January 14, 2023

Business Models Defined

There are probably hundreds of answers to the question “What is a business model?” but my current favorite comes from Investopedia:

Business model—a company’s plan for making a profit.

It’s not 100% perfect, but I love the brutal simplicity of it.

I especially like that it isn’t “a company’s plan for making money” because merely bringing in money is insufficient if the amount of revenue doesn’t exceed the cost of running the business.

Let’s go a little deeper. Again, from Investopedia (bold mine):

The last bullet point is a great one to keep in mind when considering your own business model.

Here’s what I mean...

As an exercise, imagine presenting your business model to an investor.

Would it convince them to write you a big fat check?

Here’s the thing...

You’re almost certainly not looking for investors.

But YOU are an investor in your business. The ONLY investor, most likely.

If someone came to you and presented you with the very same business model that you’re currently using, how much would you invest in their business?

If the answer is “nothing,” then you probably have some homework to do.