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What Is A Business Model?
Posted By: mac504 on 9/28/2004 10:50 AM (CST) 75 Points
What does the term 'business model' mean specifically?

I think it has something to do with the overall strategy to build revenue.Is a 'business model' related to marketing strategy?

Whats the difference between a 'business model' and 'business strategy' and 'marketing strategy'?

Posted by: MissyV Accepted Answer
9/28/2004 11:00 AM (CST)
Here is the most basic definition of 'business model' that I could find. From what it states, you are in the ballpark with your thinking - the model is the framework by which a business is going to function. And as a tangent to it, strategy definitely is a factor - because you have to know how you are going to go forward in order to have success. If I am understanding things correctly, the difference between the business model and strategy is that the model is a high-level flow; where the strategy is more in depth. Model tells *what* you want to do; Strategy tells *how* you will do that.



http://en.wikipedia.org/wiki/Business_model
 
Posted by: NuCoPro Accepted Answer
9/28/2004 11:01 AM (CST)
The terms "business model" and "business strategy" are interchangeable, but the model one is used most often today.

It refers to:

1. What are you doing?
2. Which market are you targeting?
3. How are you going to reach that market?
4. What is your differentiator?
5. Can your pricing model provide sufficient revenue?

The answers to these questions provide the foundation for creating your marketing strategy.
 
Posted by: Wiglaf Accepted Answer
9/28/2004 11:15 AM (CST)
The whole "Business Model" terminology became popular as the technology market took off. but here is a short answer and story.

Some will say that a Business Model refers strictly to the approach you will take towards sales transactions, whether you are charging on the tap, for unlimited use, for web delivery, or for direct delivery. In otherwords, it is your "revenue model".

Others will say that a Business Model is the same as the Business Strategy, and this is the more cynical group.

As the internet took off, a lot of techies went into business. They didn't like the business speak and weren't real sure what a strategy was. However, they were used to models. Models for rocket trajectories, computer simulation models, structural models. So, when they rose to prominance in business, they said "foo foo" to the current business speak and invented thier own. The term "Business Model" then replaced "Business Strategy" and all terms for "Market" began to have the superfluous suffix "Space", hence we have "maket space", "consumer space", and in the "B2B space".

Take which ever definition you like. The english language allows for fluid definitions.

Regards,
Tim
 
Posted by: Peter (henna gaijin) Accepted Answer
9/28/2004 12:20 PM (CST)
I agree with Tim. Business model is most often used for startups and refers to how they plan to make money (or in the case of many Dot-coms from a few years back, the fact that they did not have a business model that was going to make any money). Business model is a term used to signify a generally high level of the strategy, but rarely any details. Here are some examples:

"The business model of Ebay is to allow buyers and sellers to come together, and collect a payment for every deal that goes through"

"The business model for a newspaper's web site is to sell advertising space"

Business strategy is somewhat similar, but usually encompasses much more details than business model.
 
Posted by: Mark* Accepted Answer
9/28/2004 12:43 PM (CST)
Business model and business strategy are different but related.

Startegy in its simplest form is where are we now, where do we want to be and how do we get there. At a business level this strategy will drive other functional strategies and plans such as the marketing strategy / plan.

A business model can be as simple or as detailed as you wish. So it may be as simple as saying where someone makes there money (i.e. Amazon) and it can alse be very detailed so that you not only understand the revenue flow but the make up of the costs.

Business models are often constructed to demonstrate how money can be made on the back of large up front investments (in the case of the dot coms) but are also a powerful tool for modelling diffrent business scenarios against your revenue and cost assumptions.

What business models do not do is tell you about the market and how to achieve the numbers contained within.

Business models can be used for any business and are not limited to start-ups. They can be used to justify for example, new product development or investment projects.

Hope this helps.
 
Posted by: ASVP/ChrisB Accepted Answer
9/28/2004 4:41 PM (CST)
A business model describes the way a company is structured, its value chains, revenue flows, cost structures, information flows, alliances and interactions.

Think of it like a film set.

Its business strategy is the the "Script" through which the Actors bring the story, played on the film set, to life.

The strategy has to describe the way the business makes money, it's reason for being, what is its value proposition, how it is competitive and why customers will choose it instead of a competitor.

A business case, on the other hand, is a justification process describing a putative or conditional model (with a range of assumptions) for an investment in infrastructure or strategy which shows how that investment will be recouped.

Hope this helps.

ChrisB
 
Posted by: flatworld* Accepted Answer
9/28/2004 10:14 PM (CST)
Being fairly new to posting to this group, I am not sure if levity is appropriate here...but I could not help but remember a poem I read in the fifth grade...

I seek your indulgence...

American poet John Godfrey Saxe (1816-1887) based the following poem on a fable which was told in India many years ago.

http://www.wordfocus.com/word-act-blindmen.html

Cheers,
-Raj
 
Posted by: SRyan ;] Member Response
9/29/2004 12:34 AM (CST)
Raj, levity is one of the things that keeps this forum alive and interesting. Glad you're participating!

