Friday, December 7, 2012

What is a Business Model and How do You Develop One?

A business model has a demand curve for the product of the company and a supply curve for the product of the company. The company has to derive the demand curve based on market research of customers and competitors.

The company has to derive the supply curve based on its operations plan, that includes product/service design, location, technology and its further development, human component-capital component choices, resource maintenance ability, cost management ability, learning ability and its supply chain.

Any acceptable business plan must have the required profit visible in this combination of demand and supply curves.

The business model is presented with the demand for the price the company wants specify and the corresponding supply.

How do you develop one?

You have to develop the concept of your product and distribution channel. You need to define your customer or the target market. The credit terms you plan to give have to be specified You need to specify your marketing communication effort. Then you have do market research to come out with demand estimate. To start-up financiers you have to give all the details. Some of them are going to assess your business model logically. Some of them may do some actual market research as a sample in a small space.

Similarly you need to develop various details of your operations plan. Develop cost estimates for your operations chain. Give the details to financiers so that they recheck whether you will be able to supply at the estimated cost the product or service to the market.

Why Business Models Matter?
Joan Magretta
Harvard Business Review, 2002

Do Some Business Models Do Better Than Others - MIT Working Paper - 2005

From Strategy to Business Models to Tactics
Ramon Casadesus- Masanell and Joan Enric Ricart
HBS Working Paper 10-036

How to Design a Winning Business Model?
Ramon Casadesus- Masanell and Joan Enric Ricart
Harvard Business Review, January 2011

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