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Glossary – Business model

Business model

Nikiforov Alexander
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Definition of a Business Model

A business model is an analysis and graphical representation of the key business processes of a company. It visually illustrates: what, to whom, and how exactly to sell, as well as defines how profitable it is. It is important to note that a business model is not a business plan. Creating a model does not require in-depth analysis and, therefore, cannot serve as a basis for strategic decisions. However, it is well suited for quickly assessing hypotheses and identifying relevant risks for the company. This allows one to understand:

  • How to develop the company;
  • How to optimize business processes;
  • What resources need to be attracted for business growth.

For startups, a business model helps assess the market niche, identify prospects and hidden risks, as well as test ideas. For existing businesses, it helps identify weak points and growth opportunities, allowing for adjustments to current activities.

Components of a Business Model

One of the most popular templates for creating a business model is the Business Model Canvas, developed by Alexander Osterwalder and Yves Pigneur. It consists of nine key elements that can be adapted in any order:

  • Customer Segments: Define who will buy your goods or services. Understanding customer needs is critical for successful advertising campaigns.
  • Unique Value Proposition (UVP): Describe what problem your product solves and why customers should choose you.
  • Channels: Define how you will reach customers and present your offerings to them.
  • Customer Relationships: Decide how you will attract and retain customers, as well as how you will communicate with them.
  • Revenue Streams: List where and how you will generate income. This can include sales, subscriptions, rentals, etc.
  • Key Resources: Identify what you need to launch and operate the business.
  • Key Activities: Describe what actions need to be taken to produce and sell your product.
  • Key Partners: Specify who you will collaborate with and what mutual benefits you will gain.
  • Cost Structure: Describe all expenses related to launching and maintaining the business.

How to Build a Business Model

Let's consider the process using the example of launching an online course on public speaking. A business model can be constructed in any format, from a table to a simple sketch on paper.

  • Customer Segments: The course will interest those who want to improve their public speaking skills and fear public speaking.
  • UVP: Customers care that the course is taught by professionals and that the price is affordable.
  • Channels: Advertising online and free webinars will help attract customers.
  • Customer Relationships: Offering various plans and 24/7 support will help retain customers.
  • Revenue Streams: Main income will come from course sales and additional individual sessions.
  • Key Resources: Launching will require creating an educational platform and marketing activities.
  • Key Activities: Constantly updating materials and supporting customers will increase the product's value.
  • Partners: Engaging marketers and bloggers to promote the course.
  • Cost Structure: Investments in advertising, speaker fees, and platform development.

Analysis shows that the market for public speaking is growing, and customers are willing to pay for quality services. If the course meets the needs of the target audience, the launch will be successful.

Types of Business Models

There are many business models that have proven effective and brought success to their creators. Here are some of them:

  • Manufacturer: Creating and selling products directly without intermediaries.
  • Distributor: Purchasing products from manufacturers and selling them at a markup.
  • Broker: Connecting sellers and buyers for a commission.
  • Franchise: Selling access to a business model and brand.
  • Rental: Temporarily providing goods or services.
  • Subscription: Temporary access to a product for a fee.
  • Freemium: Free access with paid options.
  • Advertising: Generating revenue from placing ads on owned resources.
  • Crowdsourcing: Obtaining content from users for subsequent monetization.
  • Razor and Blades: Selling the main product cheaply with high-cost consumables.

Each of these models has its own features and can be adapted to specific business conditions. Utilizing proven models can significantly increase the chances of success.