Course: SLF 125 Business Planning and Startup

Reading

The Business Model
The Business Model
Credits
Adapted from Business, Boundless Business Open Textbook, Chapter 8 Management
www.boundless.com/business
Creative Commons Attribution-ShareAlike 3.0 Unported License

Small businesses can dramatically vary in sales volumes and number of employees; however, some BASIC BUSINESS CONCEPTS apply to all.

Start at the beginning: The Business Model

A business model is the particular way in which a business organization ensures that it generates income, one that includes the choice of offerings, strategies to deliver products or services to customers, organizational structures, trading practices, and operational processes and policies.

At the core of the business model is the VALUE OFFERING which is the product, the service, the “thing” that is of value to customers…the thing for which they are willing to pay!

Business models vary from one company to another even if they are in the same industry and compete with each other. Think how the delivery of movie rentals varies from one brand to another.

- Customers, generally members, walk into a retail store and rent DVDs for home viewing. Fees vary by the length of the rental and the age of the movie.
- Customers, who are members, order DVDs online for a pre-arranged monthly fee.
- Customers, who are members, order DVDs online OR watch them instantly from the brand’s site.

It is important for an entrepreneur to define the business model he or she plans to use. Different business models involve different costs and possibly a different configuration of required employees. The retail industry gives us an example of varying costs and delivery styles. Retail stores selling clothing all do the same thing – they sell clothing. BUT, their business models can vary a great deal. Some offer a full service experience with attentive salespersons, fancy displays, and comfortable fitting rooms. Others offer lower prices, expect customers to find clothing without sales assistance, and have unadorned bare bones fitting rooms.

Often entrepreneurs develop innovative business models – products, services or delivery methods that are new and unique.  An example of a business model “change” found in some markets is a show room retailer that offers caskets for sale. Traditionally funeral homes were the only sellers of caskets with the purchase of the casket bundled into the whole package of services offered.  This nontraditional business model is controversial to some, but its VALUE PROPOSITION to customers offers substantial savings.