most important element of a business model & responsible for making the model work

8 Key Elements Of A Business Model that You Should Understand

most important element of a business model & responsible for making the model work

There are many benefits to creating a business model, even if you’re not looking for investors. For example, setting up a business model helps you stay on target when setting up a company or revamping it. These elements can help you succeed as it enhances business growth. 

The business model is the primary aspect of your business plan. It not only helps you stay organized and focused but is needed if you’re looking for investors or loans.  They do vary, and by choosing the best model for your business , you can easily fill in the blanks when it comes to your specific business type. 

The following elements of the business model will help you consider various important factors. Then, as you reflect on these elements, you can see what points you may have missed. All in all, it’s an important part of starting up your own business . For example, if you’re looking for investors or a bank loan, putting together a business model will help you to articulate clearly what your product or service is about and how it will succeed.

1. Value Proposition

It is the description of what your product or service does to fulfill the customers’ needs. It should clearly define why a customer would buy from your company. The value proposition should be personalized and customized to include the reduction of product search, discovery costs on price, and how you’ll manage product delivery.

2. Revenue Model

This portion relates to how you plan to make money from your business through revenue and producing a good return on capital invested. It could potentially include advertising revenue, subscription revenue, transaction fees, sales revenue, and affiliate revenue. The type of revenue you bring in depends on your business, of course, but whatever your income plan is, it’s important to lay it out clearly for yourself and investors.

3. Market Opportunity

You want to lay out your company’s market space and include your target market and the overall number of people in this audience. If there is a lot of demand for your services/products across a large demographic, it warrants creating a business around this demand. In addition, the market opportunity allows you and others to understand the potential financial possibilities, and it’s essential to do enough research to have realistic financial numbers.

4.  Competitive Environment

If you’ve determined that you have a large target audience, you also want to ensure that the market isn’t saturated with your product or service. For example, you want to figure out who your competition is. Who is offering a similar product or service in your market space? Then, find out who they are and how big they are. Know their market shares, what they provide, and how much they charge for the product they sell.

5. Competitive Advantage

By knowing who your competition is, what they offer, and how much they charge, you can work to differentiate yourself from them. First, figure out how you’re different to encourage customers to choose your company. It might be selling a similar product or service for less or having a specific company culture that resonates with people. 

6. Market Strategy

You want to figure out how you plan to enter the market and attract customers, so it’s important to know how you will make your first impression. It needs to be a well-thought-out process, and you may wish to follow a sales funnel process .

Think of your target audience and how you can reach them with the most impact. You may choose to use social media influencers, do a campaign with a social media platform that makes the most sense for your business, and, of course, create a brand.

7. Organization Development

It’s also imperative to organize how your business will run to avoid chaos and keep things streamlined. You want to have organizational structures in place as this will help ensure that essential work is completed. In addition, you want to have a process that defines functions in the workplace, which will make it easy for employees to understand their roles and help them be as efficient as possible. Finally, organization development will directly influence how satisfied your customers are as orders and support are dispatched as quickly as possible.

8. Management Team

This business model aspect will explain the experiences and background that a company leader should look for. Whether you have your management team together or not, you want to consider what you need from them. If you have a strong team, they can change the business model and the business when necessary. Knowing how to pivot gives a management team credibility to investors. 

The business model you create will ensure your business is set up properly from the very beginning. It will help your business run smoothly, and it also helps get investors to believe in your company. This business model consists of all the aspects an investor or bank will want to look at. So, properly setting it up shows these investors that you know what you’re doing and have looked at all factors. It allows them to see how successful your business can be while allowing you to reflect on how well you’ll run your business. Check out our article explaining different types of business models here .

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Staff writer: Loraine Couturier is a jet set writing chick from Canada that travels around the globe. Her writing and marketing skills are what keeps her eating exotic meals and jumping on planes. Loraine loves writing about pretty much anything and likes to pass on the knowledge she has to others. Visit her at

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What is a business model? Components, types and examples

Small business owners look over a business plan

By Cooper Nelson

At a glance

  • A business model includes product types, financial plans and other information that, taken together, outline a path toward operational success.
  • Existing companies should update business models regularly in anticipation of any changes in customer behaviors or market trends.
  • There’s a wide variety of business models to choose from, including crowdsourcing, franchising, leasing, pay-as-you-go and marketplace.
  • Aspiring entrepreneurs can learn about business models, business plans and more at University of Phoenix, which offers a variety of online business degrees .

Virtually all businesses have at least one thing in common: They depend on effective business plans. A business plan serves as a road map for your company, outlining the steps you will take to reach customers and generate profit.

But before you create a business plan, you must first determine your business model. This is the type or platform your business will engage to become profitable. Business models might include product types, financial plans, sales forecasts and other details that outline your plan for success.

Whether you’re an established CEO or an entrepreneur starting your own business , a business model and a business plan form important steps toward defining your company’s future. Partners, company executives and any other business professionals invested in a company’s future can regularly reference their business model and plan to maintain progress toward goals.

It’s never too early to begin studying, building or optimizing your business’s success plan. Even if you only recently obtained your business degree , you can advantageously influence your company’s business model and plan in several important ways.

A business model is just one step in starting your own business. Explore the complete guide to entrepreneurship on our blog!

Understanding business models

Your business model is meant to serve as a comprehensive guide — one that leads your business toward success. The best business models and plans also help companies navigate their market while identifying potential risks and avoiding setbacks.

Put simply, your company’s business model outlines the ways you plan to add value or grow and maintain a business. You’ll likely include details like employees, available resources, price points, competition, customer behaviors and potential expenses in your business model — all to help you forecast how your company might perform in the future.

If you’ve completed a business degree, you can use your business experience to help inform your company’s business model. In addition, earning an MBA can give you the tools to handle investments and high-level decisions that come with deciding on or switching up your business model. However, whether you’re a business management student or an experienced executive, it’s important to consistently evaluate your company’s progress and discover new business models that could propel that growth.

Start your business on the right track. Explore business degrees at University of Phoenix.

most important element of a business model & responsible for making the model work

The importance of business models

Business models also might have a direct impact on your company’s success. If you’re starting a new company, your business model should help you attract talent and generate sales. Existing companies should update business models regularly in anticipation of any changes in customer behaviors or market trends.

Among other critical points, your business model should allow your organization to offer high-quality, affordable products or services. This key component will allow your business to change, scale and evolve as necessary. Include figures like cash flow, gross sales and net income in your business plan to maintain companywide accountability as you grow.

Business models provide more than just fiscal direction for your company. Your business model should also outline short- and long-term goals and provide a foundation for corporate culture. Take the time to include details about your organization’s identity in your business model.

Types of business models

Depending on the type of business you operate, you can choose from a wide selection of business models. Some business models primarily outline costs and anticipated sales; others include processes, formulas, workflows and other details that contribute toward corporate success.

Here are a couple of the most common components of a business model:

  • Advertising — The use of advertising channels like social media, email and TV commercials to reach a specific customer segment. Companies can use this business model to remain familiar with customers who may be potentially interested in their products.
  • Affiliate — The use of third-party individuals who generate leads or sell products on a company’s behalf and are compensated for their sales. Businesses may develop a model that focuses on enlisting consultants to sell popular products.
  • Crowdsourcing — Online communities collectively fund a business’s product, service or platform. Some businesses use crowdsourcing to obtain ideas, not funding, from customers or other interested individuals. For example, a snack food company may launch a campaign asking customers to help them determine a name for a food item or determine their next flavor.
  • Fractionalization — The sale of partial access to a specific product or service. For example, a resort may allow guests the opportunity to purchase permanent access to the room for a small portion of the year.
  • Franchise — A recognizable company allows individual business owners to use its branding, processes or other assets. Businesses can use the franchise business model to support their growth into new markets.
  • Leasing — Companies purchase products and then lease them to paying customers for some time. A rental car company, for example, may use this business model by purchasing vehicles and then renting them to customers for personal or business use.
  • Marketplace — This model connects retailers with customers searching for their products. These companies exist not to sell their services but to securely connect buyers and sellers.
  • Pay-as-You-Go — Customers pay companies for the use of company-owned goods until those goods are returned to the company. This business model may include charging customers a per-hour rate for the use of company-owned vehicles or equipment.
  • Razor blade/Reverse razor blade — The sale of a product for a loss, and the sale of replacement products for a profit. Originally made popular by Gillette, this business model is also used by printer companies like HP ® , which make much wider margins on replacement ink cartridges than they do the printers.
  • Subscription — The sale of products or services to customers who are billed on a per-week, per-month or per-year basis. Online streaming providers use the subscription model, where customers pay each month for access to television shows, movies and other media programs.

