Business Models – Example, Types, Importance & Advantages
very business or companies makes a plan for generating profit. They create a model for
identifying products and services to sell, the market they want to target and also take into
account anticipated expenses. This is known as business models.
Even if the business is already established or even if it is a new business, plan needs to be
made. Businesses need to regularly update their plans and strategy as they need to take into
accounts the challenges and trends for the future models.
Importance of Business Models:
The business model helps to target the customer base for the company. It helps in making
marketing strategies, projection of revenues and expenses taking into account the type of
Business models and clienteles.
Every investor needs to review the business model in order to get knowledge about the
company’s competitive edge. Understanding the business model helps the investors to have a
better sense of financial data.
Evaluating the business model helps the investors to get the overall view about the
company’s products, its business strategies and future prospects.
Example of a Business Model
For example, let’s take a company A which rents and sells video games. So the company is
into the business of video games. Company used to make a profit of 5 million after spending
3 million on their inventories for video games. So, total gross profit margin is 2 million.
The Internet arrived in the market and the company now has to alter its business model by
taking into consideration the internet in order to survive in the market. So as a result the cost
of holding inventory and distribution cost also gets reduced. Since expenses reduce profit
increases.
Even though with the arrival of internet sales get reduced but the company was able to
expand its business as technology helped it to change course.
In the similar way there are various types of business models.
What Is a Business Model?
A business model is a strategic plan of how a company will make money. The model
describes the way a business will take its product, offer it to the market, and drive sales. A
business model determines what products make sense for a company to sell, how it wants to
promote its products, what type of people it should try to cater to, and what revenue streams
it may expect.
What Is an Example of a Business Model?
Best Buy, Target, and Walmart are some of the largest examples of retail companies. These
companies acquire goods from manufacturers or distributors to sell directly to the public.
Retailers interface with their clients and sell goods, though retails may or may not make the
actual goods they sell.
What Are the Main Types of Business Models?
Retailers and manufacturers are among the primary types of business models. Manufacturers
product their own goods and may or may not sell them directly to the public. Meanwhile,
retails buy goods to later resell to the public.
How to Create a Business Model
There is no "one size fits all" when making a business model. Different professionals may
suggest taking different steps when creating a business and planning your business model.
Here are some broad steps one can take to create their plan:
1. Identify your audience. Most business model plans will start with either defining
the problem or identifying your audience and target market. A strong business model
will understand who you are trying to target so you can craft your product,
messaging, and approach to connecting with that audience.
2. Define the problem. In addition to understanding your audience, you must know
what problem you are trying to solve. A hardware company sells products for home
repairs. A restaurant feeds the community. Without a problem or a need, your
business may struggle to find its footing if there isn't a demand for your services or
products.
3. Understand your offerings. With your audience and problem in mind, consider
what you are able to offer. What products are you interested in selling, and how does
your expertise match that product? In this stage of the business model, the product is
tweaked to adapt to what the market needs and what you're able to provide.
4. Document your needs. With your product selected, consider the hurdles your
company will face. This includes product-specific challenges as well as operational
difficulties. Make sure to document each of these needs to assess whether you are
ready to launch in the future.
5. Find key partners. Most businesses will leverage other partners in driving company
success. For example, a wedding planner may forge relationships with venues,
caterers, florists, and tailors to enhance their offering. For manufacturers, consider
who will provide your materials and how critical your relationship with that provider
will be.
6. Set monetization solutions. Until now, we haven't talked about how your company
will make money. A business model isn't complete until it identifies how it will make
money. This includes selecting the strategy or strategies above in determining your
business model type. This might have been a type you had in mind but after
reviewing your clients needs, a different type might now make more sense.
7. Test your model. When your full plan is in place, perform test surveys or soft
launches. Ask how people would feel paying your prices for your services. Offer
discounts to new customers in exchange for reviews and feedback. You can always
adjust your business model, but you should always consider leveraging direct
feedback from the market when doing so.
Types of Business Models:
We will discuss here about 4 types of business models:
1. Business -To- Business Models (B2B):
When the dealings or the transactions take place between two companies or the business then
this type of business model is known as business to business models.
It has good market predictability and more market stability. Since under B2B sale is made in
bulk amount this model leads to lower cost for the businesses.
The best example of this type of business model in India is India art Intermesh which is a
wholesale B2B marketplace. It offers millions of products to its customers which includes
consumer electronics, machinery, apparel and many more.
2. Business -To-Consumer Models (B2C):
Business-2-consumer business model is a model that refers to businesses that sell their
services or the products directly to the consumer who are the end users of the products or
services.
There is an on-going demand for the products as it provides the essential items. This thus
eliminates the risk of fluctuation in demand and helps in maintaining consistency in the
business. Since direct contact is there with the customer’s so information is shared with them
directly and easily.
Customers are given products at a low price compared to its competitors for the business to
run smoothly.
Example of business to consumer model is Avenue Super mart which provides goods directly
to its customers.
