What is a business model?
A business model is the framework that explains how an organisation creates value for its customers, delivers that value through its products or services, and captures a portion of that value as revenue. It describes the fundamental logic of how the business works — who it serves, what it offers, how it operates, and how it makes money.
Business models are distinct from business strategies. Strategy is about direction and competitive positioning. The business model is about the underlying mechanics that make the business viable and profitable.
Key components of a business model
Most business models include a value proposition (what value is created for customers), a customer segment (who the customers are), revenue streams (how the business earns money), cost structure (the major costs involved), key activities (the most important things the business does), key resources (what assets are needed), key partners (who the business relies on), and channels (how the business reaches customers).
The Business Model Canvas, developed by Alexander Osterwalder, is a widely used one-page tool for mapping and evaluating business models across all of these dimensions.
Types of business models
There are many types of business models. Common examples include subscription models (customers pay a recurring fee for ongoing access), marketplace models (the business connects buyers and sellers), freemium models (a free tier with optional paid upgrades), franchise models, direct-to-consumer models, and service-based models.
Many successful businesses combine elements of multiple models. The most important thing is that the model is clearly understood internally and creates genuine value for customers while remaining financially sustainable.
Business model innovation
Disruption in many industries is driven not by new technology alone, but by new business models. Companies like Airbnb, Uber, and Spotify did not invent accommodation, transport, or music — they invented new ways of creating and capturing value around those things.
Established businesses need to regularly examine whether their business model remains competitive and whether there are opportunities to innovate how they create and deliver value before a competitor does it for them.
How Empiraa relates to business model thinking
Understanding your business model is the starting point for strategic planning. Empiraa helps businesses turn their business model into an executable strategy by connecting the logic of how the business works to the goals and actions required to strengthen and grow it.
For advisors, helping clients articulate and refine their business model is often the most foundational piece of strategic work they can do.