So you have a product or service idea, but you do not know how you can get it to your customer…that is where a business model comes in!
What is a business model?
The method or process by which a business makes money, or the way a business extracts economic value for its products or services. A company’s business model includes the following factors:
The type of of products or services you provide and how they relate to one another
What functions within the value chain the business chooses to perform itself vs. relying on others to perform
How the product or service will be distributed to the end-user or customer
How the business charges for its product or service
eBay’s primary business model entails charging sellers a percentage “success fee” for any item sold on its auction website.
NewYorkTimes.com charges a subscription fee for access to premium content, while others provide content at no charge and make their money by selling advertising and sponsorships; some employ a business model that entails a blend of these two ways of making money.
Norton Anti-Virus Software charges a single, one-time license fee; some charge full-price for an upgrade, while others offer a credit to purchasers of the previous version. Some charge a monthly or annual license fee (essentially leasing or renting the software).
iTunes charges a per-tune download fee, while others charge a flat monthly subscription fee for unlimited listening or downloads.
Executive recruiters charge a finder’s fee calculated as a percentage of the candidate’s first-year salary, while others charge a flat dollar amount for all recruiting tasks.
Remember…ideas can only grow as big as the business model supporting it.
Value Chain: the series of steps by which value is created for a given product or service