Why Business Models Matter?

Why Business Models Matter??

A good business plan is vital for you to start your business. Although creating a business plan is an important step in the evolution of a business, especially if you need financing or you are not experienced at running a business, it is not necessarily the essential first step. There are two key elements that should be completed before the business plan; the business model and the strategy. While the word model represents images of mathematical formulas, In fact, a business model is a story of how a business works. In general terms, a business model is the method of doing business by which a company can generate revenue. Both start-up ventures and established companies take new products and services to the market through a venture shaped by a specific business model. In their paper, The Role of the Business Model in Capturing Value from Innovation.

The story was straightforward for customers. In exchange for a small fee, travelers could buy both peace of mind and convenience. Merchants also played a key role in the tale. They accepted the checks because they trusted the American Express name, which was like a universal letter of credit, and because, by accepting them, they attracted more customers. The more other merchants accepted the checks, the stronger any individual merchant’s motivation became not to be left out.

As this story shows, a successful business model represents a better way than the existing alternatives. It may offer more value to a discrete group of customers. Or it may completely replace the old way of doing things and become the standard for the next generation of entrepreneurs to beat. Nobody today would head off on vacation armed with a suitcase full of letters of credit.

Joan Magretta in her article Why Business Models Matter took the concept of the business model a little further. Magretta suggests every business model needs to pass two critical tests, the...