well what is
a business model in this video we're
going to answer this question and then
we're going to also get into the four
key components
of every single business model so to
start let's talk about what a business
model is
a business model very simply describes
the rationale for how a business or how
a venture
accomplishes three things and those
three things
are creating delivering
and capturing value now many people
often think of a business model as a way
of answering the question
how a business makes money and in some
ways this is
actually accurate but it's a very
simplistic description of what a
business model is
while a business model does address how
the business makes money commonly
referred to as a revenue model
it's really more all-encompassing than
that the revenue piece is really one
aspect of it when we talk about creating
value we're talking about solving
problems when we talk about delivering
value
we're talking about really all of the
activities that go
into trying to deliver value to
customers so think about marketing and
distribution but also the infrastructure
piece and then capturing value
very simply is all about selling a
product at a price that people will pay
and then of course
covering our cost so those are the
simple elements of a business model
every business model addresses those
three areas how a business creates value
how it delivers value and how it
captures value
now going into the four areas
let's look at the four key areas of
every single business model so these are
areas that need to be addressed
in every model in order for the business
model to be
somewhat successful or at least have the
potential for success
so let's start with the first area the
first thing that every business model
has to address is what we call
the offer now the offer
is one of the
now the offer represents what we're
actually selling to
customers and typically the offer
addresses something very important and
that's what we call
a value proposition and this is a term
that you've probably
heard before in some capacity
and it's used a lot especially in
entrepreneurship and we're talking about
startups
uh entrepreneur a value proposition very
simply answers the question
how are you different and why are you
worth buying
and so it's very important that we of
course offer products that
solve real problems from consumers and
by real i mean that we've
undergone some type of testing process
to make sure that the
uh problems that consumers have aren't
simply made up in our minds but are
actually real
and that most importantly people will
pay for an actual solution
so our offer gets into the product that
we're creating
and then ultimately uh that product
going to the consumer and so trying to
have
this idea of product market fit all of
that is encompassed
in the actual offer itself now once we
get to
or through the offer piece then the next
piece is the customer
and the customer of course is the most
important segment
simply because without the customer
there is no venture there is
no business so the customer really is
simply the you could say the target
consumer
for our product so for the customer it's
really important that we have an
accurate understanding of who this
person is and that's why we talk
about doing things like customer
discovery interviews
and all sorts of things to try to get a
finer
depiction of the shared characteristics
of our consumers and so
when describing a target market right we
want to focus on
identifiable characteristics things like
demographic variables
to try to identify those commonalities
that the people that we think are going
to
best respond to our offer are going to
have
and so we have need to have our customer
there so the offer and the customer
really go
hand in hand because this offer here
is really created for a specific person
in mind so these are really done
almost simultaneously it's not like we
think of an offer and then go out and
try to find
someone that it appeals to right that's
kind of a backwards way instead
you know we're having an idea of who our
customer is and creating things
specifically for
that particular demographic or that
particular group of individuals
now moving on so we've got offer we've
got the customer the next piece that
many people
don't consider is what we call
infrastructure now infrastructure
incorporates a lot of the things
that really when people are thinking
about starting businesses they're not
necessarily thinking of right we're
really good at thinking of the money
piece and how we're going to actually
gain money
we're going to what our revenue model
might be and we're really good at the
offer and the product we want to create
but when it comes to the infrastructure
we often overlook this because this is
kind of the
nitty-gritty if you will of running a
venture
and so with infrastructure we're talking
about resources
these are all of the things that we need
to be able
to create our offer
and offer it to consumers our customers
our customer more specifically
so when you think about infrastructure
we're thinking about uh whether it's a
certain type of skilled labor force
whether we need access to certain
suppliers whether we need
certain key partners what are the
activities that are really
important for us to do in order to be
able to execute
in our offer and obviously
sell to consumers those are all the
things that are folded
into the infrastructure piece and this
is very much dependent upon the business
and so each of these things
the offer will in turn have an impact on
the infrastructure that's needed
to accomplish our overall objective
whatever that may be
so if you're operating a
subscription-based business your
infrastructure looks
a little bit different right you're
going to need some back-end support with
regards to infrastructure
that becomes really important obviously
having some skill set
with regards to coding could be really
helpful if your
business model is kind of manufacturing
where it's very asset based or you're
producing a good and selling it to
someone else
your infrastructure needs are a little
bit different right it's mostly
efficiency
high access to capital up front you need
building
and obviously people and machinery and
so all of these things are
very much dependent upon what the
business model is
so the last piece now that we've gone
through offer customer
and infrastructure
is financial viability and every
business model
needs to be financially viable otherwise
it simply won't work and it's not a
successful model
and you need to have all four of these
really to have a chance and being able
to
launch a successful venture so with
financial viability we're finally going
to introduce that revenue piece so the
two key components here
are going to be the revenues for the
business or the revenue model
and also the costs and ultimately what
we're trying to figure out at this stage
is if the business has a chance of
profitability
and what that profitability looks like
what i would encourage students to do at
this stage uh
is to do what we call a break even
analysis
which is a somewhat involved type of
analysis where we are
costing the uh what our product is so
trying to identify what the product
costs to make we call that the
economics of a unit and so determining
all of the variable cost right so direct
materials direct labor
other variable costs that go into
creating a product or offering a service
determining the price per unit or the
price that we think that the market will
bear
and then of course dividing the result
of that by our fixed expenses
determining how much we need
to sell in order to break even it's a
very very simple
uh kind of financial analysis that we
can do sort of back of the napkin math
if you will
that really can help us get a better
idea for whether or not the venture has
some viability right
ultimately we need to know that we can
charge a certain price
we need to know if that price can cover
our costs here
and we need to know if we can sell
enough to actually
break even and cover our fixed cost
because if we can't do that within a
reasonable time
frame well then the business is going to
be in trouble and that could become very
problematic
so whenever you're thinking about
business models again just to kind of
recap as we finish up
we're always thinking about how we're
going to create value right creating
value
being our offer to consumers we're
thinking about how we're going to
deliver that value
via infrastructure and all the things
that we need to do to be able to get our
product to
consumers and be successful and
replicate that at scale
and then lastly the financial viability
piece which is of course
can we capture the value for ourselves
so assuming we create and we deliver it
is it going to be financial rewarding
for us in the long run
you