These and other business model types can help you identify the purpose and direction of your organization.

most important element of a business model & responsible for making the model work

9 components of a business model

No matter the type of business model you’ve elected to create or follow, most include similar elements. A quality business model or plan often includes several unique elements, where each element helps to further define your vision and direction.

Your comprehensive business plan should contribute to your company’s business model. Ideally, your business model contains the following nine components:

  • Customer relationships — This encompasses any of your ongoing interactions with consumers, including customer service conversations, phone calls, email correspondence and other engagement.
  • Customer segments — By analyzing your customers and dividing them into market segments, you can target each segment’s common characteristics.
  • Value propositions — This is a promise of value to customers in the form of a product, service or another asset, which persuades consumers to choose your organization.
  • Channels — The individuals or activities that deliver your products or services to customers, also known as “distribution channels.”
  • Key activities — The most important tasks your business needs to do to remain successful.
  • Key partners — Important partnerships and networking opportunities that contribute to your company’s ongoing success.
  • Key resources — Cash, investments, materials and other assets that help your company capitalize on its business model.
  • Revenue streams — The different ways your company earns money and remains profitable.
  • Cost structures — Financial aspects of a company, such as structuring sales, commissions and labor to reduce overall expenses over time.

These essential pieces of a business model help you define every aspect of your company’s operations. When you understand your company’s available resources, liquid capital, recurring revenue, customer demographic and related details, you’ll position the business itself for long-term success.

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The 7 Elements of a Strong Business Model Envisioning the many moving parts of a functioning business is the first step to success.

By Larry Alton • Apr 22, 2015

Opinions expressed by Entrepreneur contributors are their own.

Creating a business model isn't simply about completing your business plan or determining which products to pursue. It's about mapping out how you will create ongoing value for your customers.

Where will your business idea start, how should it progress, and when will you know you've been successful? How will you create value for customers? Follow these simple steps to securing a strong business model .

1. Identify your specific audience.

Targeting a wide audience won't allow your business to hone in on customers who truly need and want your product or service. Instead, when creating your business model, narrow your audience down to two or three detailed buyer personas. Outline each persona's demographics, common challenges and the solutions your company will offer. As an example, Home Depot might appeal to everyone or carry a product the average person needs, but the company's primary target market is homeowners and builders.

Related: The Science of Building Buyer Personas (Infographic)

2. Establish business processes.

Before your business can go live, you need to have an understanding of the activities required to make your business model work. Determine key business activities by first identifying the core aspect of your business's offering. Are you responsible for providing a service, shipping a product or offering consulting? In the case of Ticketbis , an online ticket exchange marketplace, key business processes include marketing and product delivery management.

3. Record key business resources.

What does your company need to carry out daily processes, find new customers and reach business goals? Document essential business resources to ensure your business model is adequately prepared to sustain the needs of your business. Common resource examples may include a website, capital, warehouses, intellectual property and customer lists.

4. Develop a strong value proposition.

How will your company stand out among the competition? Do you provide an innovative service, revolutionary product or a new twist on an old favorite? Establishing exactly what your business offers and why it's better than competitors is the beginning of a strong value proposition. Once you've got a few value propositions defined, link each one to a service or product delivery system to determine how you will remain valuable to customers over time.

Related: How to Develop and Evaluate Your Startup's Value Proposition

5. Determine key business partners.

No business can function properly (let alone reach established goals) without key partners that contribute to the business's ability to serve customers. When creating a business model, select key partners, like suppliers, strategic alliances or advertising partners. Using the previous example of Home Depot, key business partners may be lumber suppliers, parts wholesalers and logistics companies.

6. Create a demand generation strategy.

Unless you're taking a radical approach to launching your company, you'll need a strategy that builds interest in your business, generates leads and is designed to close sales. How will customers find you? More importantly, what should they do once they become aware of your brand? Developing a demand generation strategy creates a blueprint of the customer's journey while documenting the key motivators for taking action.

7. Leave room for innovation.

When launching a company and developing a business model, your business plan is based on many assumptions. After all, until you begin to welcome paying customers, you don't truly know if your business model will meet their ongoing needs. For this reason, it's important to leave room for future innovations. Don't make a critical mistake by thinking your initial plan is a static document. Instead, review it often and implement changes as needed.

Keeping these seven tips in mind will lead to the creation of a solid business plan capable of fueling your startup's success.

Related: 5 Strategies for Generating Consumer Demand

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8 Types of Business Models & the Value They Deliver

Stacks of coins in a garden

  • 26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

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8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

  • Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
  • Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

  • Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
  • Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

  • Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
  • Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

  • Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
  • Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

  • Pros: You don’t have to have a novel idea to make money using a lease business model. You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
  • Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

  • Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
  • Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

  • Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
  • Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

  • Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
  • Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

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Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

most important element of a business model & responsible for making the model work

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The concept of  business model  changed substantially over the last few years. It can no longer be defined as the way a company generates money or a person attracts clients. Its definition has gone farther and now refers to the pure needs of users and clients.

How is it possible that the largest private transportation company does not own a single vehicle? How is it possible that the largest accommodation company in the world does not own a single hotel?

Alex Osterwalder,  in his book “Business Model Generation” , states that innovation in business models consists in  creating value for companies , clients and society in general, i.e. in  replacing obsolete models.

“A business model describes the rationale of how an organization creates, delivers and captures value for the client”

Alex Osterwalder

These are some examples of the new business models: the digital player iPod and the online store , which Apple used to create an innovative business model that made it the undisputed leader in online music. Skype offered international calls at very low rates as well as free calls between service users with an innovative business model based on P2P technology.

With the help of  Zipcar , residents in many cities no longer need to own a vehicle; instead, they can rent any car for a few hours or days in exchange for a membership fee. This business model results from  the new needs of users  and the worrying environmental conditions.

Three mandatory elements in a Business Model

  • Profitability:  No business is created to lose money; consequently, it must be profitable.
  • Scalability:  Being able to create one now, another tomorrow and so on and so forth until you have a model that takes over the market.
  • Repeatability:  Being able to standardize them to be able to replicate them anywhere, e.g. franchise products.

In other words, when you release a product or service , it must feature the three elements that should guarantee its market success: Desirable, Viable and Profitable.

How to create value with a business model

By being close to the client. By creating very close relationships from the very beginning so as to know the client’s needs or problems, while always listening to them and co-creating with them. And once the product has been released, it must be possible to receive feedback to be able to discern the model that allows clients to find the added value it brings.

“Customers comprise the heart of any business model. Without customers, no company can survive for long”

Alexander Osterwalder

Flexibility is the key to a business model’s success . For this reason, we highly recommend the Canvas Model because, using this method, you employ nine blocks to test whether you are targeting your product at the right segment or whether your value proposition really meets the needs of your clients.

“Businesspeople mistake objectives, mission and vision for strategy. And strategy is the path toward being unique,” Michael Porter. / Image: Daria Nepriakhina on Unsplash

How can I offer added value when compared to my competition?  By providing a better solution to an existing need (adding value to your client) and improving how you deliver this solution. As a consequence, a good business model means finding a different way of competing.

