What is a business model?

What is a business model? A business model is the representation of all the elements that are required to develop for the creation of a business. These elements can refer to all the processes, values, periods and operations that must be satisfactorily fulfilled to design a business.

The use of this model plays as a tool used to define everything related to a business, that is, how it will be designed, how it will be inserted into the market, what products and / or services it will offer, how it will present its promotions, what methods of entry it will use, etc.

Thanks to this, the business model is considered a fundamental piece for the development of any business, because although it only stands out as a referential resource, it allows to objectively communicate all the important information.

Today, business models have taken multiple forms. In this, it becomes a classification of this term, classification that we will define below in the next sections. Read on to understand everything about so-called business plans.

Contents

Sustainable: What is a business model?

The sustainable business model is based on the design of a business that presents business sustainability, a set of characteristics that, progressively, companies and / or businesses around the world have acquired in the face of the transformation of the market, society and the environment.

A sustainable business is one that produces benefits, not only of the economic type for your company, but also for social agents and the environment. The first of these benefits is based on economic profitability, that is, on the profits you must obtain thanks to the investments you have made.

The second is aimed at generating social welfare, that is, promoting human talent, as well as maintaining the values of ethics in their workspaces. Other points such as respect for human rights, the eradication of labor violence, discrimination and exploitation are also valued.

Gender equality and the existence of employment benefits are also considered in this regard. Everything, in order to maintain an adequate performance by the staff, which can constantly evolve in the company, and in this way, evolve in terms of their capabilities.

Finally, the third of these benefits is related to the care of the environment. Every company must generate a positive impact on the environment, therefore, it is important that it studies the way in which its activities affect the ecosystem. This will allow you to measure measures that regulate the effects that could be negatively affecting the environment.

The use of recyclable resources, the use of self-sustaining energy, and the correct management of solid waste are also valued. The company will have to redefine the way it manages its resources and machinery, with the aim of optimizing its efforts towards operations that do not compromise the environment.

The sustainable business model is, in this way, one that contemplates, in its design, the application of all these benefits in its activities, generating business sustainability in its project. Any of the benefits mentioned may vary depending on the characteristics of the company, finding more benefits in some than in others.

Canvas

The Canvas model is a management system that is responsible for creating and analyzing business models, paying special attention to the way in which its main elements converge and give it an efficient operation. It is in this way that this model is based on global analysis, studying business plans from their main components.

This model was created by Alexander Osterwalder, in his book Generation of Business Models. Its objective is to develop a business model that would allow authors to create and generate value for their clients through the lean-startup method, which makes use of validated learning to consolidate information.

Those elements that the Canvas system evaluates to analyze a business model are presented as follows:

Market segmentation: It consists of defining the customers of the company, since this will allow you to have a concrete idea of your target, and in this sense, of the potential customers. When market segmentation is applied, it can be determined what the mechanisms will be to communicate with people, as well as the channels to make marketing campaigns, etc.

Medium: These are the ways through which people can buy the product of the business. This criterion is based on determining what will be the means of distribution and commercialization of the services and / or products of the company.
Value proposition: What is the quality or trait that differentiates the business in question from the rest? This element is aimed at contemplating a differentiating factor in the business, so that it can offer an outstanding proposal. Emphasis is placed on a competitive advantage, which may be based on product difference, cost or transaction.
Cost to revenue: The income generated by the business must be profitable enough so that, on the one hand, consumers can accept the cost, and at the same time, these can be a positive income and that it supposes a basis for the company.

Interaction with customers: What will the relationship between the client and the company be like? It is necessary to determine whether an automated system will be used, whether self-service will be provided, or whether face-to-face treatment will be used. The method selected must be consistent with the brand of the company.
Base activities: It consists of specifying what are the activities that the company requires to develop, that is, everything related to production, marketing campaigns, business design, etc.
Resources: How will the company get its resources to operate? Physical, human and intellectual values are required for a business to start its operations.

Cost structure: When valuing your resources, you must contrast them with your cost structure, that is, all the expenses that it must make in order to maintain its basic activities. There are two types of cost structures, fixed cost and variable cost. You will have to establish the fixed ones and then progressively adapt the variable costs.
Partners: Every business needs alliances that result in a strategy for its development and market share. What will those relationships be? This criterion warns of the importance of creating links and collaborations with other businesses to increase reach.

The use of the Canvas model has meant a set of benefits for those who design their business. These benefits are divided into three points:

Strategy-based analysis: With the analysis of the Canva model, those in charge of a business project can have a clear and accurate vision of all the points of interest for the development of their proposal.
Benefits creativity and innovation: Through these simple, but important tools, any business project can significantly expose its potential, which will mean obtaining more favorable results.
Integration and synergy: This model allows a business project to integrate all the key points, and also make them operate simultaneously. This effect, on your own, will allow you to contemplate an important advance in the growth of the business.

