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What is a Business Model?

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These days it is more or less expected that a company will make use of a business model. There are hundreds of books devoted to the subject and if you do a search on Google there are about 48 million hits for the term. Despite the fact that there undoubtedly is a lot of interest in the subject there is also a lot of confusion about what a business model actually is. There are also those who will understandably wonder if such a model is required in the first place.

So what is a Business Model?

A business model could be defined as a document that serves different functions by helping the company identify their goals and strategy. Here are just some of the elements that it is likely to include:

  • It will set out a strategy for how the firm intends to create revenue.
  • It will identify the market where the business intends to aim their products or services.
  • A business plan will identify the values of the company.
  • It will describe the production process in detail
  • It will set out in detail how the company intends to beat the competition in order to survive within the market place.
  • A business model will set out procedures and principles for how the company will work.
  • It will set out the structure of the company and how this will all function
  • The roles of the different people within the organization will be clearly explained and the way that the different elements work together will be defined.

An easier way to describe a business model would be to say that it is a roadmap that a company will use to help them succeed. The logic is that if you don’t have such a map then how can you expect to get to where you want to go? It is not the same as a business plan but a business plan will be influenced by what is contained within the business model.

The Importance of a Business Model

To some people a business model might just seem like additional paperwork but it really can serve an important function. It is required as part of the overall business strategy and it can be used as a basis for all plans and actions by the company management. A business model is not something that you create and then forget about; it is an evolving document that needs to change as the needs of the business change.

Creating a business model does require a bit of effort but it is all worth it in the end. There are plenty of examples of business models available in books and online; there are also plenty of guides that will talk you through the process of creating one. A business model is not just something of concern to the big companies but will be of us to the small business too. If the business model is effective it will guide the small firm onwards and upwards.

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Meet the Author

Anthony Carter currently resides in Fife, Scotland with his wife Lisa, and their three wonderful children. As a senior editor for various publications, if he's not reading and writing, you would find him photographing and traveling to some of the most far-flung locations around the world.

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