9 Business models recommended by  Guy Kawasaki

  • Multicomponent.  A good example is  Coca-Cola , which is sold in supermarkets, neighborhood stores and vending machines. The same product is sold in different settings, for different prices and with different presentations.
  • Market leader.   Apple  is the personification of a market leader that creates innovative and attractive products for its clients.
  • Valuable component.   Intel  manufactures valuable elements for other products; these elements are not sold directly to the client but they differentiate the company from its competitors.
  • Switcher.   De  Beers   controls the supply of diamonds; this model involves several challenges: to win control of supply and to convince the consumers that this control is desirable.
  • Printer and Toner.  Also called Bait and Hook. This business model consists in selling a product that needs consumables, such as  Nespresso machines.
  • Freemium .  Consists in giving services away up to a certain limit; after that, the clients need to pay. For example,  Evernote, Spotify, Dropbox , etc.
  • Eyesballs .  Consists in offering a platform to create or share content that attracts visitors, normally selling advertising, e.g.  Facebook, Huffington and Instagram .
  • Virtual products.  Consists in selling digital codes for products with almost nil costs and maintenance in terms of inventory. For example, Candy Crush and other videogames.
  • Handcrafted.  Furniture is an example of this business model that prioritizes quality and handcraftsmanship.

Other business models in the market:

  • Affiliation:   A company that wishes to sell a product and defines some kind of reward for suppliers, companies or people that attract clients or orders for its products.
  • Long tail:   The long tail business model is innovative because it offers a wide range of little sought-after items that may become profitable businesses and generate profit on the basis of a large volume of small sales.
  • Franchising or licensing.  This business model allows entrepreneurs to “exploit” a proven business that works and is replicated where it does not exist yet.
  • Subscription.  This business model consists in having the user pay a subscription in exchange for a value proposition. Classic examples are subscriptions for paid TV, magazines, newspapers and Netflix.

Netflix seems to make less profit with its content than other companies. However, this comparison does not take into account the value of data that are used to reduce the cost of buying new content. Source: Investopedia

It should be noted that the axis of a business model is the Value Proposition , which consists in knowing what you have that others do not have and that people are willing to pay for. The best enterprises happen when the entrepreneur has first-hand experience of the need they wish to meet and offers a solution.

Consequently, if entrepreneurs and businesspeople want to dominate the market, rather than worrying about creating the ideal product they should worry about designing the “Business Model” that allows them to have profitable companies over time and that survives with residual income while making them the leaders in demand among their clients and consumers.

Guiovanni Quijano


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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

  • Business Model FAQs

The Bottom Line

Learn to understand a company's profit-making plan

most important element of a business model & responsible for making the model work

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

most important element of a business model & responsible for making the model work

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

  • 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 offer matches a true need in the market.

Business Model

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale


A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company


Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP


Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T


Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business models attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza


Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

  • Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
  • Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
  • Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
  • Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

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most important element of a business model & responsible for making the model work

5 Important Elements of a Business Model

A sound business model is imperative for the success of any business. It maps out your plan to create value for your target market. A business model is also useful if you want to borrow money from venture capitalists.

Here we have highlighted five critical elements that make a business model appealing to investors.

Identify Your Target Market

The first element of a business model is to define your target market in order to create a strong customer base, whose needs are satisfied by what your business is offering. You have to segment your market according to demographics so that you are better aware of their characteristics.

Identify Your Value Chain

In order to have a complete understanding of your business processes, you need to identify your business’s core competency. This would help you in fulfilling value proposition and in making your business model pragmatic. Once you recognize this, you can then identify your potential expansion strategies for strengthening your value chain.

Mobilize Your Resources

Four resources that make your business up and running are: physical assets, human resource, financial resource and the most important being, the intellectual property which gives your business a unique edge.

Identify Your Business Partners

Establishing and forming your business alliances before the business starts operating is imperative in accomplishment of your short term goals and objectives. These strategic alliances should be bound by legal contracts in order to avoid any uncertainty in the external environment of your business.

Keep Your Business Model Flexible

Innovation is a continuous process so you must leave sufficient room for innovation in your business model. Your business model must not keep you stagnant; rather it should assist you in adapting to the changing market environment.

These five elements would ensure that your business model is attractive enough to grasp the attention of potential investors.

EDHEC Business School - Online Programmes

What is a Business Model? A Short Guide to Developing Successful Business Models

You’ll often hear professionals discuss how important it is to have a clearly defined business model . A company’s business model can literally make or break their chances of success

But what is a business model exactly? Let’s take a look.

what is a business model

What is a Business Model and Why is It Important?

In essence, a business model is how a company plans to make a profit. This scope includes the business’s value proposition, key expenses, products or services, and its target market.

The value proposition, a central part of any business model, defines the company’s key offering or offerings, whether products or services. Importantly, it also describes what differentiates this offering from existing products, and what makes it attractive to the business’ target market.

Business models can be broadly grouped into categories, such as:

  • Manufacturer
  • Marketplace
  • Subscription
  • Fee-for-Service

It’s also important to note that one company may operate more than one business model concurrently. For example, eCommerce giant Amazon acts as both a retailer and a marketplace.

It is essential for new companies to define their business model, as it allows them to attract more investors and talent, as well as develop effective strategies . 

However, it’s equally important that established businesses regularly review and update their business model in the face of changing market trends and as their company grows.

What Makes a Strong Business Model?

A strong business model must clearly lay out how your business is going to generate revenue, including drilling down into your target market and value proposition.

Key elements of a good business model include:

  • A well-defined value proposition
  • The business’ target market
  • Start-up costs anticipated expenses
  • Revenue projection
  • Key competitors and how they measure up against the company
  • Marketing strategy
  • Key stakeholders and partnership opportunities

Additionally , the business models of successful companies generally share certain common characteristics. They often have a unique selling point, or unique selling proposition (USP), that sets them apart from their competition and meets their target customers’ needs, which they offer at an attractive price point. 

Furthermore, successful business models are financially sustainable and adapt to meet changes in the market or in the business’s own needs.

How to Create a Successful Business Model

1. conduct market research.

The best business models are based on a thorough understanding of current market trends, opportunities, and challenges. Start by conducting research into the latest trends, your top competitors, and what is and isn’t currently working well in the industry.

2. Define your Target Market

Next, you’ll need to identify who your business’ target market or customer base will be. Dig deeper into your ideal customer’s needs, and especially their key pain points. These will become the problems that your product or service will solve.

3. Develop Your Service Offering

Once you have a clear picture of your target audience and their main pain points, you can use this to develop a service offering that will most effectively address this.

Be sure to tie this back to your business’s value proposition: what makes your products or services not only desirable to your target market, but what differentiates you from your competitors?

4. Make a Road Map

Once you’ve defined your target market and the product or service you’re going to offer them, the next step is to work out what you need to make that happen. It’s essential to create a clear picture of the resources you’ll need to get your business up and running. 

At this point, you should also consider potential challenges you may face along the way, and how you plan to address them. 

Document all of these elements as part of a well-defined road map to launch your business.

5. Start Developing Partnerships

Another essential part of any business model is the partners who will help the company achieve success. This could be suppliers, service providers, contractors, advertising partners, collaborators, or other stakeholders. 

Having an idea of who these partners will be and how you will work together will help you to shape your business model.

6. Define Revenue Streams

Revenue is central to any business, and any strong business model must clearly define where revenue will come from. You’ll also need to consider how you will increase revenue over time, such as specific strategies to build your customer base and close sales.

7. Do Testing

The final step of this process is testing your business model to ensure you’re in the strongest possible position to go live. This could involve test surveys within your target market, or soft launches. The idea is to gauge how well your business model will perform and help you to reach your goals.

8. Continually Review and Adapt

Avoid taking a “set it and forget it” approach to your business model. There are many reasons why you may need to adapt your business model over time. Not only may the market change, but as your business begins to operate and grow, you may find you need to reassess some of your original ideas and assumptions.

Therefore, it is essential to take a flexible position and continually review and adapt your business model to reflect evolving circumstances, whether internal or external to your business.

What does a business development manager do?

Get the Skills You Need to Develop a Successful Business Model

It’s not enough to understand what a business model is: you also need to be familiar with the various push and pull factors that will allow you to create a winning model.

Experience is an essential part of being able to develop a successful business model. Knowledge of the latest industry trends, data insights , and strategic thinking are also critical. 

EDHEC Online Master of Science in International Business Management can help you develop your strategic thinking in order to use data insights to create business models that are sustainable, inclusive, and impactful.

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By Denis G.

