why do we need a business model?

Answers to why do we need a business model

A business model is a term used for a broad range of informal and formal descriptions that are used by enterprises to represent various aspects of its business, including its purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.

Business Plans
A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

The business goals being attempted may be for-profit or non-profit. For-profit business plans typically focus on financial goals. Non-profit and government agency business plans tend to focus on service goals, although non-profits may also focus on maximizing profit. Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. A business plan having changes in perception and branding as its primary goals is called a marketing plan.

Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals. With for-profit entities, external stakeholders include investors and customers.[1] External stake-holders of non-profits include donors and the clients of the non-profit's services.[2] For government agencies, external stakeholders include tax-payers, higher-level government agencies, and international lending bodies such as the IMF, the World Bank, various economic agencies of the UN, and development banks.

Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors. This allows success of the plan to be measured using non-financial measures. Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.

Business plans are decision-making tools. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan should contain whatever information is needed to decide whether or not to pursue a goal.

For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation.

A deeper View
Business models are perhaps the most discussed and least understood aspect of the web. There is so much talk about how the web changes traditional business models. But there is little clear-cut evidence of exactly what this means.

In the most basic sense, a business model is the method of doing business by which a company can sustain itself -- that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.

Some models are quite simple. A company produces a good or service and sells it to customers. If all goes well, the revenues from sales exceed the cost of operation and the company realizes a profit. Other models can be more intricately woven. Broadcasting is a good example. Radio and later television programming has been broadcasted over the airwaves free to anyone with a receiver for much of the past century. The broadcaster is part of a complex network of distributors, content creators, advertisers (and their agencies), and listeners or viewers. Who makes money and how much is not always clear at the outset. The bottom line depends on many competing factors.

Internet commerce will give rise to new kinds of business models. That much is certain. But the web is also likely to reinvent tried-and-true models. Auctions are a perfect example. One of the oldest forms of brokering, auctions have been widely used throughout the world to set prices for such items as agricultural commodities, financial instruments, and unique items like fine art and antiquities. The Web has popularized the auction model and broadened its applicability to a wide array of goods and services.

Business models have been defined and categorized in many different ways. This is one attempt to present a comprehensive and cogent taxonomy of business models observable on the web. The proposed taxonomy is not meant to be exhaustive or definitive. Internet business models continue to evolve. New and interesting variations can be expected in the future.

The basic categories of business models discussed in the table below include:
   * Brokerage
   * Advertising
   * Infomediary
   * Merchant
   * Manufacturer (Direct)
   * Affiliate
   * Community
   * Subscription
   * Utility

The models are implemented in a variety of ways, as described below with examples. Moreover, a firm may combine several different models as part of its overall Internet business strategy. For example, it is not uncommon for content driven businesses to blend advertising with a subscription model.

Business models have taken on greater importance recently as a form of intellectual property that can be protected with a patent. Indeed, business models (or more broadly speaking, "business methods") have fallen increasingly within the realm of patent law. A number of business method patents relevant to e-commerce have been granted. But what is new and novel as a business model is not always clear. Some of the more noteworthy patents may be challenged in the courts.

Digging deeper
Last year, Robert Gray has reported in a PR Week feature how the staff at 50 UK PR agencies spend their time, based on 12 months worth of research. The results are not surprising, and confirm why the business model built on the billable hour - which, in my opinion, has never been the right one for an industry whose main objective should be to create added value on behalf of clients - is totally obsolete. Here are the numbers:
  1. Media relations: 15%
  2. Tracking features: 0,9%
  3. Client communication strategies: 0,6%
  4. Business development: 1,5%
  5. Reporting: 17,8%
  6. Administration: 6,3%
  7. Account management: 44,9%
  8. Other tasks: 13%

Just to summarize: 16,5% of the time is spent to provide added value and 19,3% to provide some added value to the client, but a whopping 51,2% of the time is actually wasted in activities that do not bring any value to the client but are only intended to “please” the financial controllers. Robert Gray comments: “The findings suggest that agencies are - for want of a better word - ‘wasting’ much of their time”. I do not feel confortable when I see these figures because I know that they are real, as I have been on the client side before switching to the agency business and I always had the perception that PR agencies were not organized to provide the added value that I wanted (and needed). At the time, I have probably been one of the nastiest clients in the business, but I always managed to get the right level of service. For instance, I refused to accept more than one report per month (no meeting and no phone call reports) and I wanted to attend the agency meetings (usually internal) where the account team was supposed to discuss PR strategies and tactics for my company. PR agencies should be as “flat” as possible in term of structure, and as “networked” as possible in term of organization. In my ideal business model, which I can describe as a “matrix” where each individual is part of several account teams (each one built in order to provide the highest added value to the specific client) and at the same time has a strong vertical specialization (for instance, product reviews, technical media, or industry analysts), the continuous “contamination” between teams and specializations brings an additional value to the client. I will return on this subject in the next few days. P.S. - I have not accessed the original PR Week research.

Disclaimer - Answers to the questions are researched using various sources and are meant to increase the knowledge of our visitors. We cannot gurantee the accuracy of answers to questions.

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