Defining Business Models

What is Business Model?

Business model converts innovation toeconomic value for the business. The business model spells-out how a companymakes money by specifying where it is positioned in the value chain. It drawson a multitude on business subjects including entrepreneurship, strategy,economics, finance, operations, and marketing.

Simply put, a business model describes howa business positions itself within the value chain of its industry and how itintends to sustain itself, that is to generate revenue. 

In the most basic sense, a business modelis the method of doing business by which a company can sustain itself – thatis, generate revenue.

Six Components of the Business Model 

(according to Henry Chesbrough and Richard S. Rosenbloom)

1. Value Proposition – a description of the customer problem, the solution that addresses the problem, and the value of this solution from the customer's perspective.
2. Market Segment – the group to target, recognizing that different market segments have different needs. Sometimes the potential of an innovation is unlocked only when a different market segment is targeted.
3. Value Chain Structure – the firm's position and activities in the value chain and how the firm will capture part of the value that it creates in the chain.
4. Revenue Generation and Margins – how revenue is generated (sales, leasing, subscription, support, etc.), the cost structure, and target profit margins.
5. Position in the Value Network – identification of competitors, complementors, and any network effects that can be utilized to deliver more value to the customer.
6. Competitive Strategy – how the company will attempt to develop a sustainable competitive advantage and use it to improve the enterprise's competitive position in the market.

(To read the article on www.1000ventures.com, please click here)