Examples

It could be said that we live in an ecosystem of business models, because, day by day, we go to different businesses to acquire a product and / or service. We can cite some examples of these models in order to know more about this concept.

Franchise models: A franchise is nothing more than a business that works through the purchase of the license of a brand for a certain time. In this way, a person can create his own business using the patent of that brand. One of the most typical examples of this is some fast food lines like McDonald’s.

Affiliate model: These businesses work through a type of cooperation they perform to increase the reach of their sales. For example, a company hires people to sell its products, and for this, it offers them a percentage of the profits. Herbalife is one of the most iconic examples of this case. In the digital world we can also find different models that obey this business scheme. Affiliate marketing, in which a page offers the products of a certain company, obtaining a percentage of sales, is a classic example of this. A well-known case of this mechanism is through Amazon.

Subscription model: To go directly to the cases of this model, we can talk about Netflix, or also Amazon Prime Video. The client pays a fee every so often (usually monthly or annually) and thanks to this, he obtains a certain service that he can enjoy for a specific period. The aforementioned cases provide entertainment services, where users can find a variety of audiovisual content in exchange for the payment of a fee.

Digital

A digital business model is nothing more than a business project destined to develop in the world of digital. They are businesses that may or may not enjoy an infrastructure, which have become an increasingly important option thanks to the mastery of technology in users.

In turn, digital businesses have demonstrated a number of advantages over traditional businesses:

There is no distance factor: A digital business model can rule out distance as a limiting factor, since anyone will be able to enter its portal to consult its services. However, depending on the services and / or products offered, it can assess how much it will have to assess the distance. For example, an ebook portal will not have problems by distance, although a clothing sales portal will have to recognize how far you can take your products.
24-hour opening hours: Another of the most favorable points of digital businesses is the possibility of offering 24-hour service. This, thanks to automated systems, where users can solve all their requirements through a bot or automatic operator.
Greater reach: It is a fact that the digital world has become an essential aspect for the visibility of a business. A digital business can enjoy a greater reach, thanks to the fact that users can find it in a matter of minutes, as well as obtain all the necessary information immediately.

Digital business models increasingly integrate a variety of interesting designs, where one or more people can generate income, and in this way, insert themselves into the market. Therefore, the number of businesses that decide to make a digital format is increasingly important.

Some examples of digital business models have been the case of the Peer To Peer model, in which two people intercept on a platform to make a specific transaction. This will allow them to specify under certain security and guarantee standards covered by the platform, creating stable and useful business systems for users.

According to authors

Cantrell and Linder (2000), define the business model as “the nuclear logic of the organization to create value”. The business model of a profit-oriented company, and explains how it makes money.”

Peter Drucker (1984), professor of business and lawyer, defines the business model: “a business model refers to the way in which the company conducts its business”.
Rosenbloom and Chesbrough (2001) define the business model from its function, arguing that it is used to “articulate the value proposition; identify a market segment; define the structure of the value chain; estimate the cost structure and potential for benefits; describe the company’s position in the value network and formulate the competitive strategy.”
Joan E. Ricart (2009), professor of business at IESE Business, defines a business model as “the set of choices made by the company and the set of consequences that derive from those choices.”

Amit and Zott (2001) define a business model as one that “explains the content, structure, and governance of transactions designed to create value by exploiting business opportunities.”

Scalable

A scalable business model is one that can increase your revenue without the need to increase the cost of your investment, or in some cases, without having to make a significant investment. They are businesses that can grow exponentially thanks to the characteristics of their value proposition.

This is due to scalability, the main characteristic of a scalable business. Scalability is the ability of a business to increase its revenue without having to largely modify its investments. This allows it to expand without major efforts, at least as far as the economy is concerned.

This quality results in great interest on the part of a business, thanks to the fact that it can grant an important development without major investments. It is called growth potential, this ability of scalable businesses, to be able to increase their reach to a large extent, even reaching other countries.

The scalability of a business is due to this that it can:

They do not need a large investment to innovate in their strategies.

Your ideas can be reinvented in the long run, showing that your value proposition is liquid, meaning that you can take various forms.
Among its objectives, there is always the optimization of its costs and processes, seeking constant improvement.
With a client they can generate long-term profits.

Your infrastructure and/or digital portal can greatly increase customer volume without the need for business managers to make major adjustments.

An example of a very typical scalable business is mobile applications, which can drastically increase your revenue without having to make large configurations in your schedules.

Sources

(2021). Business Model. Wikipedia. Retrieved from: https://en.wikipedia.org/wiki/Business_model
Pahwa, A. (2021). What is a Business Model. Feedough. Retrieved from: https://www.feedough.com/what-is-a-business-model/
Ovans, A. (2015). What is a Business Model. Harvard Business Review. Retrieved from: https://hbr.org/2015/01/what-is-a-business-model

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