What is a business model?
The blog you are reading is about money and time management and also about life. What will this post will be about? Some of you are dealing with business, or maybe is about to run your own business, or are considering your own business. If you’re already starting your business, or at least thinking about it, you should start with one extremely important thing for you. It is the basis of any business. It is a business model, otherwise known as the business model. It’s about how you will gain money, on the basis of mathematical (financial) construction.
What does the business model have to do with your business?
A very important thing. If you are thinking about your own business, you need to know, how you will earn money. Usually this is, how most companies start. They start by figuring out a certain way of earning money. This is usually how the beginning looks like. But beware. If someone starts without this knowledge or understanding, they are likely to fail. So you need to know how you will earn money, if you want to be an sucessfully entrepreneur.
The business model, in a nutshell, is how you will earn.
Usually you can use an existing model. There are plenty of them. You can also introduce your own unique. Here you must stop. You have to decide, whether you will use – an already existing model, which is used by many people. You will have to struggle with competitors and earn by competing with others at the same time. Of course you will have to stand out, but that is a topic for another post. You can also come up with a whole new way of earning money, as is the case with today’s startups. So you have:
- Imitation (use of an already existing business model)
- Innovation (inventing a new business model)
If you do or try to do business as other entrepreneurs you use an imitation. Such business model will be less gainfull, but one thing is for sure – this model works. Theoretically, you can get paid little, but you will get paid. Of course, it may happen, that the profitability of that model may already be so small, that actually is no longer profitable. This is characterized by some already well-developed sectors, in particular easy to follow, with a low entry barrier. A 2% margin may mean you won’t be earning anymore.
On the other hand, you can come up with your own earning model – become an innovator. This is another way. On the one hand, the new business model may bring you much higher margins, but on the other hand, there is a risk that such a model may not work at all. Of course, you can count on large (literally) margins as the first entrepreneur. Over time, your way of earning is likely to be copied by other and your margins will start to decline. Nowadays, new business models characterize primarily the IT industry. Startups largely create new business models.
A new business model
Of course, the new models from the IT industries, that have achieved great success I include: Amazon, Google and Facebook. Of course, one can mention a number of companies, that use other benefits (models) using Internet. There are such models of online businesses like:
- broker model – the organizer of virtual markets,
- various types of internet advertising,
- information broker model – earning money by offering various information for a fee,
- the buyer model, i.e. the sale of the products they produce,
- affiliate networks,
- virtual community model, with all it’s adventages,
- subscription model – payment for temporary access to certain specific data,
- other – also these not discovered.
Depending on the model, i.e. the way of earning, your company will develop faster or slower. Of course, in order for the business model to work, it must be based on generating a positive margin, that is:
revenues – costs = positive margin
selling price – purchase price = positive margin
It may happen, that a seemingly good newly invented model will not give a positive margin. It may also happen, that certain models may “run out” and no longer generate margins. Most companies, if wants to exist, probably must operate in several business models in such a situation.
Writting about marging don’t forget about fixed costs, I mean costs of rent a car, office etc. This is of course topic for another article.
At the end
All businesses operate on the basis of some business models. All of them must earn and be based on mathematical dependence, i.e. the costs incurred must be lower than the profits. What model you want to use may have influence if your business survive – for how long, in what region, in what industry, or whether you will achieve success.
Below there are some my other posts, that I invite you to read: