What is a Business Model?
The term "business model" is frequently used in the entrepreneurship space. but you may be wondering, “what even is a business model?” In this week's lesson, we will explore the concept of business models, and you will learn how to craft and visualize the business model for your venture.
❓ In the Padlet below, share: what do you think a business model means?
The Purpose of Business Models
There are different definitions of what a business model is. One simple definition is that: A business model is a strategic plan outlining how a company creates, delivers, and captures value for its customers.
You might be thinking, “But I just started building my MVP. Why should I start thinking about business models?” That’s a great question!
Business Models are a core topic for any venture and endeavor, regardless of its stage (idea, startup, growth, scale) and type (individual project, for-profit venture, social enterprise, etc.). As long as your venture intends to create something that people will use and will expend resources to do so, it is important to consider your business model.
It’s helpful to think about your business model early, even as you build your MVP, because it gives you a sense of what to prioritize, how to assess if you have the right resources to bring your product to life, and whether you’re well equipped to make something people can use.
Crafting a business model when you're starting your entrepreneurial journey is like setting up a GPS for a road trip. It's your game plan that guides every move you make. When you map out your business model, you're putting down on paper how you'll grab the attention of your target customers, what you'll offer them that creates value for them, and how you'll keep the cash flowing. However, it's not just about keeping yourself on track. When you pitch your idea to people who might fund your dream, a solid business model is the foundation of a solid pitch. Additionally, a good business model helps you spot the bumps in the road ahead and figure out how to swerve around them before they lead to critical situations that doom your venture.
This week, your team will use the information you learn in these lessons to visualize the business model for your venture. But keep in mind that wrapping your head around your business model isn't just homework. It's your startup's secret sauce. Having a strong business model will help you make smart moves, win over backers, and avoid pitfalls!
📺 Watch the following videos to learn how to go from business idea to business model.
Components of a Business Model
Based on the definition of a business model shared above, it contains four key components:
- Customer. The person for whom your product or service is made and who will pay for and use it. It is worth noting that sometimes, your customer is not your user. For example, a user benefits directly from your product or service while the customer pays for it.
- Value Creation. What you offer to your customers to make your venture something they would pay for. This includes your tangible product or service offering that your target customer can use and a clear reason for why they should use this product or service.
- Value Delivery. How you get this offering to your customers so they know about your product or service and can use it. This could include your distribution channels like social media or a website, and your partners.
- Value Capture. How you receive whatever reward comes from delivering value created to your customers. This usually includes your revenue, downloads, active users, and so on.
Business Model: A Deep Dive
📺 Watch the following video to learn more about the components of a business model and how they are connected.