8 Key Elements of a business model | Ravi_12DM-119_Sec-B

8 Key Elements of a business model

A business model describes the rationale of how an organization captures, creates and delivers value. Such a model has to be intuitive and cover all matters of interest, i.e. encompass the necessary and sufficient conditions of company operation. The concept should be simple, complete and relevant, without oversimplifying the complexities of how enterprises actually function. A business model is extremely important to ensure a business is set up properly and has the ability to run smoothly. The business model is the main component of a business plan and this is necessary when looking for investors from both individuals and banks.

There are 8 components which make up Business Model:

1) Value Proposition

Define how a company's product or service fufils the need of customers.

-Examples of successful value propositions

-Personalization/ Customization

-Reduction of product search, price discovery costs

-Facilitation of transactions by managing product delivery

2) Revenue Model

Define how the firm will earn revenue generates profits and produce a superior return on invested capital

-Major types:

Advertising revenue models: CNN.com

Subscription revenue models: MATCH.com

Transaction fee revenue model: EBay, E-Trade, Hotwire

Sales revenue model: Amazon, LLbean, Gap.com

Affiliate revenue model: E-pinions, Banner Exchange, Edmunds à sends traffic to another website

3) Market Opportunity

Refers to a company's intended market space and the overall potential financial opportunities available to the firm in that market space

4) Competitive Environment

Refers to the other competition selling similar products and operating in the same market space

-Influenced by

How many competitors are active?

How large operations are

The market share for each competitor

How profitable these firms are

How they price their product

5) Competitive Advantage

Achieved when a firm can produce a superior product and/or bring a product to market, at a lower price than most, or all, of their competitors.

-Types of competitive advantage:

First mover advantage

Unfair competitive advantage

6) Market Strategy

Plan that details how a company intends to enter a new market and attract strategy

7) Organizational Development

Describes how the company will organize the work that needs to be accomplished

8) Management Team

Employees of the company responsible for making the business model work

-Strong management team gives instant credibility to outside investors

 

Kind regards,

Ravi Ranjan

12DM-119