Business Model Canvas Explained with Examples

In this article:

In this article, we’ll examine the nine steps needed to create your first business model using the Business Model Canvas. We’ll also look at the business models of Google, Uber, and Gillette to bring the theory to life and integrate all nine steps.

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Before we jump in and look at the Business Model Canvas, let’s take a moment to define what we mean when we use the phrase “business model”.

What is a business model?

A business model is defined as:

  • A plan for the successful operation of a business, identifying sources of revenue, the target customer base, products, and details of financing.

Essentially it tells us how the key drivers of a business fit together.

Now if you think about writing all this down in a document, then it’s obviously going to require multiple pages to capture all of that information. Now think about trying to get all of this information into your brain at the same time and its easy for business models to overwhelm us.

That’s where the Business Model Canvas comes in. It gives you a way to create a pretty clear business model using just a single sheet of paper. And what is great about it is it can be used to describe any company – from the largest company in the world to a startup with just one employee.

Advantages of the Business Model Canvas

The reason why you might want to create a Business Model Canvas is that they have the following advantages:

  • Easy to understand : Because the canvas on just a single page and is very visual it’s very easy to understand.
  • Focussed : It removes any fluff that might have been present in a traditional business model. It’s all killer no filler.
  • Flexible : It’s quick and easy to make changes to your model and sketch out different ideas.
  • Customer Focused : the canvas forces you to think about the value you’re providing to your customers, and only then what it takes to deliver that value.
  • Shows Connections : The single page graphical nature of the canvas shows how the different parts of the model interrelate to each other. This can be really difficult to ascertain from a traditional business plan.
  • Easy to Communicate : Because the canvas is so easy to understand you’ll be able to share and explain it easily with your team, making it easier to get them on board with your vision.

Using the Business Model Canvas

The first thing to notice is that there are nine elements or building blocks which make up the canvas:

Business Model Canvas

We’ll look at each building block of the canvas in more detail shortly, but briefly, each segment tries to answer the following questions:

  • Customer Segments : Who are your customers?
  • Value Proposition : Why do customers buy from you? What is the gain you provide or the need you satisfy?
  • Channels : How are your products and services delivered to the market?
  • Customer Relationships : How do you get, keep, and grow your customers?
  • Revenue Streams : How does your business earn money?
  • Key Resources : What unique strategic resources does your business have or need?
  • Key Activities : What unique strategic activities does your business perform to deliver your value proposition?
  • Key Partnerships : What non-key activities can you outsource to enable you to focus more on your key activities.
  • Cost Structures : What are the major costs incurred by your business?

Left/Right Split

Before we dig deeper into the detail of each of these elements, there’s just one thing to be aware of…

Broadly speaking we can say that those elements on the lefthand side of the canvas represent costs to the business, whereas elements on the righthand side generate revenue for the business.

With that, let’s dig into each of the nine building blocks in a little more detail.

1. Customer Segments

In this building block, you enter the different customer segments or that you will serve. If you can, create one or more persona for each segment you serve. A persona is simply a relatable description of each customer type you serve. They try to highlight your customers’ motivations, their problems and capture the “essence” of who they are.

One really important point to get across here is that customers don’t exist for you, but rather you exist to serve your customers.

Many businesses will serve just one customer segment, but not all. For example, Google serves two customer segments, people performing searches as well as advertisers.

If you think about breaking down the advertiser customer segment into personas, then there are many different types of advertisers you might identify. For example, Fortune 500 companies such as Nike with massive advertising budgets might be one persona, whereas small one-man businesses might form another.

2. Value Proposition

The value proposition describes the value that you deliver to each customer segment. What problems do you solve for each customer segment? What needs do you satisfy? The Value Proposition answers the question, “why will customers buy from us?”.

Some of the most common value propositions are:

  • High performance.
  • Ability to customize.
  • Brand/Status.
  • Cost reduction.
  • Risk reduction.
  • Convenience.

3. Channels

Channels refer to how your products or services are sold to customers. To complete this section ask yourself how do your customers want to be reached? How are you reaching them now?

Broadly speaking you can either have your own channels or partner with someone else.

Your own channels might include any combination of stores you own, a sales force you employ, or your website.

Partner channels could include a multitude of options, from using a wholesaler to working with affiliates to sell your products or even using Google Adsense.

4. Customer Relationships

The Customer Relationships building block answers the question of how you get, keep, and grow customers.

  • Get : How do customers find out about you and make their initial purchase? For example, this could be through advertising on Google.
  • Keep : How do you keep customers? For example, excellent customer service might help keep customers.
  • Grow : How do you get our customers to spend more? For example, you could send out a monthly newsletter to keep them informed about your latest products.

The easiest way to define all of this is to walk through the entire customer journey in detail. That is how do customers find out about you, investigate whether to buy your product, purchase it and how are they managed after purchase.

5. Revenue Streams

Where does the money come from? In this building block, you state where your revenue is generated.

This might sound super simple but it isn’t. You’re actually trying to figure out what strategy you’ll use to capture the most value from your customers? Will customers simply pay a one-time fee? Will you have a monthly subscription fee? Perhaps you give away your product for free like Skype and hope that some portion of customers upgrade to the paid premium product?

Consider Google. Advertisers pay Google to place their ads in front of users with buying intent. For example, if you search for “Nike trainers” you will see ads. If you search for something without purchasing intent, such as “picture of flowers” you probably won’t see any ads.

In fact, you could say that Google operates searches without purchase intent as a loss leader to keep people using the Google system.

Taking a Step Back

If you look at what we have done so far we’ve filled in our Value Proposition and the building blocks to the right of it.

In a nutshell, we’ve developed our understanding of everything that relates to our customers.

Now we need to work on the area to the left of the value proposition. We need to build our infrastructure to be able to best provide the value proposition.

So with that let’s move on to the first infrastructure building block, Key Resources.

6. Key Resources

This building block describes your most important strategic assets that are required to make your business model work.

Broadly speaking resources can fall into one of four categories:

  • Physical : such as buildings, vehicles, machines, and distribution networks.
  • Intellectual : such as brands, specialist knowledge, patents and copyrights, partnerships, and customer databases.
  • Human : sometimes your people will be your most key resource, this is particularly true in creative and knowledge-intensive industries.
  • Financial : such as lines of credit, cash balances etc.

7. Key Activities

The Key Activities are the most important strategic things you must do to make the business model work. Key Activities should be directly relatable to your value proposition.

If your Key Activities are not relatable to your Value Proposition then something is wrong, because the activities you view as most important aren’t delivering any value to customers.

Key Activities can typically be broken down into three broad categories:

  • Production : refers to delivering your product. You will typically do this to either a high quality or a high quantity.
  • Problem Solving : Consultancies and other service organizations often have to come up with new solutions to individual customer problems.
  • Platform/Network : Networks, software platforms can function as a platform. For example, a key activity for Facebook is updating the platform.

When completing this section, it is a mistake to list all the activities of your business, instead only include activities which are absolutely core to delivering your value proposition.

8. Key Partners

In this building block, you list the tasks and activities that are important but which you will not do yourself. Instead, you will use suppliers and partners to make the business model work.

Let’s look at Spotify. Spotify’s key activity is updating its platform. However, as it doesn’t produce its own music one of the key partnerships of Spotify will be the deals it strikes with record labels and publishing houses, without which it would have no music!

There are usually three reasons for creating a partnership:

  • Economies of scale.
  • Reduction of risk and uncertainty.
  • Acquisition of resources or activities (e.g. music for Spotify).

9. Cost Structure

In the Cost Structure building block, we want to map key activities to costs. We also want to ensure that costs are aligned with our Value Proposition.

It should be straightforward to determine your most important costs and your most expensive after you’ve defined your Key Resources, Key Activities, and Key Partnerships.

Business Model Canvas Examples

That’s the theory out of the way. However, the Business Model Canvas comes to life when you see it in action.

So let’s look at three different examples of the Business Model Canvas so you can see just how useful it can be.

Example 1: Google

The first thing you should know about Google’s business model is that it is multi-sided. This means that it brings together two distinct but related customers.

