A Business Model Example

By Sean Stevenson – Latest Revision January 12th, 2021

A Business Model Definition

The definition of a business model in OxfordLanguages.com is stated as, “a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing.”

That is to say that a business model is made up of the logistical aspects that form a company.  As a result, a well-devised business model is critical for both organizational planning and execution.

A business model example that exists today -and is well known- would be the technology giant Apple.  Famous for selling consumer friendly technology, Apple has built its image as a leading source for smart electronics around the globe.  

Their effective capacity to produce and market this technology, would be considered a prime example of a successful business model.

What is a Business Model?

A business model is the overall framework and operating procedure for a company. 

It is used to create profit or to pursue a general mission that requires infrastructure.  An effective business model identifies the resources needed to achieve success.  This allows for the servicing of a predetermined market. 

For any organization, a business model is integral for sustainable success.  It creates a clear vision for the future of a company.  Identifying revenue sources, customers, recruitment efforts, attracting new investors, or motivating existing staff to perform through incentives, are all part of a detailed business model.

Upholding an adaptable business model is integral to any new or existing venture.  It ensures flexibility when dealing with rapidly evolving markets in our globalized world. 

The success or failure of any enterprise can be traced back to its business model.  Essentially, a business model captures the fundamentals of a company.  This affords important insights into its work and cultural values.

A business model also accounts for anticipated expenditures, making it useful for third parties to analyze.  This makes a comprehensive and effective business model attractive to investors -who can easily see the merit and value of the system that is in place.

Every successful organization continually updates their business model to account for changes in their industry.  This may include new product launches, or even unforeseen challenges that require swift attention.

Example

In essence, a business model is the characteristics and finer details involved in running an organization.  No matter if the organization is new, old, or just starting, it will require a business model.  This model effectively describes how the company creates value.  In essence, it is answering a question or need through its business model, so that it can provide this solution to interested consumers. 

The more value a business model can offer its customers, the more likely it is to achieve success in its industry.  

If a business is providing a service or product solution to a largely unanswered problem, it can be said that its business model represents a significant opportunity.  Often, companies uniquely positioned in this way prove to be highly successful enterprises.  They can change entire industries for the better.  Moreover, they tend to bring significant value to millions of people. 

Essentially, any business model example that can effectively address a need or want is on the path toward success.  The goal of any business model is to exploit opportunity within the economy by seizing as much market share as possible.  This requires high rates of innovation and quality production to achieve.

Key Takeaways

  • A business model is a company’s plan for making a profit or addressing an unanswered need.
  • Some business models may be “non-profit” in nature.  This means they are focused on helping certain disadvantaged groups.
  • An effective business model represents a strategy that takes into account all the elements that are required to ensure success.
  • A model for business should generally involve as many considerations as possible, leaving “no stone unturned” or items left to chance.
  • Involved products, services, potential customers, expenditures, financing, and more, should all be considered in a detailed business model.
  • The more value a business model can offer its customers, the more likely it is to achieve lasting success.
  • Investors should always consider whether the business plan is sound, and what the company’s finances indicate about its overall value.
  • If a company’s expenditures are far beyond its profits, then it is most likely a very unwise investment.  

Understanding A Business Model

Profitable operations in existing markets requires a sophisticated business model.  No venture ever became successful arbitrarily.  There are always factors of merit behind any degree of success in unfettered capitalism.

The key to understanding the fundamentals that dictate success, is by looking at available market shares.  This means learning about the requirements of customers and how to best address their needs.  A company that can effectively understand and address the needs of its customer-base, will be setting itself up for profitable enterprise.

Arguably, many industries are saturated with solutions for customers.  A key component of success in today’s world, is differentiating yourself from the competition by offering a unique value, product, or service.  While this may require innovative thought, it does represent a large opportunity for ambitious industry leaders, or diligent start-ups.

The Value Proposition

A key component of any business model is its value proposition.  This proposition details the goods or services that the company will offer its customers.  Moreover, it will define why these goods or services are of value to their outstanding needs. 

Established businesses often compete with one another in terms of pricing and overall product quality.  To remain in their position as a market leader, these businesses are constantly monitoring their business environment.  They also pay close attention to the fluctuation of demand in the marketplace.  A sound business method will require constant revision.  Existing models of business operation need to constantly evolve to remain effective. 

