon's affiliate marketing program.

The affiliate model in the online world is based on  customized affiliate links . In Amazon's case, if you're a content creator, publisher, or blogger, you can share products available on Amazon with your audience. You then earn money for each qualifying purchase or customer action (signing up for a free trial program etc.) made through your link.

You're happy because you get up to 10% off every transaction. The more engaged your audience is, the more you can get. Amazon's happy because more traffic is generated and more products are sold.

Example: Amazon Associates

One-time payment model

One-time payment is as simple as it sounds. You offer a product the user must  pay only once  to obtain it.

Once you have decided on which business models to use, you can move on to define your total revenue model.

To count the total revenue, you must add  money obtained from your revenue model and additional revenue streams  (peripheral income), that is, the money you get outside your core activities.

Additional revenue channels could be:

  • Paid ads (you make money on ads displayed in your app),
  • one-time payments inside your app,
  • consulting,
  • selling digital products,
  • affiliates,

The next thing you should do is calculate the cost structure. Here you must include  fixed and variable costs . Things to incorporate in your cost structure might be:

  • product development,
  • marketing and sales,
  • recruitment,
  • maintenance,
  • infrastructure (office etc.)
  • operating costs,
  • management fee,
  • customer acquisition cost,
  • customer retention cost,

Now you know your revenue and costs, you can summarize all you know so far. In this step, you  subtract your costs from the money earned to see if the initial assumptions about your business actually make sense and if the startup can be profitable.

The last step you take is developing your growth model. Create  a decent Excel table with predictions for the next 24 months . You want to answer the question:  How do I plan to grow my business, and what do I need to make it possible?

Remember that while your revenue grows, your costs will grow as well. 

Costs might grow differently than your revenue; sometimes, costs will grow much slower than the revenue (and that's the perfect scenario).

In your growth model, you need to  think very broadly and analyze how each action you take will interact with other factors .

Try to predict how much money you need to invest in acquiring new users monthly. But you can't stop here! Because these new users will generate new costs, right? Let's look at an example.

I invest 10,000 USD to generate 1,000 new users over the next 3 months. These 1,000 new users will make my monthly turnover grow by 50,000 USD. However, these 1,000 new users will force me to hire new people for my team. That will cost me 10,000 USD monthly...

...and so it goes.

Useful metrics you must take into consideration when calculating your growth model are:

  • Customer acquisition cost (CAC) = how much you spend to acquire new customers. (By the way, we recently published a post on  startup customer acquisition in 2022 . Check it out!)
  • Customer retention cost   (CRC)  = how much you spend to keep one existing customer buying.
  • Customer lifetime value (CLV) =  the total income you can expect from a customer over the whole period of your relationship.
  • Conversion rate (CR) =  the conversion rate of a website is the percentage of visitors that complete a desired goal (a conversion) out of the total number of visitors.
  • Monthly recurring revenue (MRR)  = the stable and predictable portion of your startup's revenue for one month.

And that's it for the business model. Now you have an overview of what a business model is and know the following:

  • why you should create one,
  • that you can combine multiple revenue models within one product,
  • what the most popular business models for startups are,
  • what 5 elements your business model should consist of.

Remember that not every business will find the same model successful. Choose those that will let you successfully launch your product and achieve long-term success.

Good luck with creating your business model!

Startup consulting services for creating a startup business model

Article author

why create a business model

Ewelina Lech

Seasoned researcher with a focus on fintech, digital health, AI, and product development. Always striving to provide insightful and accessible writing, with valuable industry insights and trends for professionals and enthusiasts alike.

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How To Create A Business Model In Seven Steps

Define the problem you’re going to solve, then define the customers for which the problem will be solved. Next, identify the customer and the problem. After that, define a set of possible solutions. After, define a set of possible monetization strategies for that solution, test, and choose your business model .

Table of Contents

A business model design in seven steps

Time needed:  1 day

How to create a business model in one day and seven simple steps

product-market-fit

The most valuable asset any organization has is its business model .

Indeed, that is the way all the moving parts of the organization fit together to create a value chain.

The aim of the value chain is value creation for several players in that industry, market, and so on.

The business model is not static, it changes and evolves along with the scale of the organization.

The type of  business model you designed for your company will not work if your company scales. You’ll need to rethink and redefine it.

This is even more evident in companies that are trying to innovate.

When those organizations create a new technology or an innovative approach to existing industries, it is critical to understand who are the players involved in that industry and how you’re creating value for them.

In this blog, we covered the business models  of many organizations.

For instance, Google’s massive success is strictly connected to its business model .

The company managed to create a balance between several players in the publishing and information industry where each of those players gets back some value (economic and not) from having a relationship with Google .

Where do you start when it comes to creating a business model ?