In Google’s case, its customers are its search users and its advertisers. The platform is only of interest to advertisers because search users are also present. Conversely, search users would not be able to use the platform free of charge were it not for advertisers.

The Business Model Canvas for Google is shown below:

Business Model Canvas: Google

As you can see the diagram gives you an immediate understanding of the key parts of Google’s business model.

We can see that:

  • Google makes money from the advertiser customer segment, whose ads appear either in search results or on web pages.
  • This money subsidizes a free offering to the other two customer segments: search users and content owners.

Google’s business model has a network element to it. That is, the more ads it displays to web searchers the more advertisers it attracts. And the more advertisers it attracts the more content owners it attracts.

Google’s Key Resource is its search platform including, Adsense (for content owners) and Adwords (for advertisers).

The key strategic activities that Google must perform are managing the existing platform including its infrastructure.

Google’s key partners are obviously the content owners from whom a large part of its revenues is generated. OEMs (Original Equipment Manufacturers) also form a key partner.

OEMs are companies who produce mobile handsets to whom Google provides its Android operating system to for free. In return, when users of these handsets search the internet they use the Google search engine by default, thus bring more users into the ecosystem and generating even more revenue.

A Word on Color Coding

There are no hard and fast rules when it comes to using color within your canvas. Some people prefer to use color to represent the links between elements, as we have done in this article. Others like to use different colored elements or sticky notes to represent related elements.

The choice is up to you. What is important is that any relationships between elements are easy to identify and easy to understand.

Example 2: Skype

In the diagram below you can see the Business Model Canvas for Skype.

Business Model Canvas: Skype

From the Business Model Canvas we can see that Skype has two key value propositions:

  • The ability to make calls over the Internet, including video calls, for free.
  • The ability to make calls to phones cheaply.

Skype operates a freemium business model, meaning the majority of Skype’s users (the Free Users customer segment) use the service for free to make calls over the internet, with just 10% of users signing up to the prepaid service.

We can see from the customer relationship building block that customers typically have a help themselves relationship with Skype. Typically this will be by using their support website.

The channels Skype uses to reach its customers are its website,, and partnerships with headset brands.

Looking at key partnerships, key activities, and key resources together, the main thing to notice is that Skype is able to support its business model of offering cheap and free calls because it doesn’t have to maintain its own telecoms network like a traditional telecoms provider. Skype doesn’t need that much infrastructure at all, just backend software and the servers hosting use accounts.

Example 3: Gillette

The Business Model Canvas for Gillette is shown below:

Business Model Canvas: Gillette

Gillette’s business model is based on the “Bait & Hook” business model pattern. This model is characterized by an attractive, inexpensive or even free initial offer that encourages ongoing future purchases of related products or services. With this business model, the bait is often provided at a loss, subsidized by the hook.

In Gillette’s case, an inexpensive razor handle forms the bait, and continued purchases of the blades represent the hook.

The business model is very popular in SaaS (Software as a Service) businesses, where typically a free initial month leads to a monthly subscription.

In the diagram above we have used the thickness of the arrows to indicate the size of revenue generated. In Gillette’s case, all revenues are generated by just one customer segment, but the vast majority of revenues come from Frequent Blade Replacements, with just minor revenues coming from the purchase of handles.

If you look at the left-hand side of Gellettes Business Model Canvas you will notice how all major costs are aligned with delivering the value proposition. For example, marketing costs help to build Gillette’s strong brand and R&D costs help to ensure that the blade and handle technology is unique and proprietary.

Key Takeaway

Through these three Business Model Canvas examples, you should be able to see just how easy it is to represent the complete business model of any company on just one single sheet of paper.

Creating Your First Business Model

If you’re going to do create your first Business Model Canvas, then here are some tips to help you get started:

  • Don’t go it alone: Don’t try to create your model singlehandedly. Instead get a small team of 3-5 people together so you can brainstorm ideas.
  • Use a whiteboard if you can.
  • Have plenty of different colored whiteboard pens and sticky notes handy.
  • Plan on the process taking about an hour to complete your first draft Business Model Canvas.
  • Decide which building block you’re going to fill in first. Usually, it makes sense to start with Customer Segments or Value Proposition and then work from there.

The Business Model Canvas provides a way to show the key elements of any business model on a single sheet of paper. The canvas is based on nine building blocks and the interrelationships between them. You can use the canvas regardless of whether you are trying to understand a startup with two employees or a Fortune 500 company with over 50,000 employees.

Cite this article

Minute Tools Content Team, Business Model Canvas Explained with Examples, Minute Tools, Oct, 2018

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Originally hailing from Dublin, Denis has always been interested in all things business and started EPM in 2009. Before EPM, Denis held a leadership position at Nokia, owned a sports statistics business, and was a member of the PMI's (Project Management Institute’s) Global Executive Council for two years. Denis now spends his days helping others understand complex business topics.

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Why is a business model important?

most important element of a business model & responsible for making the model work

Learning & Academics

A business model may seem like a straightforward concept. But the term has shifted and changed over time. Today, if a company is incapable of creating an innovative and flexible business model, that could be its downfall.

Today, technology and innovation are the main players in how successful businesses are run and reinvented. With an explosive amount of information available through big data and the resources provided by digital tech, companies can more easily create and continue to capture value for stakeholders.

Businesses that want to start and stay at the cutting edge use design thinking, strategy, and continuous, fearless change in their business models. Some of the most successful businesses today are those that have reinvented the model, disrupting the industry that was and creating the kind of value customers are looking for in the digital era .

Adults analysis brainstorming

What is a business model?

Does a business model have a simple definition? Yes and no. Business models are the logic behind a company, but the concept can be framed in many different ways. And today, the way the idea has been reframed is inspiring the business owners and CEOs of companies from startups to well-established multinationals.

In his book The New, New Thing , Michael Lewis explains that the business model has been thought of as simply the way a business plans to make money. Expanding upon this idea, Peter Drucker talks about the business concept in terms of flexible assumptions about what a company will and will not do: what they get paid for; markets, customers, and competitors; values and behaviors; technology; and a company’s strengths and weaknesses. Joan Magretta adds that a business model is basically a story about how the company will operate, including the activities involved in making and selling a product or service.

Alex Osterwalder offers a simplified format for thinking about these hypotheses adopted by startups and established businesses alike, called the busi n ess model canvas. This business map is a one-page template that includes space for designing, discussing, and reinventing business models. The nine building blocks included are customer segments, value propositions, channels for delivering value, customer relationships, revenue streams, key resources, activities and partners, and cost structure. The idea of having everything mapped out on one page enables forward-thinking leaders to keep things light and flexible in order to invent or innovatively reiterate their business models as situations change and evolve.

most important element of a business model & responsible for making the model work

Types of business models and tech

Business models have been transformed by technology . Interconnectivity , globalization , and a digital, tech-driven world have all allowed innovative thinkers to rethink traditional models in sectors from travel to retail.

One example of an age-old business model that has been transformed by tech is the platform business model. In the simplest terms, this model brings buyers and sellers together in one space. An in-person marketplace, auction house, or shopping mall are examples of this model that have been around for decades or even centuries. But digital tech has meant these platforms are no longer confined by time and space. Technology has allowed innovative business owners to use this type of model to create enormous digital networks enabling participation and collaboration across the globe. Some of the most successful companies today, including Airbnb , WhatsApp , Facebook , Google , and Alibaba , are examples of reinvented platform business models that use tech to their advantage.

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The global business model is another example of one which has been inspired by technology. These models focus on producing and selling globally in a short period of time, relying on the fast pace of globalization and interconnectivity to thrive. The clothing brands Mango and Desigual are good examples of successful models based on selling to small target segments globally in order to achieve economy of scale, in a way that is only possible in a globalized world.

Interconnectivity and the digital world has also led to the availability of big data, allowing businesses to make sure they are offering the goods and services customers are actually looking for. The “seeking-excellence” business model depends on creating innovative products or services that consumers didn’t even know they wanted. The most disruptive thinkers today can use big data to analyze trends and find new value propositions that reinvent the business model—like Apple did with the iPod and iTunes store in the early 2000s.

