There is a lot of confusion about business models. What are they? How are they different from strategies? Today we’ll address the first question. What is a business model?
A business model is the simplification of the business idea and its underlying logic. It is the story of the internal logic of the business. Why do we use business models? Because we understand the gist of ideas much better than we do the details – so a business model helps us communicate our business idea to others more clearly and concisely.
A model tells the story of your business – its operational and economic logic. A business model must pass two tests to be effective. Does the story make sense (operational logic) and do the numbers make sense, (economic logic)?
There are 4 elements of a model:
- Key Expenses
- Key Success Factors
- Investment Size
Writing a business model can be a good test of the logic of your business. Will it work? Can you make any money at it? For those who are interested, you can view my Intro to Entrepreneurship lecture on business models below (complete with references):