Related : Successful Types of Business Models You Need to Know

It’s all about business model design

The primary aim of a business model is to create a sustainable chain, able to unlock value for several players in a market, industry, or niche .

Therefore, this value chain will start from a value proposition , a promise you make to the key players and partners in that market, industry, or niche depending on where you start.

For instance, when PayPal started out it didn’t look to dominate the whole market. It started from a niche .

As Pether Thiel put it in his book, Zero to One:

The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

Indeed, PayPal began by identifying its most valuable partner, what at the time they called “power user.”

That was a choice driven by its business model design .

Therefore, instead of focusing on generically offering a service for everyone, PayPal focused on acquiring and attracting as many power users as possible.

Those power users were mostly on another platform that had already scaled up: eBay.

Thus, PayPal focused all its effort on acquiring those power users from eBay , fast!

Only after PayPal had drafted, tested, and validated a clear value proposition for a small , yet critical group of power users, it could move on to take larger and larger segments of that market.

What is a value proposition?

At its most basic level, a value proposition is a promise you make as an organization to deliver something (either monetary or advantage) to a critical player you have in our industry.

For instance, when Google started it showed right away it was capable of offering 10x of search results, at a faster speed and more relevant to users.

However, had Google kept its search engine primarily focused on providing paid results, it would not have taken off.

Instead, Google focused on offering relevant paid results but also a bunch of organic results.

In short, Google managed to index and rank the web pages from blogs, journals, news sites and any other website that made those pages available to Google for its index.

In exchange for that content, Google offered back visibility as qualified traffic toward those sites.

Indeed, search engines back then (at the end of the 1990s) were not focused on offering quality traffic.

Thus, most of the audience you got back to your site might have been quite relevant to your business.

Google instead, with its dominant search engine allowed publishers, and businesses (small and large) to gain customers.

That sealed an implicit deal “Me (Google) will send you qualified traffic that helps you grow your business if you (publisher, business, or whoever publishes on the web) offer me your content to be indexed.”

We might call that an implicit contract, which is the beginning of a value chain.

In fact, from this sort of contract part of the Google business model has been built. Imagine the scenario where Google was not attractive enough to provide qualified traffic to content producers.

They would have stopped offering their content for free by blocking access to the search engine.

Instead, they allowed Google to index their pages because the visibility they got was too attractive.

A business model is also about how you make money but how you make money isn’t your business model

One of the biggest misconceptions of the business model is to confuse it with the monetization strategy or the revenue model of the company.

While this is an essential piece of the puzzle, it is just one of the components of a successful business model .

In this blog, we’ve discussed at great length how companies make money  as a way to start the discussion of a business model .

However, a business model implies the understanding of

operations, customer acquisition and retention, supply chain management, and the cost above and revenue aspects

According to the business model you designed over the years for your organization there will be a piece that plays a more critical role compared to others.

For instance, a vital component of the Coca-Cola business model is its distribution strategy .

For other companies like McDonald’s, the key to its business model success is the heavily franchised restaurants that helped the company scale up all over the world.

Each company will develop a unique  model  among the many types of business models which is what makes it thick in the long run!

What principles should I follow to create and design a business model?

Developing a deep understanding of your business model implies asking a few critical questions. For instance, some of those questions might be:

  • What value do I offer my potential customers? Or what problem do I solve with my product/service?
  • How do I charge my customers?
  • What does my acquisition cost look like?
  • What channels can I tap into to find my ideal customer?
  • Did I create a predictable revenue stream ? If not what can I do to generate that?

Your business model will be based on a few critical assumptions about who your customers are, how your product or service should look like, what are the favorite channels to reach them, and a few others.

Those assumptions will be tested as soon as you start kicking off your operations.

Your main concern should be just that. You need to check those assumptions as quickly as possible. 

Steve Blank has identified 17 principles in his  Customer Development Manifesto :

  • There Are No Facts Inside Your Building, So Get Outside
  • Pair Customer Development with Agile Development
  • Failure is an Integral Part of the   Search for the Business Model
  • If You’re Afraid to Fail You’re Destined to Do So
  • Iterations and Pivots are Driven by Insight
  • Validate Your Hypotheses with Experiments
  • Success Begins with Buy-In from Investors and Co-Founders
  • No Business Plan Survives First Contact with Customers
  • Not All Startups Are Alike
  • Startup Metrics are Different from Existing Companies
  • Agree on Market Type – It Changes Everything
  • Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
  • If it’s not About Passion, You’re Dead the Day You Opened your Doors
  • Startup Titles and Functions Are Very Different from a Company’s
  • Preserve Cash While Searching. After It’s Found, Spend
  • Communicate and Share Learning
  • Startups Demand Comfort with Chaos and Uncertainty

I suggest you read this manifesto over and over again. This should be the first step!

What tools can you use to design and create your business model?