Inspiring business models that have broken the status quo

Airbnb is one of the most disruptive businesses of the digital era. Founded by a couple of young startupers in 2008, it is the result of a recognized opportunity (when no hotel rooms were available in San Francisco during a conference held in the city), and the technology capable of connecting hosts and renters from around the globe.

Airbnb Room

As they put it on their About Us page, “ Airbnb uniquely leverages technology to economically empower millions of people around the world to unlock and monetize their spaces, passions, and talents to become hospitality entrepreneurs. ” It is a sharing-economy-based business , eliminating the overhead of owning the rooms that are rented out, like traditional hotels do. And its platform business model—which uses advances in digital tech to create networks that continuously improve—has allowed the business to boom around the world.

Uber is at the top of the list as another example of a business that has taken an existing business model and reinvented the wheel. By looking at how a current business model—taxis—could be improved, Uber was able to take a share of a preexisting market using a disruptive, tech-based model for grabbing a ride.


Now they have expanded and continue to grow through reiterations of their model, including Uber Eats for food delivery; Uber Freight offering shipping services; Uber Health providing rides for patients and healthcare providers; and even technology groups working towards self-driving vehicles and shared air transportation.

In the fast-paced digital world, innovation is a key element of any business model. Executives and CEOs are not responsible for maintaining the status quo defined in one iteration of the business model, but rather for experimenting, learning, and continuously improving to stay ahead of the competition.

Author: IE University

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The Circular Business Model

  • Atalay Atasu,
  • Céline Dumas,
  • Luk N. Van Wassenhove

most important element of a business model & responsible for making the model work

More and more manufacturing companies are talking about what’s often called the circular economy—in which businesses can create supply chains that recover or recycle the resources used to create their products. Shrinking their environmental footprint, trimming operational waste, and using expensive resources more efficiently are certainly appealing to CEOs. But creating a circular business model is challenging—and taking the wrong approach can be expensive.

The authors argue that success depends on many factors, but perhaps the most important is choosing a strategy that aligns with the company’s capabilities and resources—and addresses the constraints on its operations. In this article they identify the three basic strategies to achieve circularity and offer a tool to help manufacturers identify which is most likely to be economically sustainable. Their recommendations draw on decades of research and consulting with dozens of manufacturers across the world.

Pick a strategy that fits your resources and capabilities.

Idea in Brief

The problem.

Manufacturing companies attracted by the promise of circular business models—in which used products can be recovered and reused or recycled—may struggle to make them sustainable.

Why It Happens

Managers all too often select circularity strategies that don’t align with their resources, capabilities, and constraints.

The Solution

The three basic strategies for creating a circular business model are retaining product ownership, product life extension, and design for recycling. In determining what combination of these to adopt, managers should consider the ease of gaining access to used products and the ease of recycling materials, components, or the complete product. These factors, together with how much value is locked up in the product, determine how much value can be recovered from a given pathway to circularity.

It’s easy to see why more and more manufacturing companies are talking about what’s often called the circular economy—in which businesses create supply chains that recover or recycle the resources used to create their products. Shrinking their environmental footprint, trimming operational waste, and using expensive resources more efficiently are certainly appealing to CEOs.

But creating a circular business model is challenging, and taking the wrong approach can be expensive. Consider the case of Interface, an Atlanta-based commercial flooring company. In the 1990s its founder and CEO, Ray Anderson, declared that he wanted Interface to become “the first sustainable corporation in the world.” To achieve that, the company would shift its business model from selling to leasing. It launched the Evergreen Services Agreement (ESA) program , with installation, maintenance, and removal of its flooring bundled under one monthly fee, making it possible for the company to keep used flooring materials out of landfills and recycle the valuable raw materials in them.

This unprecedented move was intended to close the loop of the commercial-carpeting supply chain, and Interface pushed hard to make it work, even going so far as to develop a network of carpet distributors to service clients across the United States on behalf of the company. But after seven years of strenuous sales efforts, Interface had acquired just a handful of lessees. The overwhelming majority of customers preferred to buy rather than lease their carpets, because carpet maintenance fell under the general heading of janitorial services, rendering its costs invisible to them. They could not easily see the upside to paying fairly high monthly fees. The ESA program was simply not scalable.

Happily, that wasn’t the end of the story. In 2000 Interface shifted its focus from long-term leases to producing modular carpet tiles using sustainable materials, such as recyclable nylon fibers and recyclable vinyl backings. And as it turned out, manufacturing the new carpet tiles emitted 75% less carbon than the industry average. Combined with a transition to renewable energy on production sites, these innovations have shrunk Interface’s total carbon footprint by 69%, according to company reports. Unlike leasing, the focus on recycling has leveraged what Interface does best: manufacturing and selling carpets.

most important element of a business model & responsible for making the model work

Interface’s experience shows that creating a sustainable circular business model depends on many factors, but perhaps the most important is choosing a pathway that aligns with a company’s capabilities and resources—and one that addresses the constraints on its operations. In the following pages we identify the three basic strategies for circularity and offer a tool to help manufacturers identify which is most likely to be economically sustainable for them. Our recommendations draw on decades of research and consulting with dozens of manufacturers across the world.

Three Strategies for Circularity

Manufacturing companies—from the producers of products that serve the new economy to the more traditional companies that provide our clothing and furnishings—can create a circular business model in many ways. Most involve a combination of three basic strategies.

Retain product ownership (RPO).

In the classic version of this approach, the producer rents or leases its product to the customer rather than selling it. Thus the producer is responsible for products when consumers have finished with them.

RPO is an interesting strategy for companies that offer complex products with a lot of embedded value. A good example is Xerox, which has for a long time leased its printers and photocopiers to corporate customers. This strategy may require companies to invest heavily in after-sales and maintenance capabilities, which may be more expensive for them and, ultimately, their customers than a strategy of sell and replace.

RPO can also work with simpler products when they are relatively expensive and seldom needed. For instance, promgoers have been renting tuxedos for decades, and the rental model is becoming more prevalent in an increasingly status-conscious society. The online fashion subscription service Rent the Runway, for example, rents designer clothes to people in need of a smart outfit for a one-off event. Its clothes may have little intrinsic value—in terms of their raw materials, for example—but their brand value can be significant.

Product life extension (PLE).

Companies applying this strategy focus on designing products to last longer, which may open up possibilities for markets in used products. Because a longer product lifespan means fewer purchases over time, this may seem like a bad idea for original-equipment manufacturers. But durability is a key competitive differentiator and provides a strong rationale for premium pricing, as we’ve seen with the outdoor-clothing manufacturer Patagonia and the luxury home-appliance company Miele. PLE can also help companies prevent their customers from defecting to a rival brand. Bosch Power Tools, for example, extends the life of its used tools by remanufacturing them, thereby enabling it to compete with new products from low-cost, low-quality producers.

Design for recycling (DFR).

Companies applying this strategy redesign their products and manufacturing processes to maximize recoverability of the materials involved for use in new products. This strategy often involves partnering with companies that have specific technological expertise or that may be best able to use the materials recovered. Adidas’s six-year partnership with Parley for the Oceans is an example. Parley uses plastic waste to make textile thread from which Adidas manufactures its shoes and apparel. Their partnership reduces the amount of plastic waste in the world’s oceans.

Determining which combination of the three basic strategies will unlock the most value for your company involves some practical and very specific questions, such as whether you can reclaim your product from the customer, whether it can be moved, and whether you can remanufacture it. Let’s look now at how best to structure that discussion.

The Circularity Matrix

A circular business model is sustainable only if value can be economically recovered from the product. It might be realized through reusing the product, thereby extending the value of the materials and energy put into the manufacturing process, or by breaking it down into components or raw materials to be recycled for some other use. Value needn’t be tangible, of course; as demonstrated by designer clothing, it is possible to create a circular business model in which value is almost entirely intangible.

In general, the greater the value locked into a product—whether in terms of its brand cachet, the resources consumed in manufacturing it, or the premium customers might pay for an environmentally friendly product—the greater the potential for creating a circular business model around it. External factors, such as regulations, secondary markets in used products, or active markets in commodity components, will also determine how much value manufacturers can extract from a circular model.

