A business model is one of the important concepts a person in business must know. Simply put, a business model tells us what a business does and how it makes money. Another way to put it is it’s the logic of the business.
According to an MIT paper, there are 4 basic business models:
Creator. A creator buys the components from suppliers and turns it into finished goods to be sold.
Distributor. A distributor is someone who buys finished goods and resells, in short, a trader.
Landlord. A landlord may own or not own an asset and sells the right to use for a specific amount of time.
Broker. A broker is someone who facilitates sales by matching buyers and sellers.
It is important to have a clear business model as this helps owners and employees understand how the business operates and clear understanding of operations lead to rational decision making at it considers the logic behind the business.
In order to create a business model, there has to be an understanding of these factors:
- What the company does
- How do they make money
- Who gives them the money
However, to get a clear business model the entrepreneur must answer this:
- What opportunity am I trying to capture?