What Is a Business Model?

A business model is a business’ plan for making profit. However, nowadays, companies incorporate much more into their model than just its expenses and income. It examines the interconnectedness of the business in relation to its customers, strategies, resources, and  value proposition.    

According to Harvard Business Review, in a post-pandemic era, companies may need to rethink their present business model. Organizations can no longer assume that what worked in previous years will continue to do so. It is important for them to acknowledge the changes brought about by the pandemic. It’s business as usual, but modified to survive in a new post-pandemic world.    

Common Types of Business Models

Regardless if you are an internet startup or global conglomerate, you need to have a solid business model to serve as your guide. Although relative to each company, there are dozens of business models that have been proven to work. The following are just a few examples of popular models that have been tried and tested.  

Franchise- This type of business model is probably one of the most common and established models. It seeks to create a strong brand then grants other people the license or permit to use the brand and profit from it as well. Those who wish to franchise the brand, or also referred to as the franchisee, typically pay a premium price to be able to operate. The bigger the brand, the higher the price in most cases. Many fast food chains adopt this type of model, including Filipino brand Jollibee. Subscription- This model is becoming increasingly relevant in today’s in-demand culture. The global pandemic forced millions of people to stay at home. And with traditional entertainment such as cinemas, forcibly shut down, the streaming industry was given a boost. Services like Netflix have become increasingly mainstream and continue to reach wider markets around the world. Businesses with this type of business model earn by the fixed and recurring amount their customers pay in order to keep using their service. Peer-to-peer Business- This model seeks to bridge the service gap between two entities. Businesses using this model type act as an intermediary. They serve as a link between a user or customer and a useful service or product. Many online platforms are peer-to-peer businesses. The booking platform Agoda helps travelers conveniently reserve online and reach out to different hotels. A company that gives freelancers the opportunity to offer their services to potential clients could also fall under this category. All these examples use their platform to link one party to another. Uber is a famous example. The company addressed and refined a service gap; linking the driver who can provide a service to answer the customer’s need for convenience. Social Enterprise- Businesses who follow this model have, in a way, cemented and given new meaning to corporate social responsibility (CSR). They advocate various social and environmental causes and adapt it to their business model. They are often dubbed as businesses with a conscience or businesses with a heart. These companies actively address the social, cultural, and environmental impact of their businesses; instead of just treating it like an afterthought. Social enterprises push for good, humane and sustainable business practices. They also take pride in the fact that they are not only in it for the profit. Multi-brand Business- Many food manufacturing companies fall under this type. This business model creates several brands that sometimes belong to the same category. A plain example would be the likes of Procter & Gamble. These are usually big conglomerates and multinational corporations that mass produce retail products and operate plants and offices in multiple countries. Nestle’s brand portfolio is rich and diverse. Cereals, beverages, chocolate, and coffee are only a few of their products. The company is also known to have offices and food processing sites scattered around the world.

Components of a Business Model

The business model canvas is a famous and widely used format that helps businesses create a good model. Identifying these key components will lead to a holistic understanding of what your business can do for you and for the people you want to serve. 

Key Partners: You need to be able to have a keen understanding of who can help propel your business. What services would you require in order for you to succeed? Can the press play a role in creating buzz and publicity for your product? Partners usually include suppliers, contractors, and even endorsers who push for your brand and help market it. It could also include other external institutions that benefit your business through campaign partnerships (e.g., NGOs). Key Activities: These consist of the daily operations that run your business. This could involve several activities from design and product testing, business development, marketing, logistics, customer service, and down to the individual store management. Key Resources: What existing assets does your company have that moves the business forward? Manpower as essential human resources would be the most obvious one. The brand itself can be a vehicle for business development. Other tangible resources include factories, stores, warehouses, and other facilities. Value Proposition: It all boils down to what sets your business apart from your competitors? A company may gain prominence but it can only thrive if it has a deep and overarching understanding of the value it gives its customers. What problems does your company address? What will keep your customers and compel them to continuously patronize your brand? Customer Relationships: How do you want to establish and maintain the relationship with your clients? This goes beyond just customer service; but using a variety of ways to keep reaching out to customers. Whether that’s through personalized user experience, assisted shopping, exclusive access and promotions, etc. Customer Segments: Knowing who you cater to is of utmost importance. Your company should not only know your target market, but take the necessary steps in understanding the customer not only on a superficial level. Some businesses identify and classify customers by creating and studying customer profiles to find ways to improve their service or product. Channels: This refers to the different ways you reach a customer with your product or enable them to use it. This could include a wide range of channels including online presence (e.g., mobile apps, delivery and pick up services), and physical and direct selling such as brick-and-mortar stores or the occasional pop-up kiosks. Cost Structure: To run a business, it’s impossible not to incur cost of any kind. Continuous operation would entail regular expenses such as manufacturing and distribution, infrastructure, equipment, logistics, advertisements, and human resources. These can either be a fixed cost or not. Revenue Streams: A basic question any business should answer is: How do I make my business earn money? In order to cover the costs, you would need solid and constant sources of profit. For many, it’s direct sales from products sold. Revenue could also come from rentals, franchise fees, user or service fees, royalties, etc.

