A business model is the strategic framework a company uses to create, deliver, and capture value. It defines how a business operates, generates revenue, and sustains itself over time. A business model addresses key components that ensure a company's profitability and growth while meeting customer needs.
In essence, a business model answers the following questions:
- Who are the customers?
(Target market) - What value does the company provide to these customers?
(Products, services, or solutions) - How does the company deliver that value?
(Channels, processes, technology, etc.) - How does the company make money?
(Revenue streams) - What are the company’s key resources, partnerships, and activities?
(Assets, partnerships, and core operations) - What are the company’s cost structures?
(Fixed and variable costs)
The business model serves as a roadmap, guiding a company’s strategy, operations, and growth. By clearly outlining how value is created and captured, it helps the business remain profitable, competitive, and customer-centric.
Example:
Imagine a subscription-based streaming service:
- Target market: Individuals seeking on-demand entertainment.
- Value provided: Unlimited access to movies, series, and exclusive content.
- Delivery method: A digital platform accessible via apps, web browsers, and smart TVs.
- Revenue streams: Monthly or annual subscription fees.
- Key resources and activities: Licensing agreements, technology infrastructure, content creation, and partnerships with studios.
- Cost structure: Content acquisition, platform maintenance, technology development, and marketing costs.