Barackoli.com

A business model is a description of how a company makes (or intends to make) money. It is the centerpiece of the business plan. Building a business model is the first step in planning to start a business. The purpose of a business model is to ensure that all factors necessary to run a successful business are considered and analyzed to make sure they are reasonable and achievable.

Business model describe the products and services offered for sale, business infrastructure to produce and sell these products and services, the customers that the company targeted to buy these products and services, and financial performance and profit the company expects to achieve.

Following is a template that describes the contents of a business model developed by Alex Osterwalder, PhD. There are 4 parts of this business model.

Part 1 – The offer – this is what the company produces and sells

Value proposition: The value proposition is a description of products and services the business offers and why customers would be forced to buy them. The value proposition describes the problem of customers are experiencing and how the products and services offered to help solve that problem. It describes how the characteristics and features of products and services that help solve customers’ problems.

Part 2 – Infrastructure-This is the part of business expense. This part describes the basic facilities, skills, human resources, partnerships, and the production process to take advantage of business opportunities.

Basic capabilities: The skills and core competencies necessary to operate the business. This includes land, facilities, equipment, personnel and their required skills needed to produce goods or services specified in the value proposition.

Network Partners: The business alliances needed to operate the business. Most companies need alliances, agreements, licenses, or third party assistance (legal, accounting, insurance, security, etc.) that are usually purchased from specialized service providers.

Value configuration: The process by which products or services are produced and presented to the client. The value describes how the materials, supplies and other necessary resources will be obtained and transformed into usable products or services and how they are made available to buyers. It describes the processes used to produce products and services described in the value proposition.

Part 3 - Customers - this is the part of the business that generates revenue.

Target customer:  the demographics, purchasing patterns and the location of the prospective buyers of the products described in the value proposition.

Distribution channel: The means by which the company provides products and services to customers. This includes the business of marketing and distribution strategy.

Customer relations: The process of interaction with customers of the company. Including communication, sales, support and assistance to clients buying and using the business product or service.

Part 4 – Finance – this is the part of the company that determines its financial performance and profit

Investment: The investment required for facilities, equipment and working capital to start or maintain operations. This should include a breakdown of these costs and funding sources for these funds and when required.

Cost structure: The costs to produce goods or services specified in the value proposition. Must include a breakdown of expenditures by category of expenditure required and the assumptions made to estimate these costs.

Income: The income a company receives from sales of their products or services. This includes sales and income projections and assumptions and logic used to make these projections.

Profits, return on investment and cash flow.