"A Business model includes Concept, Plan, Process and Control"
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Define your Business Model, it gives sustainable competitive advantage.
As the name suggest it is the pathway or set rules that help you do business. It became fashionable in the late 1990s when Internet companies were absorbing millions of investment dollars on businesses that had no way to make money.
"Business model" became the buzzword that explained how a company improves its ROI.
If you try searching the web for definition of business model, you would end up getting many confusing and vague definitions. This is because; it is difficult for an individual to sum up the business model of a company in a few words.
Changewave.com defines business model as:
“In the New Economy it means: What does a company do? How does a company uniquely do it? In what way (ways) does the company get paid for doing it? How much gross margin does the company earn per average unit sale?"
In simple words, a business model or business design is the mechanism by which a business intends to generate revenue and profits. It is a summary of how a company plans to serve its customers. It involves both strategy and implementation. It is the totality of how a business works.
Business model differ with the kind of business activity that you are engaged in. For example, the business model for a service provider would be more complex and different from that of a manufacturing company. The most primitive business model that has been used is that of a hawker. They would setup there shop near a public gathering so that they can see there goods easily.
McDonald's Restaurants and Toyota were the first in the recent history to come up with a business model in 1950s. Next in line were Wal-Mart and Hypermarkets who came with a different model in 1960s. The 1970s saw new business models from Federal Express and Toys R Us; the 1980s from Blockbuster, Home Depot, Intel, and Dell Computer; the 1990s from Southwest Airlines, eBay, Amazon.com, and Starbucks. However, poorly thought out business models were a problem with many dot-coms.
Each new business model innovations give the firm a sustainable competitive advantage over it rivals. Nevertheless, times are changing and companies must continuously rethink their business design. Ultimately, the success or failure of a company depends first, on how well its business design matches their customers' priorities.