What Is a Business Model

The term business model has been used repeatedly by many especially during the dot com boom. Some business models are basic and straight forward and date back many years depending on when the business was established. In simple terms, business model is a plan that highlights the source of a business' funds, its customers, and its product. However, not having a well thought out business model can possibly ruin any business, and unfortunately, not many entrepreneurs spend the required time to fine-tune theirs for success.

Business models should answer the critical question of how entrepreneurs plan to make money. To address that area, business owners need to know their target market's needs and the value they can deliver to them. In addition, to adequately tackle that the critical question, entrepreneurs need to determine how they intend to be different, how they will find and keep customers, how they will get revenue, their expected cost, and their anticipated profit margin.

A successful business model will see books in black and not red. Black means that revenue exceeds cost, while red is the antithesis so cost surpasses revenue. While knowing how money will be made is rather important, knowing when money will start coming in is another important factor to consider. In many cases, after some companies are started, income is not produced right away. Instead, money may start coming in months and for some even years after. Therefore, from the beginning, business owners need to know when money will be obtained from customers. They need to know what the upfront cost will be and where the money will come from to fund those costs until revenue starts being generated.

Additionally, a proper business model needs to take the customers into consideration regarding how they should pay. The different payment options such as monthly instalments, one-off payments, lump sum payments, purchases made on credit among others should all be considered. Moreover, whatever the chosen method of remuneration, financial consequences will inadvertently follow; therefore, entrepreneurs need to be cognizant of certain eventualities. Entrepreneurs may choose to sell directly to customers, retailers, online consumers, or different types of shoppers and buyers. Therefore, businesspersons need to develop a business model that will best suit their company. Some products may be compatible with some business models but not for others. For instance, some products may be best sold online while others may not.

Entrepreneurs are on their way to having a wining business model once it has the value proposition, the profit formula, the key resources, and vital processes. Unfortunately, business models are usually confused with strategy and tactics. While the three are interrelated, the strategy is the plan to create a unique and valued position involving a distinctive set of activities. Almost every organization has a business model, but not all have a strategy. However, success is best enjoyed when they are intertwined.

I have a passion for online entrepreneurship; therefore, some of my favourite business models are from companies that operate online. Admittedly, http://Amazon.com and http://alibaba.com have changed the game where ecommerce is concerned. They allow entrepreneurs to start their own businesses on their platforms. http://Jet.com, which is not yet launched, is also poised to make a major impact in ecommerce by providing Amazon with much competition since they will have a similar business mode. Propertyfinder.ae is also a business with an impressive and simple business model. With their online platform, they provide the tools to help consumers find the properties that fit their needs. http://Propertyfinder.ae works with brokers to list properties, making their revenue from their property listing subscriptions.

All entrepreneurs should have a well thought out business model. They need to ensure that they figure out how they will make money, even though most businesses are not started to make money per se. Consequently, if profit is not the main aim, businesses in that category may not be able to successfully formulate a proper business model.