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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
  • Retailer
  • Marketplace
  • Franchise
  • Affiliate
  • Subscription
  • Fee-for-Service
  • Freemium

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. 


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