One of the most used tools to design and create a business model has revolved around the customer development manifesto above.

However, it is essential to keep in mind that this manifesto was the fruit of an era where venture capital had become scarce compared to the dot-com bubble at the end of the 1990s.

Those tools for business modeling have been developed in that context. Thus, those are not a one-size-fits-all toolbox but rather work better in a context where capital is scarce, and you need to test your business model assumptions as quickly as possible. In that context three primary tools are:

  • Business model canvas.
  • Lean startup canvas.
  • Customer development canvas.

Those tools can be used by entrepreneurs in the phases of the business model generation:

  • Map the business model hypotheses.
  • Test these hypotheses with customer feedback.
  • Iterative this process.

The result will be an incremental development of a product that will reach a minimally viable version .

The better the product, based on customer feedback, the larger the audience it will reach.

Lean makes sense when capital is scarce and when you need to keep burn rates low.

Lean was designed to   inform the founders’ vision  while they operated frugally at speed. It was not built as a focus group for consensus for those without deep convictions .

Is the lean startup still a valuable model?

As Steve Blank has pointed out in an HBR article entitled “ Is the Lean Startup Dead? “

I realized it was time for a new startup heuristic: the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.

In other words, the more risk capital that is available on the market the least the lean startup model might work.

The reason is, that if you have massive risk capital, you won’t need to test all your assumptions.

Quite the opposite, you’ll need to execute them fast.

Also, one of the primary logic of the lean startup is to burn cash at the slowest rate possible, while evolving (so-called pivoting) your business model .

If money is not an issue, then why go for the lean startup?

Steve Blank went further:

Rather than the “first mover advantage” of the last bubble ,  today’s theory is that  “massive capital infusion owns the entire market.”

Therefore, if you secured a massive injection of money, then your aim might be primarily toward growth , rather than profits.

In that context, the lean startup might not work!

Are capital moats sustainable?

blitzscaling-business-model-innovation-canvas

When a company or startup has a substantial capital allocate for growth , that is when this injection can become a short-term competitive advantage.

However, as companies finance growth through artificial injection of capital, those also become extremely risky, because many of the assumptions underlying the business model can’t be tested organically, thus leaving the company’s foundations weak.

An example of this excess of use of capital as a competitive moat has been WeWork , which has proved one of the most disastrous business endeavors of the last decade.

Thus, capital moats and technological moats need to be balanced with careful business model testing and organic validation in the marketplace!

Key Highlights

  • This step is the foundation of your business model . It involves identifying a specific problem that your product or service aims to solve.
  • Problems can be functional (solving a practical need) or emotional (addressing a psychological desire or pain point).
  • Defining the problem clearly helps you focus on delivering value to your target audience.
  • Once the problem is defined, it’s important to identify the individuals or groups who are facing this problem. These are your potential customers.
  • Group your potential customers into categories, keeping it to a maximum of three types. Each type may have distinct characteristics and needs.
  • From the categories of potential customers and the identified problems, narrow your focus to one key customer type and one specific problem.
  • This step helps prevent spreading your resources too thin and allows you to concentrate on understanding your primary audience and addressing their primary need.
  • Brainstorm a range of solutions that could address the key problem for your chosen customer type.
  • List up to ten solutions. Then, evaluate these solutions based on feasibility, cost, time, and resources required.
  • Narrow down the list to three solutions that are viable given your constraints.
  • For the solution you’ve chosen, consider how you’ll monetize it. Determine how your business will generate revenue from providing the solution to your target customers.
  • Brainstorm up to five potential monetization strategies. These could include subscription models, one-time purchases, freemium offerings, etc.
  • Focus on the two strategies that can be tested quickly and efficiently.
  • This step involves practical validation of your selected solution and monetization strategies.
  • Test your product or service with real customers to gather feedback. Evaluate how well your monetization strategies perform in real-world scenarios.
  • Based on the feedback and data collected, choose the most effective solution and monetization strategy combination.
  • With a validated solution, monetization strategy , and a clear understanding of your target audience, you have the foundation of your business model .
  • Your business model is the blueprint that outlines how your company will create, deliver, and capture value in the market.
  • Continuously monitor and refine your business model as you gather more insights from customers and adapt to changing market conditions.

Create Your Business Model Idea In Less Than A Minute!

With our Business Model Idea generator, you can craft the perfect business model idea, in less than a minute, by leveraging AI, to help you find the first version of the building blocks needed to build a successful business model !

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  • Successful Types of Business Models You Need to Know
  • What Is A Heuristic And Why Heuristics Matter In Business
  • What Is Bounded Rationality And Why It Matters
  • The Complete Guide To Business Development
  • Business Strategy: Definition, Examples, And Case Studies
  • Blitzscaling Business Model Innovation Canvas In A Nutshell
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GoForth Institute Blog | Canadian Entrepreneur Training

Why a business model is so important

  • Published March 13, 2010 December 8, 2017
  • in Small Business Tips and Advice

why create a business model

But, are you?

