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):
- A business model is a company’s core strategy for profitably doing business.
- Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
- There are dozens of types of business models, including retailers, manufacturers, fee-for-service, or freemium providers.
- The two levers of a business model are pricing and costs.
- When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.
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.
Yours,
—J