High-value products that are easy to access and to process are ideal for circularity: They require no significant business model change.

It is, however, difficult to know just how much of that value a circular business model could unlock. The Slovenian white-goods company Gorenje attempted to lease its washing machines, which would seem to be a plausible strategy for the product. Washing machines can last a long time, and their useful lives can be extended with careful maintenance. But consumers were sensitive to the fact that they would pay more over the life of the lease than they would to own the machines, while the services they expected from a leasing contract cost more than Gorenje was willing to spend on maintenance.

Assessing the feasibility of a given circularity strategy requires a careful calculation of value and costs and a certain amount of experimentation and piloting. However, companies can clarify their thinking by answering just two questions:

1. How easy is it to get my product back?

In Norway more than 97% of plastic bottles are recycled. That’s because Norwegians are unusually enthusiastic about recycling—and also because a large retail network (including reverse vending machines) exists for bottle collection, supported by a government-run deposit-refund scheme. In other words, Norway has two key elements for making reverse supply chains work: public participation and infrastructure. Without them, access to used products for circularity can be challenging, as indicated by much lower rates of plastic-bottle collection and recycling in other parts of the world. Another element to consider is the existence of secondary markets in used products and commodity markets into which extracted raw materials can be sold. Consumers will naturally be reluctant to relinquish used products with a high resale or exchange value (such as power tools and construction equipment), making it difficult for original sellers to close the circle. In those cases accessing used products might involve expensive buyback or trade-in programs, which is precisely why companies often consider a leasing business model: It is easier to recover products if you own them.

2. How easy is it to recover value from my product?

Extremely heavy or bulky products and those containing potentially hazardous materials may be easy for producers to reclaim legally but difficult and expensive to move and recondition. In a reverse supply chain, moving a washing machine, for example, will clearly be much harder and more expensive than moving an ink cartridge. It is also difficult to recover value when products are intricately constructed. Advanced smartphones and laptops, for instance, are less easily reconstituted than coarser-grained, modular devices such as desktop computers. Finally, the feasibility of value recovery will depend on the availability of cost-effective solutions for reformulating products. If time-intensive manual labor is required, used products must have enough value left in them to justify the investment.

The answers to those two questions help identify where a company belongs in a two-by-two matrix that presents the strategic options for creating a circular business model. Let’s look now at each quadrant.

most important element of a business model & responsible for making the model work

Hard to access and hard to process.

Products in the top right quadrant may experience a level of wear and tear that precludes easy repair and remanufacturing, taking product life extension off the table, especially for products with relatively little value locked up in them. Those that are in good condition and still usable may also have a high resale value in customer-to-customer secondary markets, making it harder for the manufacturer to access them for reconditioning. To prevent the loss of the value embedded in them, we advise manufacturers to consider a combination of design for recycling and retain product ownership.

The French tire manufacturer Michelin seems to be heading down that pathway, although it has not explicitly linked the two strategies. Along with committing to use 80% sustainable materials in its manufacturing, the company has acquired Lehigh Technologies, a Georgia-based maker of environmentally friendly rubber powders produced from ground-down end-of-life tires. Meanwhile, it is pivoting to RPO in many B2B markets, promising commercial fleets performance enhancements and cost savings for leasing tires. To deliver those benefits, Michelin’s leasing businesses rely on modern information technologies. Its Effifuel division, for example, installs digital sensors in vehicles to monitor carbon emissions, fuel efficiency, and other performance metrics.

For companies in this quadrant, going circular may have low value potential even with expensive products containing lots of valuable ingredients. Wind turbines provide an extreme example: Although a lot of value was expended in creating them, their remote locations and size make them very difficult to access, while their composition and complex architecture make it hard to extract reusable materials or components. That’s why we see wind turbines piling up in desert landfills .

That doesn’t mean turbine companies should give up on circularity, but they should begin by considering how they can unlock value from the product through a strategy of product life extension. By investing in durability and modularity so that products will last longer and can be more easily maintained, companies could potentially open the door to an RPO model, whereby turbine manufacturers, rather than power companies, would retain ownership of and responsibility for the turbines. In the longer term they might be able to adopt a DFR strategy, making the turbines less reliant on nonrecyclable materials and easier to dismantle.

Easy to access but hard to process.

The bottom right quadrant includes relatively low-embedded-value products such as carpets, mattresses, and athletic footwear. On the one hand, ease of portability and the absence of a lucrative secondary market create a strong likelihood that these products can be recouped from the consumer. On the other hand, they can’t be easily reconditioned, and extracting materials from them is complex.

In such cases, going circular will involve product design for recycling. DSM-Niaga, a Dutch start-up founded in 2014, developed a fully recyclable mattress consisting of six modular components, and carpets made from pure polyester rather than the industry-standard materials, which contain an indissoluble complex of chemicals including many known carcinogens. The mattress is easy to disassemble, allowing for easier maintenance (for example, the mattress covers are removable and washable), and the raw materials can be recycled at the end of the mattress’s life. The homogenous design of carpets significantly facilitates material recovery and reduces the water and energy needed in the production process. The new carpets are also lighter, making transport and handling easier.

most important element of a business model & responsible for making the model work

When products have relatively low value, companies—even very big ones—may need to find partners to make circularity work. Adidas, as noted earlier, provides one example. Its archrival Nike also works with partners: Nike Grind takes used athletic shoes and recycles them into materials for entirely new products, such as AstroTurf’s playing fields and Future Foam’s carpet padding. We see similar initiatives in other industries, from consumer goods to electronics.

Products in this quadrant include many small high-tech devices, such as smartphones, which have a lot of highly integrated components, toxic materials that are difficult to extract, and very short life cycles. These products typically have busy secondary markets, which is positive from an overall environmental perspective but impedes original manufacturers’ access to them.

That is less a problem for the main manufacturers of high-tech consumer electronics. They often become the anchors in an industry ecosystem that creates exit barriers for device owners, thus lowering access barriers for the manufacturers. Apple is perhaps the definitive example. Customers buy, repair, and trade in their devices at Apple’s own retail outlets, and their activity on those devices generates data that Apple owns. Of course, iPhones and iPads have an active secondary market, which normally would limit the company’s recovery of them—but the speedy rollout of next-generation products and trade-in rebates incentivize consumers to relinquish their old Apple devices in exchange for discounted upgrades.

The easy access afforded by the dynamics of their ecosystems enables large-device manufacturers to invest heavily in DFR as their pathway to circularity. In 2018 Apple introduced Daisy, a robot capable of disassembling up to 200 iPhones an hour to recover valuable materials such as cobalt, tin, and aluminum for use in brand-new phone components.

Hard to access but easy to process.

The top left quadrant includes products whose use makes them difficult to retrieve. Takeout food packaging, for example, may contain easily recyclable materials but very often winds up in landfills because of the food residue on it, which is costly to remove. Here the strategy should be DFR, with a focus on the recovery infrastructure. The solution devised by the Australian food-packaging company BioPak was to introduce not only fully compostable packaging but also a composting service extending to more than 2,000 postal codes across Australia and New Zealand, in partnership with local waste-management businesses. Customers can toss compostable packaging together with food scraps directly into an organic-waste bin for collection. BioPak claims that 660 tons of waste have been diverted from landfills as a result of the service.

As embedded value increases, secondary markets tend to appear; these can make access to products more difficult for the original manufacturer. RPO gets around the access problem, but it often proves challenging, even for companies whose products may seem well suited to an RPO strategy. One washing-machine producer we worked with abandoned its plans to offer a leasing option because of the expense of retrieving and transporting used machines to a company facility for remanufacture and reconditioning. Companies in a similar position often use traditional purchase plus a comprehensive service guarantee to extend product life.

The greater the embedded value, the more common are PLE and RPO combinations, because RPO both facilitates access to parts that would be extremely costly to rebuild from scratch and promotes consumer trust, thereby improving participation in trade-in and remanufacturing programs.