Before you start your small business , you need to create a business model – your roadmap for small business success.  And no, a business model is not a business plan.  You can’t even begin to write a business plan until you’ve created a “blueprint” for your success with a business model. Confused? Let’s take a closer look at a business model.

A business model is a blueprint for small business success

Building a business is a lot like building a house – and who can imagine a house built without preliminary sketches? Creating a small business model means planning – on paper – the fundamentals of your business. It helps you, as an entrepreneur, to put aside the excitement and make a realistic evaluation of the potential success of your business idea. A proper business model helps you to figure out elements such as: Your business concept – what problem are you solving for whom; how you will create customer value; how your product or service will get to customers; how your business will stay competitive; and all revenue and costs you can anticipate.

Take your time creating a business model

You may have a few ideas scribbled down on a sheet of paper – name ideas, product prices and ideal locations. This is a great start, but a proper business model takes time. Starting a small business is exciting, but you also need the strongest foundation possible to ensure small business success. Don’t guess what your business’ customer value will be – research! Survey your friends and work your business network to find the true value of the solution that your product or service offers to the marketplace. Taking your time creating your business model will ensure you don’t underestimate – or overestimate – anything.

Consider all possible areas of concern

There are many moving parts when it comes to running a business and you don’t want to be caught unprepared. For example, how exactly will your product make its way to your customers? Make sure your business model is thorough and covers all the bases. Once you’ve proven the feasibility of your new business or your business expansion plan on paper with a business model, you’re ready to write a more comprehensive business plan. Proper planning takes time and effort, but you’ll see the return on that investment when your great idea has become the great, successful small business you envisioned.

[…] Do I have a business model? […]

Contrary to popular wisdom, the business model is far more important than the business plan. I recommend the business model assessment at http://businessmodelevaluator.com

[…] Business plans begin with a business model, which are two very distinct things. A business plan is really just the written execution of a good business model. Find out why a business model is important here. […]

A business model should tell you how and why a business should work.

For example if your idea is to sell land line phones, your model should show a lot of warning red flags.

If you have a great new product your model should say that you can be successful.

[…] model is so important | GoForth Institute | Canadian Entrepreneur Training. [online] Available at: https://canadianentrepreneurtraining.com/why-a-business-model-is-so-important/ [Accessed 8 Nov. […]

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Circular economy: definition, importance and benefits

The circular economy: find out what it means, how it benefits you, the environment and our economy.

why create a business model

The European Union produces more than 2.2 billion tonnes of waste every year . It is currently updating its legislation on waste management to promote a shift to a more sustainable model known as the circular economy.

But what exactly does the circular economy mean? And what would be the benefits?

What is the circular economy?

The circular economy is a model of production and consumption , which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended.

In practice, it implies reducing waste to a minimum. When a product reaches the end of its life, its materials are kept within the economy wherever possible thanks to recycling. These can be productively used again and again, thereby creating further value .

This is a departure from the traditional, linear economic model, which is based on a take-make-consume-throw away pattern. This model relies on large quantities of cheap, easily accessible materials and energy.

Also part of this model is planned obsolescence , when a product has been designed to have a limited lifespan to encourage consumers to buy it again. The European Parliament has called for measures to tackle this practice.

Infographic explaining the circular economy model

Benefits: why do we need to switch to a circular economy?

To protect the environment.

Reusing and recycling products would slow down the use of natural resources, reduce landscape and habitat disruption and help to limit biodiversity loss .

Another benefit from the circular economy is a reduction in total annual greenhouse gas emissions . According to the European Environment Agency, industrial processes and product use are responsible for 9.10% of greenhouse gas emissions in the EU, while the management of waste accounts for 3.32%.

Creating more efficient and sustainable products from the start would help to reduce energy and resource consumption, as it is estimated that more than 80% of a product's environmental impact is determined during the design phase.

A shift to more reliable products that can be reused, upgraded and repaired would reduce the amount of waste. Packaging is a growing issue and, on average, the average European generates nearly 180 kilos of packaging waste per year . The aim is to tackle excessive packaging and improve its design to promote reuse and recycling.

Reduce raw material dependence

The world's population is growing and with it the demand for raw materials. However, the supply of crucial raw materials is limited.

Finite supplies also means some EU countries are dependent on other countries for their raw materials. According to Eurostat , the EU imports about half of the raw materials it consumes.

The total value of trade (import plus exports) of raw materials between the EU and the rest of the world has almost tripled since 2002, with exports growing faster than imports. Regardless, the EU still imports more than it exports. In 2021, this resulted in a trade deficit of €35.5 billion.

