What is a business model?

Service Business

A business idea is the first step to a successful company. However, the idea itself is usually too vague to form the basis of the enterprise - most often it will be necessary to create a business plan. However, for a good and complete business plan to be created, it is worth starting its creation from a business model.

The business model is one of the factors that allow to forecast the economic performance of the company - in addition to its environment and factors of change. The concept of a model should be understood as a pattern of the company's operation that allows to determine its main features. Its task is to generate such a strategy of action, thanks to which it will be possible to gain an advantage over the offer of the competition, acquire customers, and thus - increase profits and profitability of the company.

Thus, the basic element that should be described in the business model will be the product or service offered. All further decisions depend on its specificity.The features of the offered product or service should therefore include the approximate expenditure that will have to be incurred for its production and how the final price will be shaped. Then it is also necessary to determine what customer needs the offer can satisfy.

On the basis of the above features of the product or service, it can be determined who the company's offer is addressed to. Therefore, it should be indicated what needs the end customers should have and how they can be reached. It is worth determining what type of advertising would be appropriate and most profitable for this trip. In fact, at this point there are differences between the offers of suppliers from individual industries. It is easiest to illustrate this with an example related to the furniture industry. The popular IKEA chain of stores offers products at a relatively low price. Savings are achieved here thanks to lower assembly costs, which are not included in the standard offer, or storage of furniture in parts, which allows for more efficient use of storage space. Finding the furniture in the warehouse, its transport and assembly are the responsibility of the customer.

On the other hand, customers who would like only to select and order furniture, and leave the rest of the formalities to the sellers, most often decide to offer other showrooms, which have, for example, transport or assembly as standard. Of course, such recipients must also take into account higher purchasing costs.

Therefore, based on the characteristics of the product or service, attention must also be paid to competition. It is necessary to find out if and how many companies have an offer similar to the one planned by the entrepreneur. It is also worth paying attention to the competitor's selling features, which of them are able to outperform with their own offer, and which cannot be improved. This is especially important in a situation where a new company will compete with large corporations - e.g. it would be very difficult for an owner of a small grocery store to compete with the Lidl chain.

At the end of the created business model, the entrepreneur will have to compare - what expenditures will be incurred in connection with his offer, what the resulting prices of the final product will be, and - whether by adopting such values ​​it is possible to compete with other companies operating on the market from the same industry.

On the basis of the business model, it is possible, first of all, to determine to what extent the company will be profitable. It is also very helpful in creating a business plan, which is then passed on to, inter alia, potential investors. Therefore, it is worth ensuring that it is created really competently and professionally.