3. Subscription Based Models:
Any application based businesses or software companies have subscription based business
models. They offer their product as a onetime purchase; in return company earns monthly or
annual revenues.
This type of business model allows the company to earn regular income by giving the client
the opportunity to pay for the cost of the purchase in 12 equal payments rather asking them to
pay the wholesome amount at one go.
One of the leading examples is Infoedge for this type of business model.
4. On-DEMAND BUSINESS MODEL
It is the most recent form of model which is made out on the need by answering immediately.
Under this type of business model is prepared in such a way where all the questions will be
answered by just a click of a button in seconds.
It is very much convenient and easy for customers as even before customers have visited the
particular city they get their hotels or places booked.
One of the example is make my trip which allows the customers to plan the holidays and
make the bookings in advance.
Advantages of Business Models
A good business models gives the company a competitive edge in the industry.
A strong business model provides the company good reputation in the market place
encouraging the investors to remain invested in the company.
Making the business model strong leads to an ongoing business profit leading to increase in
cash reserve and new investments.
Proven business model brings a financial stability in the organization.
Business models have disadvantages as well.
Disadvantages of Business Model:
Once a business model is created, then it restricts to implement new ideas for the product.
Creating a business model is time consuming as lot of factors needs to be considered.
There might be a chance that business model may turn out to be inaccurate.
Apart from the disadvantages, business model is mandatory to be prepared before starting of
a new project.
Business Plan
Business Plan Definition
A business plan is an executive document that acts as a blueprint or roadmap for a business.
It is quite necessary for new ventures seeking capital, expansion activities, or projects
requiring additional capital. It is also important to remind the management, employees, and
partners of what they represent.
Creating a business plan is an indispensable part of any business. The main purpose of
creating such a document is to attract prospective investors to provide capital to the
enterprise. Therefore, the plan should cover all the important perspectives of a business –
financial, operational, personnel, competition, etc.
Table of contents
Business Plan Definition
o Business Plan Explained
o Types of Business Plan
o Components
o Importance
o Frequently Asked Questions (FAQs)
o Recommended Articles
Key Takeaways
A business plan is a critical document for any business – whether a start-up or a well-
established one. It can be considered a self-written bible for the company.
The purpose of this plan should not just be restricted to convincing investors, but it should
also extend to the company’s morals and ethics, and every stakeholder should be aware of it.
It can communicate the business idea’s viability and, most importantly, the entrepreneurs’
dedication to the business. As this dedication keeps them going, the investors are generally
motivated to approve a venture when it is evident from the plan.
Business Plan Explained
Business plan writers are responsible for crafting the face of a business organization they
hope to build. It cannot be easy because a business plan should be a versatile document that
covers various perspectives and aspects of the business that the readers might expect.
It should talk about the company’s unique selling proposition (USP), business culture, and
what the company is. Finally, and most importantly, it is not a static document. With the
company’s growth, it needs to change by incorporating more relevant information and goals.
The outline of a business plan should be prepared from three perspectives – first, the market;
second, the investors; and finally, the company. However, most plans tend to become
business-oriented rather than focusing on the market and the investors. This might create a
negative impression on the investors.
First, the entrepreneurs must understand a demand-supply gap from the market’s perspective.
This gap can be the perfect opportunity for the company. Or maybe the company has an
innovative product or service idea, which they believe will have a high demand. Either way,
the market should accept the product.
According to the Massachusetts Institute of Technology (MIT) Enterprise Forum, 1978,
investors are more likely to approve market-driven businesses rather than technology or
service-driven ones.
Also, the plan should address the investors’ needs. What is in it for the investor? Since they
invest a lot of money, they expect higher returns. Of course, no investor would
demand profits upfront. But it’s important to tell them when they can expect returns and how
much. So the business should provide them with the data on the estimated payback period.
Types of Business Plans
There are many types of business plans based on the size of the document and its scope.
First, depending on the size of the plan, there are traditional and lean start-up plans. The
traditional plan is a lengthy document with more than 20 pages. It covers various facets of the
business in such a way as to answer the different questions that may arise in the readers’
minds. But the disadvantage of this plan is that it might hold the readers’ concentration only
for a limited time.
The lean start-up plan is a concise and brief version of an actual plan, usually consisting of a
single page. The demerit of this plan is that it might be too small and not include all the
important and relevant information. But the entrepreneurs must be ready to provide the
investors with a detailed document if required.
The second classification is based on the scope of the plan. It can be a start-up plan for new
businesses seeking capital or an internal plan to communicate with different departments on
a new project. Other types based on scope include strategic, feasibility, operations, and
growth.
A strategic plan can communicate how the business will achieve its goal, while a feasibility
plan can focus on the feasibility of the company’s offerings. For example, the operations plan
focuses on production and supply operations. In contrast, a business prepares the growth plan
for its aspiring expansion projects, focusing on additional investments and financial
projections.