Recycling raw materials mitigates the risks associated with supply, such as price volatility, availability and import dependency.

This especially applies to critical raw materials , needed for the production of technologies that are crucial for achieving climate goals, such as batteries and electric engines.

Create jobs and save consumers money

Moving towards a more circular economy could increase competitiveness, stimulate innovation, boost economic growth and create jobs ( 700,000 jobs in the EU alone by 2030 ).

Redesigning materials and products for circular use would also boost innovation across different sectors of the economy.

Consumers will be provided with more durable and innovative products that will increase the quality of life and save them money in the long term.

What is the EU doing to become a circular economy?

  In March 2020, the European Commission presented the circular economy action plan,  which aims to promote more sustainable product design, reduce waste and empower consumers, for example by creating a right to repair ). There is a focus on resource intensive sectors, such as electronics and ICT , plastics , textiles and construction.

In February 2021, the Parliament adopted a resolution on the new circular economy action plan demanding additional measures to achieve a carbon-neutral, environmentally sustainable, toxic-free and fully circular economy by 2050, including tighter recycling rules and binding targets for materials use and consumption by 2030. In March 2022, the Commission released the first package of measures to speed up the transition towards a circular economy, as part of the circular economy action plan. The proposals include boosting sustainable products, empowering consumers for the green transition, reviewing construction product regulation, and creating a strategy on sustainable textiles.

In November 2022, the Commission proposed new EU-wide rules on packaging . It aims to reduce packaging waste and improve packaging design, with for example clear labelling to promote reuse and recycling; and calls for a transition to bio-based, biodegradable and compostable plastics.

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Google’s Gemini is now in everything. Here’s how you can try it out.

Gmail, Docs, and more will now come with Gemini baked in. But Europeans will have to wait before they can download the app.

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In the biggest mass-market AI launch yet, Google is rolling out Gemini , its family of large language models, across almost all its products, from Android to the iOS Google app to Gmail to Docs and more. You can also now get your hands on Gemini Ultra, the most powerful version of the model, for the first time.  

With this launch, Google is sunsetting Bard , the company's answer to ChatGPT. Bard, which has been powered by a version of Gemini since December, will now be known as Gemini too.  

ChatGPT , released by Microsoft-backed OpenAI just 14 months ago, changed people’s expectations of what computers could do. Google, which has been racing to catch up ever since, unveiled its Gemini family of models in December. They are multimodal large language models that can interact with you via voice, image, and text. Google claimed that its own benchmarking showed that Gemini could outperform OpenAI's multimodal model, GPT-4, on a range of standard tests. But the margins were slim. 

By baking Gemini into its ubiquitous products, Google is hoping to make up lost ground. “Every launch is big, but this one is the biggest yet,” Sissie Hsiao, Google vice president and general manager of Google Assistant and Bard (now Gemini), said in a press conference yesterday. “We think this is one of the most profound ways that we’re going to advance our company’s mission.”

But some will have to wait longer than others to play with Google’s new toys. The company has announced rollouts in the US and East Asia but said nothing about when the Android and iOS apps will come to the UK or the rest of Europe. This may be because the company is waiting for the EU’s new AI Act to be set in stone, says Dragoș Tudorache, a Romanian politician and member of the European Parliament, who was a key negotiator on the law.

“We’re working with local regulators to make sure that we’re abiding by local regime requirements before we can expand,” Hsiao said. “Rest assured, we are absolutely working on it and I hope we’ll be able to announce expansion very, very soon.”

How can you get it? Gemini Pro, Google’s middle-tier model that has been available via Bard since December, will continue to be available for free on the web at gemini.google.com (rather than bard.google.com). But now there is a mobile app as well.

If you have an Android device, you can either download the Gemini app or opt in to an upgrade in Google Assistant. This will let you call up Gemini in the same way that you use Google Assistant: by pressing the power button, swiping from the corner of the screen, or saying “Hey, Google!” iOS users can download the Google app, which will now include Gemini.

Gemini will pop up as an overlay on your screen, where you can ask it questions or give it instructions about whatever’s on your phone at the time, such as summarizing an article or generating a caption for a photo.  

Finally, Google is launching a paid-for service called Gemini Advanced. This comes bundled in a subscription costing $19.99 a month that the company is calling the Google One Premium AI Plan. It combines the perks of the existing Google One Premium Plan, such as 2TB of extra storage, with access to Google's most powerful model, Gemini Ultra, for the first time. This will compete with OpenAI’s paid-for service, ChatGPT Plus, which buys you access to the more powerful GPT-4 (rather than the default GPT-3.5) for $20 a month.

At some point soon (Google didn't say exactly when) this subscription will also unlock Gemini across Google’s Workspace apps like Docs, Sheets, and Slides, where it works as a smart assistant similar to the GPT-4-powered Copilot that Microsoft is trialing in Office 365.

