A business model determines how a company will generate earnings and maintain profitability.
It’s an essential part of the business plan. Generally speaking, the term “business model” is widely used to describe a project involving the creation of a business.
A business model is the way in which a company sets itself apart from its competitors to sell its products or services. It's the innovative idea that enables it to make money.
Business models therefore emanate from extensive reflection and an in-depth diagnosis.
A business model is the starting point for the business plan. It's the idea to be implemented, followed by a projected balance sheet, and a cash flow statement.
Some business models are fairly traditional, while others are much more inventive and innovative, especially for startups.
In all cases, it's a model to be followed or a strategy to be implemented in the hope of generating maximum profits.
To shape it, most companies use what is known as a Business Model Canvas.
However, a business model is never a 100% guarantee of success. It's a clear offer, presented to entrepreneurs and partners, envisaging a scenario for the business project.
No one knows for sure whether the business model will work out as planned. It's simply a synthetic and effective way of developing an entrepreneurial project.
A business model has multiple purposes. It does the following:
- gives the entrepreneur a clearer vision of their project and product or service;
- provides a guideline for the strategy to be pursued (including the chosen distribution channel, etc.;
- determines the target customer for the products or services to be sold (for example, B2B, B2C, etc.); and
- presents your business project in a concise and effective way to partners and banks.
In concrete terms, the business model establishes how the company should behave in terms of the 4Ps of marketing and communication to attract customers and generate revenue.