Shelley
 
Posted by: telemoxie Member Response
9/29/2004 12:45 AM (CST)
Raj - thanks - but I'm curious what made you think of that analogy. Are you saying that we are like blind men, each with our own opinion, searching for the truth about business models... or are you saying that these various tools (business models, business strategies, and business cases) are like blind men who are struggling to comprehend the intangible and invisible essence of the business?

Or, do you just like that story?
 
Posted by: chandola_cv* Accepted Answer
9/29/2004 2:34 AM (CST)
Dear mac,
Marketing strategy and business strategy has nothing to do with the business model.
The business model is the broad outline of the business concept which would define only the " VISION '. You don't include the marketing strategy in it the business model. Marketing strategy comes out of the ' Mission '.
Business strategy is a concept broader than mktg. strategy which would incude setting up yearly objectives and changing the rolling plans, depending on the present circumstances which may differ from what they were at the time of execution.
Vision- Mission-Goal- strategy- plan- program-implementation- control- monitoring-feedback

You may contact me for more. Click my name to get my email address.
 
Posted by: flatworld* Member Response
9/29/2004 9:59 PM (CST)
Telemoxie -

Don't mind my saying so - but I think it is the former. The truth is that there are as many *definitions* of the terms "business model" and "business strategy" and as many *interpretations* of the defintions as there are MBAs! I have my own pet versions too - which somewhat overlap with some of the responses here.

:) Besides, I do like the story too!
 
Posted by: orryliao* Accepted Answer
10/8/2004 12:49 AM (CST)
How about seeing it from an overall picture:

Corporate-level strategies: Vertical integration, Diversification, Strategic alliances, Acquisitions, New ventures, Business portfolio restructuring...etc.

Business-level strategies: Cost leadership, Differentiation, Market niche focus....etc.

Functional-level strategies: Focus is on improving the effectiveness of operations within a company. Such as Manufacturing, Marketing, Materials management, Research and development, Human resources...etc.

While reviewing three different level strategies, it's more clearer that varied strategic innovation in corporate and business-level (depends on organizational structure) leads to differentiated business model and creates new competitive rule.
 
Posted by: Ali JT* Accepted Answer
10/8/2004 6:10 AM (CST)
A business model is its revenue / profit model from which the strategy will be built to support and is constructed from three financial statements; profit & loss (or income statement in US), balance sheet, and cash flow statement.

However, for non-financial marketers - the key figures, revenue, profit & cash flow (projected if a start up) show business professionals (normally accountants and occasionally marketers ;o) what the business looks like at a glance. For example, in creating the business plan for my start up I created 6 different business models, purely financial models, which indicated the resources; cash & people I would require for each model, and crucially highlighted how long it would take me to break even. My business model for a consultancy service had low start-up costs which was great, but was not scaleable, that is to increase revenue through new clients I required more consultants. My 'cost of sale' line sat parallel to the revenue line. My business model, for technical product business (which automated a large chunk of the manual service) required a large start up investment to develop the product, however after an initial loss in the first year, the revenue line looked like a ‘hockey stick’ and the variable costs were low providing a good margin and attractive business to potential investors. The strategy that fell out of the latter model, was to build the product, use investors money to advertise/market/sell the product to a healthy customer list, then exit after three years, when a larger software company wished to buy the company to extend existing customer revenue streams. Can you see now, where the strategy falls out of the busines model?

It is crucial that marketers understand the company’s financial business model if they want to rise to the board room, understand marketing activities within the context of business revenue / profit streams and have an intelligent conversation with other business functions. I suggest a finance course for non-financial marketers to help every marketer better understand the business model and the value they are providing to shareholders. The CIM in the UK offers courses for non-financial professionals. A really good source for all-round business knowledge is http://www.entrepreneur-america.org/ - check out the tutorials.
 
Posted by: jose04 Accepted Answer
10/9/2004 5:42 AM (CST)
Hello mac

Lovely question, lovely responses

Here my mix.

BM's are like the scaffoldings which gives the safety structure for anything which needs to evolve. All models are based on assumptions and the revenue buildups for a firm too, has its share of them. I would call the BM's as an entrepreneurial effort, to, in a bullheaded way make initiatives. They are great starters.

The BS's are related to the deliberate use of the information one has, to build on/around the scaffolding. The model itself could be based on strategies. Your assumptions listing itself is strategic. It is designed to win over, encash more, get a larger share etc.

Marketing strategies are a specific set of survival (primarily) plans within a BM. Being a vital functional component (marketing) in a business, it could be assigned higher weights compared to other functions.

Ultimately BM's, BS's and MS's are all about getting a larger share of the market cake. Surely this can't be the panacea model for business in our common future?

Hope these thoughts help!!
 
Posted by: Val (Moderator)* Moderator Response
10/13/2004 8:41 PM (CST)
Hello all. I am closing this question, since its more than 10 days old. We do this to make sure members' contributions are rewarded in a timely manner and to improve the visibility of newer questions. Thanks, so much, for participating!

Val (Moderator)
 


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