When can you get it? The free Gemini app (powered by Gemini Pro) is available from today in English in the US. Starting next week, you’ll be able to access it across the Asia Pacific region in English and in Japanese and Korean. But there is no word on when the app will come to the UK, countries in the EU, or Switzerland.

Gemini Advanced (the paid-for service that gives access to Gemini Ultra) is available in English in more than 150 countries, including the UK and EU (but not France). Google says it is analyzing local requirements and fine-tuning Gemini for cultural nuance in different countries. But the company promises that more languages and regions are coming.

What can you do with it? Google says it has developed its Gemini products with the help of more than 100 testers and power users. At the press conference yesterday, Google execs outlined a handful of use cases, such as getting Gemini to help write a cover letter for a job application. “This can help you come across as more professional and increase your relevance to recruiters,” said Google’s vice president for product management, Kristina Behr.

Or you could take a picture of your flat tire and ask Gemini how to fix it. A more elaborate example involved Gemini managing a snack rota for the parents of kids on a soccer team. Gemini would come up with a schedule for who should bring snacks and when, help you email other parents, and then field their replies. In future versions, Gemini will be able to draw on data in your Google Drive that could help manage carpooling around game schedules, Behr said.   

But we should expect people to come up with a lot more uses themselves. “I’m really excited to see how people around the world are going to push the envelope on this AI,” Hsaio said.

Is it safe? Google has been working hard to make sure its products are safe to use. But no amount of testing can anticipate all the ways that tech will get used and misused once it is released. In the last few months, Meta saw people use its image-making app to produce pictures of Mickey Mouse with guns and SpongeBob SquarePants flying a jet into two towers. Others used Microsoft’s image-making software to create fake pornographic images of Taylor Swift .

The AI Act aims to mitigate some—but not all—of these problems. For example, it requires the makers of powerful AI like Gemini to build in safeguards, such as watermarking for generated images and steps to avoid reproducing copyrighted material. Google says that all images generated by its products will include its SynthID watermarks. 

Like most companies, Google was knocked onto the back foot when ChatGPT arrived. Microsoft’s partnership with OpenAI has given it a boost over its old rival. But with Gemini, Google has come back strong: this is the slickest packaging of this generation’s tech yet. 

Artificial intelligence

Ai for everything: 10 breakthrough technologies 2024.

Generative AI tools like ChatGPT reached mass adoption in record time, and reset the course of an entire industry.

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Our writers look at the four hot trends to watch out for this year

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OpenAI teases an amazing new generative video model called Sora

The firm is sharing Sora with a small group of safety testers but the rest of us will have to wait to learn more.

Deploying high-performance, energy-efficient AI

Investments into downsized infrastructure can help enterprises reap the benefits of AI while mitigating energy consumption, says corporate VP and GM of data center platform engineering and architecture at Intel, Zane Ball.

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  • February 16, 2024   •   39:24 An Explosive Hearing in Trump’s Georgia Election Case
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An Explosive Hearing in Trump’s Georgia Election Case

Fani t. willis, the district attorney, defended her personal conduct as defense lawyers sought to disqualify her from the prosecution..

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In tense proceedings in Georgia, a judge will decide whether Fani T. Willis, the Fulton County district attorney, and her office should be disqualified from their prosecution of former President Donald J. Trump.

Richard Fausset, a national reporter for The Times, talks through the dramatic opening day of testimony, in which a trip to Belize, a tattoo parlor and Grey Goose vodka all featured.

On today’s episode

why create a business model

Richard Fausset , a national reporter for The New York Times.

Fani Willis is pictured from the side sitting behind a witness stand. She wears a pink dress.

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With everything on the line, Ms. Willis delivered raw testimony .

What happens if Fani Willis is disqualified from the Trump case?

Read takeaways from the hearing .

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Republican presidential candidate and former president Donald Trump holds gold Trump sneakers at Sneaker Con Philadelphia.

Trump launches gold high top sneaker line a day after $350m court ruling

‘Never Surrender High-Tops’ cost $399 and arrive on the market just after judge hands former US president huge penalty

Donald Trump has launched his own sneaker brand, a day after a New York judge ordered him to pay $354.9m in penalties for fraudulently overstating his net worth to dupe lenders.

“I’ve wanted to do this a long time,” the former US president said, as he unveiled what he called the first official Trump footwear at Sneaker Con in Philadelphia , a gathering that bills itself as the “The Greatest Sneaker Show on Earth.”

He was met with loud boos as well as cheers, Associated Press reported, adding that as he spoke, the smell of weed occasionally wafted through the room. Attendees skewed younger and more diverse than Trump’s usual rally crowds, the news wire wrote.