How to Create a Business Model

Starting a business is a goal many people have but few actually have the stomach for. It’s easy to run a business when things are going great. But when things start to take a turn for the worse or everything seems to fall apart, that’s when the commitment starts to falter; because the dream is being ripped apart. Having a business model in place cannot guarantee perpetual success. But it can guide you when you find yourself questioning your commitments. Follow these practical steps:     

Step 1: Establish an Objective 

Why do you want to start a business? Or perhaps your company is planning to reorganize and needs a business model facelift. Always start by asking what drives you to believe that your business is a worthwhile endeavor. It needs to be your reason for doing; because with a shaky objective, it’s much easier to fall off the wagon and doubt yourself. Establishing a clear goal will make it easier to create a business plan.    

Step 2: Create a Plan

Know your resources, assess your strengths, but also don’t hide your weaknesses. Being transparent and aware of all of these will help you develop your business model with more ease. It will allow you to craft a more realistic and realizable business plan. Your plan should also consist of a feasible assessment of the competition. You need to have some idea of the situation on the ground. Who are the leading companies in your industry? What businesses started out promising but then ultimately failed? What were the reasons behind theses failures?       

Step 3: Develop Your Business Model

After going through an internal examination of yourself and of your business, it is time to put it into writing. Using the nine parts mentioned above, brainstorm with your organization or trusted team members and fill in the key details. Make sure to document every step meticulously. Having a business model does not mean it is enshrined like a constitution. Although just like a government’s constitution, a model can be amended and modified when the need arises. This is applicable to centuries old companies where there is a need to be able to constantly adapt to changing times and attitudes. If a policy or practice is outdated and no longer serves the company, then it might be best to throw it out. Business development is always an evolving process. You will most often find that the truly successful ones are those bold enough to change the face of the industry and those committed to lifelong learning.         

Step 4: Launch Your Model 

Starting a business is not easy. If you are not careful, you may fall prey to survivorship bias where you selectively focus only on the exceptional (i.e., success stories). And inevitably leave out the failure and constant struggle from the bigger picture. This could give you the impression that your business can also become an overnight success, without the necessary toil and sacrifice. It is easy to get carried away sometimes by our ideas, but once difficulty settles in, some abandon their commitments because they were not prepared for the struggle. Be prepared to launch your business model with an optimistic and ambitious attitude, but one that is grounded in reality. 


What are the 4 types of business models?

There are dozens of existing business models. Many companies have pioneered some distinct ones and have paved the way for other businesses to duplicate or refine their business model. Common examples include the razor and blade model, franchise model, consulting business model, and the direct sales model.

What is a good business model?

A good business model contains a comprehensive understanding of the business in relation to its stakeholders, revenue, resources, and overall value. An effective model incorporates all these to provide a sense of direction for a company. It normally serves as a guide for the organization and is subject to amendments.

How do you create a business model?

The best way to start is by having an objective in mind. Once you have established your goal for putting up a business, you can begin creating your plan. There are hundreds of existing business model templates, so you don’t have to worry about starting from scratch. The best part of it is you can customize and tailor fit it to meet your company’s goals. A business model is not a permanent sentence; but more of a guide that makes it easier for businesses to navigate the highs and lows of a competitive economy.

What are the 9 parts of a business model?

The nine parts of a business model canvas are the key partners, key activities, key resources, value proposition, customer relationships, customer segments, channels, cost structure, and revenue streams.

What business model should I choose?

To answer that question, you would need to thoroughly examine your objectives and motives. A little research wouldn’t hurt as well. What companies pique your interest? Or as a consumer, ask yourself why you like a particular brand. What companies emulate the same values and practices as yours? You can do research on well-known business models and choose to either adopt it totally, or tweak it to suit your needs. Choosing the best model for your business is highly dependent on the objectives and priorities of the company.

What is the purpose of a business model?

The purpose of a business model is to help a company or business strategize and understand its place and value in the market. Companies create business plans not only to identify profit-generating strategies, but to find ways to improve their brand and maximize its resources.

The business model of a small town restaurant may be different from the business model of a multinational ecommerce corporation. The key is in understanding the different facets of your business and finding ways of making it work. Your business model should aim to generate, replicate, and deliver your desired results. Making a business plan is not a walk in the park. And remaining fully committed to it is an even harder task. However, its use and benefits far outweigh the challenges. Browse any of the samples above to create your business model today!