You can clearly understand the need to create a business model if you try to put entrepreneurship ideas on paper using graphs and diagrams. This article will consider the most popular types of business models and their essence.
Business model: essence and innovative component
In the modern market environment, characterized by rapid changes and hyper-competition, every enterprise faces the difficult task of forming a profitable and sustainable business model. Moreover, in the dynamic conditions of the foreign market, the company’s current business model is constantly the object of attack by new business models of competitors. Therefore, the fact that the duration of the life cycle of the business model is getting shorter is becoming more and more obvious. The enterprise must continuously monitor the strategic points of change in the industry and update its business model to ensure sustainable and efficient development.
A business model is a plan implemented by a company to generate income from its activities. A business model is also seen as a series of relationships involved in value creation. Creating value and caring for customers differentiates business models that are mostly market-oriented from those that are focused on, among other things, social and cultural goals. The business model is necessary to form a holistic view of the following essential characteristics of the enterprise: what value and in what way is it created for the consumer; to whom and how it is provided; how resources and capabilities are used to create sustainable competitive advantage and generate profit.
So, why are business models used in practice? It is possible to distinguish the following options for their use:
- to evaluate and analyze the effectiveness of the company’s business in comparison with other similar companies;
- to assess the potential and investment attractiveness of the company’s business in the future;
- to optimize the company’s business in terms of strategy and maximizing and retaining the value it creates for customers and other stakeholders in its business.
Common types of business models
In today’s online segment, most companies apply the most relevant of the existing, proven business models, adapting and improving them according to individual characteristics and competitive advantages. So, the list of the most popular business models includes:
- Franchise. Using another company’s already proven, successful, and efficient business model instead of creating your own is commonplace in various areas. The franchising model involves selling a strategy to launch and run a successful business with access to a brand and support services.
- Marketplace. Marketplaces can be used for goods and services with income from various sources: fees from buyers and sellers for transactions, payment for additional services, advertising banners, etc.
- B2B (Business-to-Business) is an informational and economic interaction type, classified by the type of interacting subjects (legal entities). The company supplies goods and services for other companies, not the end consumer. For example, the production of advertising products for another company that promotes a product or service.
- B2C (Business-to-Consumer – business-for-consumer) is a form of electronic commerce, the purpose of which is direct sales. An effective way to eliminate the geographical distance between large and small cities is due to the unification of the price policy and the activity of delivery services.
- B2G (Business-to-Government) – communication between business and the state. The system characterizes electronic commerce and is used, for example, in creating government procurement.
- G2B (Government-to-Business) – a set of software and government tools for online interaction of the executive power and commercial structures (websites of government bodies, public procurement, etc.)