Any successful company will always remain both vigilant and flexible in its approach to securing profits.  It will also embrace a customer-centric approach in its sales model.

If changes must be made to an existing business model, then research and development come to the fore.  Using the latest technology, methods, and advertisement, a company can remake its production process, or offer an entirely new branding image for consumers.

A Business Model Example

Understanding the facets that allow a business to develop its delivery system is key!  

Always remain customer-centric for best results!

The Importance of a Business Model

The process of creating a business model will allow for a vision to be fully developed.  You can then undertake the process of building your organization with important foreknowledge.  This will save you precious time and resources.

Think of it as a strategic undertaking in the business world.  Your founding model for business will be based on the best information you have available.  With the aim being to satisfy a need or want, you can develop a customer base that will be delivered to systematically. 

The desired successful outcome should be what guides both the thinking and the process of a business model.  Creating value for customers is what ensures the sustainability of any enterprise.  Let that notion of serving the needs of others guide you as you develop your ideas.

This requires careful consideration and innovation to achieve.  Market needs must come to the fore in any realistic business model.  Without creating a customer-centric enterprise, a business model is likely to fail.

Once a company has met a particular need in the market, it can be said that it has established its presence.  During this initial phase of establishment, it is often recommended to standardize your business model indefinitely.  This means ensuring that all your subsidiaries and employees are acting consistently in servicing your customers.

By creating standardized practices and offering consistent value to consumers, you will be making the most effective use of your resources.  This ensures accountability.  It will also encourage future opportunities for further growth.

Business Models As Considered By Investors

Before investing, a savvy investor will always consider a company’s business model.  Specifically, they will delve into the details of how and where a business makes its profit. 

By understanding a business and its methods, the investor is educating themselves about its current and future viability as an enterprise.

Naturally, a business model on its own, is not the only thing an investor will consider.  A detailed look at the company’s financials, management, and history, will likely also occur.  Nonetheless, the business model is what helps to clarify the key aspects involved in any profitable venture.

An investor who can understand the model, financials, and forward-looking statements of a business, is likely to make a profit from purchasing its common shares.

Further Analysis

Another way for investors or financial analysts to understand the success of a specific business model is by looking at the gross profits.  This means referring to the overall revenue minus the cost of goods sold. 

In tandem, it is advisable to also review both the net income and cash flow of a business venture.  This is usually offered in quarterly, or annual reports. 

These help investors to gain a keen understanding of a company’s actual profit generation over a specified period of time.  

Moreover, comparing a company to other companies in the same industry can provide invaluable insights about its progress.  If a business model is efficient and effective, then it will inevitably reflect this in its output when compared to its peers. 

Low levels of debt, solid assets, and high profitability is a sure-fire sign of a powerful business model that is operating at peak efficiency.

It should be noted that any prospective investor should always commit to their own due diligence.  Before considering any investment as a viable vehicle for wealth generation, research it thoroughly and without any bias. 

Soliciting others for advice without exploring the facts on your own, can be a quick recipe for disaster.

The Most Common Mistake When Creating A Business Model

By far the most common mistake in any business model, is the underestimation of the associated costs.  Any new business will take time to become profitable.  It is during this time that an assumption of inevitable profitability often arises.  This is a grave error.

A company is only profitable once its revenues have exceeded its expenses.  This means that a product-launch alone is not enough to guarantee financial viability.  Often, there are several launches and attempts at marketing made, before actual lasting traction is gained with consumers. 

This is partly why brand-recognition and social marketing have become such common threads for enterprising business owners.  Business schools of thought such as these work to address the need for finding the right marketability, to ensure the consistency of profits.

Should you find yourself in the position of creating a company of your own, you must first consider the expenses associated with your business model.  If the overhead is high, you may need to find ways to reduce costs until you can create sustained profitability.

Many would-be business owners also make the mistake of launching their business model far too early.  In reality, it can take years to fully develop a product prototype that can then be mass-manufactured. 

All too often, an entrepreneur will make the mistake of purchasing office space -and even advertising- long before they are ready for the market.