The shoes, shiny, gold high tops with an American flag detail on the back, are being sold as Never Surrender High-Tops for $399 on a new website that also sells Trump-branded Victory47 cologne and perfume for $99 a bottle. Trump would be the 47th president if elected again.

The website says it has no connection to Trump’s campaign, though Trump campaign officials promoted the appearance in online posts.

Trump later lashed out at Justice Arthur Engoron, who on Friday ordered him as well as his eldest sons and associates to pay over $354.9m plus pre-judgment interest after finding them guilty of intentionally committing financial fraud over the course of a decade.

Addressing supporters for the first time since the ruling, the frontrunner for the Republican White House nomination told thousands of supporters at a campaign rally in Michigan the decision was an “election interference ploy”.

He made the unsubstantiated claim that the judge was part of a “left wing” conspiracy aimed at stopping him from becoming president again, adding that “these repulsive abuses of power are not just an attack on me, they are an attack on all Americans”.

Trump also repeated his lie that his 2020 election defeat to Democratic US President Joe Biden was due to election fraud.

Engoron also banned Trump from serving as an officer or director of any New York corporation for three years. The judge said of Trump and his co-defendants: “Their complete lack of contrition and remorse borders on pathological.”

Donald Trump lashes out at 'crooked' judge as Letitia James condemns 'tremendous fraud' – video

New York attorney general Letitia James had accused Trump and his family businesses of overstating his net worth by as much $3.6bn a year over a decade to fool bankers into giving him better loan terms.

Trump also faces four state and federal criminal trials, including one scheduled to start in New York on 25 March, over alleged hush money payments to a porn star. That means Trump will become the first former US president to stand trial on criminal charges.

Trump spoke shortly after Nikki Haley, his last remaining rival for the Republican presidential nomination, who held an event in South Carolina.

On Saturday morning, Haley wasted no time in going after Trump after Friday’s ruling.

Haley frequently says “chaos” follows Trump, and that he can’t be an effective president or candidate because of his myriad legal problems.

“He’s going to be in court March and April. He’s going to be in court May and June. He said himself that he’s going to be spending more time in a courtroom than he is on the campaign trail,” Haley told Fox News.

Trump is close to clinching the Republican presidential nomination, and the prospect of a likely general election rematch with Biden, after recent nominating contest wins in Iowa, New Hampshire and Nevada.

Haley, who has no clear path to the Republican nomination, has refused to quit. She is making a potential last stand in her home state of South Carolina, which holds its primary on 24 February, where she trails badly in opinion polls behind Trump.

At her rally on Saturday evening, Haley also attacked Trump for his failure to comment on the death of Alexei Navalny, Russia’s most prominent opposition leader. At his Michigan rally, Trump again failed to mention Navalny.

Russia’s prison service said that Navalny, 47, died on Friday at the “Polar Wolf” Arctic penal colony. The west, including Biden, blamed Russian president Vladimir Putin for the death. Western leaders did not cite evidence.

Haley, addressing a crowd in Irmo, South Carolina, accused Trump of cozying up to Putin in the past. She also referred to a speech Trump made on 10 February , when he said he would “encourage” Russia to do “whatever the hell they want” to any Nato member who didn’t spend enough on defense.

“Trump is siding with a thug who kills his own political opponents,” Haley said.

Reuters and Associated Press contributed to this report

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  3. What is a business model and why is it important?

    What is a Business Model and Why is It Important? In essence, a business model is how a company plans to make a profit. This scope includes the business's value proposition, key expenses, products or services, and its target market. The value proposition, a central part of any business model, defines the company's key offering or offerings ...

  4. Why Business Models Matter

    Buy Copies. Print. "Business model" was one of the great buzzwords of the Internet boom, routinely invoked, as the writer Michael Lewis put it, "to glorify all manner of half-baked plans ...

  5. What Is a Business Model?

    Businesses make assumptions about who their customers and competitors are, as well as about technology and their own strengths and weaknesses. Joan Magretta carries the idea of assumptions into ...

  6. How to Create an Expert Business Model: A Detailed Guide

    Edit and Download. The bundling business model can be a great idea if offering multiple products or services for a lower price point will still be profitable for your business. Here's a template you can use to explain this model to stakeholders. Customize this template and make it your own! Edit and Download. 3.

  7. How to Design a Winning Business Model

    Ramon Casadesus-Masanell is a professor at Harvard Business School and the author, with Joan E. Ricart, of "How to Design a Winning Business Model" (HBR January-February 2011). JR. Joan E ...

  8. Business Model Canvas: Explained with Examples

    Create a workspace in Creately and provide editing/reviewing permission to start. Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

  9. 11.2 Designing the Business Model

    A typical business model addresses the desirability, feasibility, and viability of a company, product, or service. At a bare minimum, a business model needs to address revenue streams (e.g., a revenue model), a value proposition, and customer segments. In non-jargon English, this means you want to address what your idea is, who will use it, why ...