Caterpillar, the heavy-equipment company, provides multiple PLE options. Its Cat Reman program offers “same as new” parts and components over time, with an eye to extending the on-site life of each piece of equipment sold. Cat Certified Rebuild is a service whereby customers may return equipment at the end of its serviceable life for restoration to same-as-new condition. On, customers can buy used equipment from licensed dealers , an excellent example of how a company can prevent high-value products from slipping beyond its reach via the secondary market. On the RPO side, Cat Financial provides various loan and lease options as alternatives to outright ownership. All these business models are supported in part by Caterpillar’s ability to monitor the condition of its products remotely, using digital technology and AI, so that it can intervene as necessary—a practice known as installed base management .

Xerox’s business model actually encompasses all three basic circularity strategies. Its pay-per-use model both discourages frivolous usage, thereby prolonging the life of the machine, and allows Xerox to retain ownership of its products. The modular design of its copiers’ inner workings, most of which are standardized for all models, also furthers PLE. Across product generations, Xerox recycles, reuses, and refurbishes standard components while changing the core imaging technology—thereby keeping machines in action longer. The company complements these approaches with an ambitious material-recycling program (DFR): It claims to be reducing its virgin-resource inputs by hundreds of tons a year, and the internal components of its machines are made from 100% recycled plastics.

Easy to access and easy to process.

Products in the lower left quadrant are usually items or components for which a well-oiled recycling infrastructure already exists, as it does for plastic bottles in Norway. Many commodity raw materials also fall into this category. According to the Aluminum Association of the United States, almost 75% of all commercial-variety aluminum ever produced remains in use today. In countries that lack a formal infrastructure for retrieving and returning the metal to manufacturers, enterprising citizens often fill the gap, collecting cans and other discarded aluminum items to exchange for small amounts of cash.

Appropriate circularity strategies for this category will be based on expanding and streamlining processes that already work well. In the United States, Real Alloy, a leading producer of secondary aluminum, is experimenting with minimizing the amount of the metal that is lost to industrial by-products. Norsk Hydro, based in Oslo, one of the largest aluminum companies in the world, is attempting to address the same problem by reducing the quantity of by-products generated in the production process. Incremental DFR innovations like these can make recycling systems even more efficient and profitable for companies.

High-value products that are easy both to access and to process are ideal for circularity, because they require neither a significant business model change nor efforts to facilitate material recovery. This category includes relatively lightweight products whose value lies in their brand rather than in what they’re used for or what they’re made from. Here there is plenty of scope for companies not already in the circular economy to contemplate entering it.

Patagonia, for example, has parlayed its famed sustainability principles into a used-clothing line for socially conscious consumers. Launched in 2017, the Patagonia Worn Wear initiative invites customers to send in their used Patagonia gear in return for store credit; the clothing is then repaired and resold on the Worn Wear website. Recently Patagonia Worn Wear added a line of hand-sewn clothing called ReCrafted, made from returned items the company considers beyond repair. The approach combines PLE with DFR. At this intersection “same as new” becomes a selling point, allowing Patagonia to tap operational efficiencies while burnishing its brand.

The circularity matrix does not guarantee access to the circular economy. Success or failure with circularity will continue to depend heavily on the receptivity of top leaders, their commitment to sustainable business values, and the willingness of managers at every organizational level to change and adapt. Moreover, your direction will alter as you acquire new capabilities and as new technologies and regulations remove past constraints or impose new ones. But the matrix can help you identify at any one time the strategy best suited to your company’s resources, capabilities, and competitive environment.

  • AA Atalay Atasu is a professor of technology and operations management and the Bianca and James Pitt Chair in Environmental Sustainability at INSEAD.
  • CD Céline Dumas is a senior manager of operations and sustainability at Accenture France.
  • LW Luk N. Van Wassenhove is the Henry Ford Chaired Professor of Manufacturing, Emeritus, at INSEAD and leads its Humanitarian Research Group and its Sustainable Operations Initiative.

most important element of a business model & responsible for making the model work

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What is the most important in Business Model Canvas?

Perhaps the most important part of your canvas is the customer segments . If you don’t know who your business is catering to you’ll never be able to sell to them. You need to figure out who your customers are and why they would buy from you.

Considering this, Why is a business model important? Business model is important because it provides the investors the knowledge about the competitive edge of the company and provides better insight into working of the company . A strong business model leads to cash generation and future expansion.

How the Business Model Canvas is an advantageous way to build a startup? The BMC is a visual way of identifying key elements of your business and how they relate. Using the BMC, you can develop a clear view of your value proposition, operations, customers, and finances . As a small business owner, you can use it to identify target market segments and how to appeal to those segments.

Furthermore, What best describes a Business Model Canvas? The business model canvas is a strategic management tool that lets you visualize and assess your business idea or concept . It’s a one-page document containing nine boxes that represent different fundamental elements of a business.

Why is Business Model Canvas important in strategic management?

Why is business model canvas important in strategic management? Businesses can utilize the canvas to gain a comprehensive understanding of their business model . It provides a good starting point to analyze, document, and develop strategies since a business model is the outcome of strategic planning.

What is the benefit of using the Business Model Canvas quizlet? What is the benefit of using the business model canvas? It is a quick way to test the hypotheses about a new business idea .

What are the 7 components of Business Model Canvas? The 7 Elements of a Strong Business Model

  • Identify your specific audience. …
  • Establish business processes. …
  • Record key business resources. …
  • Develop a strong value proposition. …
  • Determine key business partners. …
  • Create a demand generation strategy. …
  • Leave room for innovation.

What best describes a business model? The term business model refers to a company’s plan for making a profit . It identifies the products or services the business plans to sell, its identified target market, and any anticipated expenses. Business models are important for both new and established businesses.

Why business model is important for an organization?

Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff . Established businesses should regularly update their business plans or they’ll fail to anticipate trends and challenges ahead.

What is the business model canvas quizlet? A shared language for describing, visualizing, assessing, and changing business models .

What are the nine streams of a business model canvas?

There are nine building blocks that describe and assess a business model: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure .

What is meant by business model? The term business model refers to a company’s plan for making a profit . It identifies the products or services the business plans to sell, its identified target market, and any anticipated expenses. Business models are important for both new and established businesses.

What are the 8 key elements of a business model?

8 Key Elements Of A Business Model that You Should Understand

  • Value Proposition.
  • Revenue Model.
  • Market Opportunity.
  • Competitive Environment.
  • Competitive Advantage.
  • Market Strategy.
  • Organization Development.
  • Management Team.

What is the most important part of your business model quizlet?

The Customer Value Proposition , or CVP, is perhaps the most important part of your business model.

How do you present a business model? 7 Ways to Present Your Business Model

  • Business Model as art. If your idea is great, it has to look great. …
  • Posters. …
  • Pitch a presentation. …
  • Simple cut and paste. …
  • Intranet pages. …
  • Word reports. …
  • Implementation view e.g. using ArchiMate.

How do you analyze a business model? To analyze any business you can ask a few simple questions:

  • Who’s the key stakeholder? (stakeholder profiling)
  • What player is competing for the same customer? (context mapping)
  • What’s the key touchpoint between the brand and the customer? (core distribution)
  • How does it make money? (revenue generation)

Why is business model innovation important?

The reason for why business model innovation has become so important to firms is that it usually has a stronger impact on profit margins than product and service innovations and, at the same time, it can disrupt established industries .

Which part of the business model canvas describes the most important things a company must do to make its business model work? Key activities – the key activities building block describes the most important things a company needs to do in order to make its business model work. These are the most important actions a company takes to successfully operate.

Which part of the business model canvas describes the most important assets required to make a business model work?

The Key Resources Building Block describes the most important assets required to make a business model work Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues.

What are the basic business model concepts? Essential elements of a business model include a unique value proposition, a viable target market and a competitive advantage . Without those elements, you don’t have a way of generating revenue.

What are the 7 components of business model canvas?

The 7 Elements of a Strong Business Model

What are the key resources in business model canvas? Key Resources can be categorized as follows:

  • Physical. This category includes physical assets such as manufacturing facilities, buildings, vehicles, machines, systems, point-of-sales systems, and distribution networks. …
  • Intellectual Property. …
  • Human. …

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