Key Takeaways

To ensure your own success with any business model, always first ask:

  • Am I truly ready to begin the marketing phase of my product launch?
  • Is this business model the best fit for what I am trying to achieve?
  • Have I considered all the expenses and capital that will be required as I establish my business?
  • Is the market share I am seeking a reality?  Will customers find a solution they need in my product?
  • Am I adding value to the lives of those I will be potentially serving by offering them my goods or services?
  • If I need a building for my business, when should I start looking? 
  • Can I first prove my own profitability before committing to such a large investment?

Case Study: Different Types of Business Model Examples

There are nearly limitless formats for business models today. 

Currently in existence, are innumerable franchises, direct sales, traditional brick-and-mortar stores, and even advertisement-based businesses. 

Moreover, hybrid variants of all of these business models and more, exist in concentrated niches of profitability.  E-commerce stores that also double their efforts with more traditional means of distribution and physical presence, are a prime example of the varied business landscapes that exist today.

Example

A great example of understanding the variability and viability of a business model, is Ray Kroc.  Ray was the founder of McDonald’s franchise as we know it today. 

When Ray questioned a group of MBA students as to what business they thought he was in, they expressed openly, “Why, the hamburger business of course.”

To this, Ray replied, “No, my business is real estate.”

The irony of this statement is most likely not lost on many students of history today. 

Ray was a visionary who understood business far better than his competitors.  It was true that a portion of his business was based on selling fast-food goods, undeniably so in fact.  Yet for his own purposes, this was merely so that he could sell franchising rights to the real estate (i.e.: restaurants) that he owned. 

In effect, Ray was a landlord for franchisees that wished to be a part of his rapidly expanding McDonald’s corporation.  The fast-food merely served to employ those who would operate the franchises on his behalf.

This business model meant that for Ray, the food was secondary to the actual property the restaurants were situated upon. 

Ironically enough, everyone was fixated on the foodstuff, without comprehending Ray’s actual motive as a businessman.

By purchasing highly sought-after real estate in the suburbs, Ray was creating value for his company.  Employing franchisees to operate the restaurants meant that he had steady income to purchase even more real estate.  This cycle continued for decades, even as Ray’s net worth soared. 

By the time of his death, the franchise chain “had over 7,500 outlets in 32 countries.” 

A Business Model Example

"By far the most common mistake in any business model, is the underestimation of associated costs.  Any new business will take time to become profitable.  It is during this time that an assumption of inevitable profitability often arises.  This is a grave error."

Drawbacks of Business Models

Business models are undoubtedly a critical aspect of business planning and execution.  Yet, what often happens in time, is that a business model stops being as effective as it once was.

This gives rise to scenarios whereby a business may no longer be as profitable as it once was.  This can result in mass lay-offs for employees or even bankruptcy for the company.

An unfortunate example of this growing trend in recent years, has been the closing of movie theaters around the world.  In 2020, Cineworld closed nearly 700 movie theater locations in the U.S and the U.K alone, according to Forbes

While undoubtedly, a large share of the blame for this issue can be attributed to the coronavirus pandemic, there is still the fact that many theaters were already struggling to sustain profitability. 

With the advent rise of streaming services such as Netflix or Amazon Prime, traditional movie theaters have seen their market shares plummet significantly. 

This is a prime example of more technological, convenient, and affordable services, edging in on traditional models of business.  Where once movie theaters under larger corporations -such as Cineworld- merely had to fill seats to ensure their profitability, they are now actively fighting for survival. 

Further Shifts In Business Models

Another scenario that saw vast changes in recent years, has been the music industry.

Companies like Spotify have brought convenience and affordability.  Using technological advancements to hold their position in the marketplace, they have reshaped our expectations as music consumers. 

Compared to a company that still offers CDs and records as if they were still relevant, Spotify is the clear winning contender in today’s world.

This again gives rise to the notion that no business model is absolute.  There will always be new technologies or ways of conducting business that challenge the established methodologies.  This is not to say that older models cannot adapt to changing circumstances and events.  However, it is to say that the adage, “adapt or die” certainly applies when confronting momentous changes in the business landscape.

To avoid any downward trend, a business model must be continuously revised and improved upon.  Moreover, changing trends in technology must always be observed.  This ensures a business model remains both efficient and effective, well into the future.

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