  10. Business Models Explained: How to Create a Business Model

    Coming up with a business idea is only part of the work it takes to build a company. You'll need to develop a business model, which allows you to outline key elements of your business strategy. Read on to learn about different types of business models—from franchising to subscription services—and how to make your own.

  11. What is a Business Model and How to Make it Effective

    Alex Osterwalder, in his book "Business Model Generation" , states that innovation in business models consists in creating value for companies, clients and society in general, i.e. in replacing obsolete models. "A business model describes the rationale of how an organization creates, delivers and captures value for the client". Alex ...

  12. What Is a Business Model? Best Practices and Examples

    For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy.And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a ...

  13. Why is a business model important?

    Yes and no. Business models are the logic behind a company, but the concept can be framed in many different ways. And today, the way the idea has been reframed is inspiring the business owners and CEOs of companies from startups to well-established multinationals. In his book The New, New Thing, Michael Lewis explains that the business model ...

  14. A Checklist For Selecting The Right Business Model For Your ...

    5. Costs. Costs, both non-monetary and monetary, play a central role in opting for the business model of your new startup. Suppose if your business startup has high operating costs. You can't ...

  15. How To Create The Perfect Business Model In 8 Steps

    Have a specific vision (that gives you purpose). Align your business model to this vision. This is why this final tip is the most important of all, because unless you get this right, everything else will fall apart as you grow and scale your business. Which is why VISION is central to our entire 2X Formula.

  16. How to Choose the Right Business Model and Why is it Important?

    Step 4: Experiment with Various Business Models to Find Out What Works. When approaching uncharted markets, grabbing the first hundred consumers, or even the first thousand, marks the first checkpoint of success. If you have a business plan in place, test surveys and launches can be a sound strategy to test the waters.

  17. 8 Types of Business Models & the Value They Deliver

    8. Agency/Promotion. Agents create value by marketing an asset, which they don't own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

  18. Business Models

    A proven business model brings financial stability to the organization. Business models have disadvantages as well. Disadvantages of the Business Model. Once a business model is created, then it restricts to implementation new ideas for the product. Creating a business model is time-consuming as a lot of factors need to be considered.

  19. What is a Business Model? Definition, Explanation & 30+ Examples

    3.3 A Business Model Is A Framework, Tool and Mental Model. A business model is a mental framework that management can use ot help align its understanding of how a company works to create value. Whatever business model is finally chosen, it needs to be tested.

  20. How to create a business model for a startup

    The right business model requires including a few elements. These are your: revenue model, total revenue model, cost structure, profit model, growth model. Stick with me cause I'm sure you want to read about an example of a brilliant dog-walk app, UberPet, that charges professional dog walkers for walking dogs and pet owners for having their ...

  21. How To Create A Business Model In Seven Steps

    A tech business model is made of four main components: value model (value propositions, mission , vision ), technological model (R&D management), distribution model (sales and marketing organizational structure ), and financial model (revenue modeling, cost structure, profitability and cash generation/management).

  22. Why a business model is so important • GoForth Institute Blog

    Creating a small business model means planning - on paper - the fundamentals of your business. It helps you, as an entrepreneur, to put aside the excitement and make a realistic evaluation of the potential success of your business idea. A proper business model helps you to figure out elements such as: Your business concept - what problem ...

  23. Create a Business Model Canvas Online

    Finalize your business model canvas online and easily download it as a high-resolution JPG, PNG, GIF, or PDF. Share it digitally through email or social accounts, or publish it as a poster for your office using Canva Print. You can also embed it to your website, your business presentation, or visual Docs in Canva. Create a business model canvas.

  24. Cementing The AI Business Model Foundation

    The facts are clear: Technology business leaders need to reassess their approach to AI and focus on building a solid foundation for their business's future.

  25. Circular economy: definition, importance and benefits

    This is a departure from the traditional, linear economic model, which is based on a take-make-consume-throw away pattern. This model relies on large quantities of cheap, easily accessible materials and energy. Also part of this model is planned obsolescence, when a product has been designed to have a limited lifespan to encourage consumers to ...

  26. Google's Gemini is now in everything. Here's how you can try it out

    Gmail, Docs, and more will now come with Gemini baked in. But Europeans will have to wait before they can download the app. In the biggest mass-market AI launch yet, Google is rolling out Gemini ...

  27. An Explosive Hearing in Trump's Georgia Election Case

    Fani T. Willis, the district attorney, defended her personal conduct as defense lawyers sought to disqualify her from the prosecution.

  28. Trump launches gold high top sneaker line a day after $350m court

    New York attorney general Letitia James had accused Trump and his family businesses of overstating his net worth by as much $3.6bn a year over a decade to fool bankers into giving him better loan ...