A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. It is the way in which a company generates revenue and makes a profit from company operations. The process of business model construction is part of business strategy.
Entrepreneurs who are in the process of designing their business model require an approach that allows them to understand if and how a value proposition can be successfully scaled up to a profitable business. The purpose of this workbook is to help you through the process of developing a comprehensive business model.
Business Model Components
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. Gross profit is often considered the first line of profitability because it only considers costs, not expenses. It focuses strictly on the way in which a company does business, not the efficiency of management. Investors that focus on business models are leaving room for an ineffective management team. They believe the best business models can run themselves.
Objectives of Business Model Innovation
Innovations and new iterations of business models are usually made with one of the following purposes:
To fulfill a current need in the market which no other product or company are meeting.
Be first in market with an idea, technology or product.
Be a change agent in the industry by introducing a new business model. This can be done out of a desire to bring innovation, create an evolution in the market or simply to change things up and breathe new life into the industry.
Target and give birth to a whole new market.
Motivations of Business Model Innovation
When an already established business is exploring the possibility of innovating in its business model, it is usually with the following motives:
An emergency or perceived near disaster due to the current business model;
Ensuring that the current business model is flexible enough to meet and withstand possible changes in the business and industry;
Being first in market with a revolutionary product, technology or idea;
Fostering a spirit of flexibility and experimentation by testing new business models which may define the future sustainability of the business.
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