Components
The outline of a business plan should be carefully designed to incorporate all the focus points
deemed essential by the audience. These are the elements of a business plan:
1. Executive summary – Also known as the elevator pitch, the executive summary is the most
important element of any business plan, best fitted in a page or two. A business should draw
its plan from the mission and vision, which are the founding principles of any business. Next,
it provides an idea and an overview of the company. It also introduces the product or service
the company aims to offer. Finally, it is a summary of the plan.
2. Business description – This is an elaboration of the company goals and objectives. It
includes the market or industry the business belongs to, its target audience, etc. It can also
provide information on the company structure and how it operates.
3. Market research and analysis – Market research is the concrete floor on which the
business plan stands. It should include facts and figures and give the readers an understanding
of the market, its preferences, classifications, and the number and size of competitors.
Analyzing the market lets businesses identify a gap and fill it. The plan should also inform
the market’s acceptance of the product or service.
4. Competitive analysis – Competitors can make or break any business. Therefore, before
entering the market, the businesses must evaluate how the competitors operate, their profits
and costs, their offerings, etc. This will give the enterprise an idea of what it can do
differently from the competitors to have the edge over them. This should be effectively
communicated to the investors, as it might convince them of the venture’s success.
5. Marketing and sales plan – The whole point of any business is to make sales. For this, they
need marketing campaigns and strategies targeting the right audience with minimal cost but
maximum returns. For example, a firm selling study tools and materials will target students,
especially through social media. Like this, businesses should plan their campaigns and decide
their advertising channels.
6. Operating plan – As the term implies, it talks about how the business is operated. The
manufacturing and supply patterns, strategies like agile or lean, inventory approach, etc.,
decided by the management come under this. In addition, the expected quantity to be
produced and supplied in a given period and the reverse logistics plan are good additions to
the operating plan.
7. Organization description – This gives information on the total employees, departments,
management qualifications, job description, and total skill set of the organization’s human
resources. The decided salary and wages, HR policies, etc., are also part of an organization’s
description.
8. SWOT analysis – SWOT analysis helps the business identify its strengths, weaknesses,
opportunities, and threats, which will help them choose the critical approach. The business
should take advantage of its strengths and opportunities while simultaneously working on the
weaknesses and finding the best strategy to deal with the threats. This will balance the
company and its internal and external environment.
9. Financials – These refer to the financial projections, including the budget, estimated costs,
payments, expected break-even point, payback period, etc. Forecasts on
expected revenue and costs for at least one year or until the business breaks will be
necessary. Also, the net capital requirements with proper accounting calculations must be part
of the plan.
10. Appendices – This can include other important or relevant documents to prepare the plan.
For example, financial documents, proof of people’s acceptance of products, resumes of the
management, study on competition, etc.
Presentation is as important as the content. Therefore, it is best to add graphs, pie charts, 3D
models, and other visuals, which will enhance the presentation and understandability of the
plan. In addition, factual data and simple statistical tools can make the plan look genuine and
instill investor confidence.
Importance
Creating a business plan is more important due to the negative impression its absence can
cause rather than the benefits it might provide. The impression is what matters when it comes
to a plan. So, let’s understand the importance of making a good impression.
Perhaps the reason why most businesses make a plan is for the investors. These investors can
be venture capitalists or financial institutions. For these investors, new ventures are like
investments. Hence, before putting in money, they want to be sure if the investment will be
worth it.
Therefore, presenting all the important details in an understandable format helps them realize
the clarity and the level of commitment the entrepreneurs have towards their business. The
business plan writer should also give due to the executive summary and financials while
creating the plan.
Secondly, every business needs a blueprint based on which it operates. It should govern the
functions of a business and especially in decision-making. Usually, when a plan is created
before the enterprise starts functioning, it speaks about the business and what it stands for.
Even after the business takes off and expands, it should stick to its roots, which would evolve
with the company’s growth.
Making every stakeholder – employees, partners, suppliers, investors, etc. – aware of the
plan would increase commitment and sense of belonging to the enterprise. This, too, is
important to improve the productivity and contribution of everyone.
What Is a Business Plan?
No two businesses have an identical business plan, even if they operate within the same
industry. So one business plan can look entirely different from another one. Still, for the sake
of simplicity, a business plan can be defined as a guide for a company to operate and achieve
its goals.
More specifically, it's a document in writing that outlines the goals, objectives, and purpose
of a business while laying out the blueprint for its day-to-day operations and key functions
such as marketing, finance, and expansion.
A good business plan can be a game-changer for startups that are looking to raise funds to
grow and scale. It convinces prospective investors that the venture will be profitable and
provides a realistic outlook on how much profit is on the cards and by when it will be
attained.
However, it's not only new businesses that greatly benefit from a business plan. Well-
established companies and large conglomerates also need to tweak their business plans to
adapt to new business environments and unpredictable market changes.
Before getting into learning more about business planning, let us learn the advantages of
having one.
The Advantages of Having a Business Plan
Since a detailed business plan offers a birds-eye view of the entire framework of an
establishment, it has several benefits that make it an important part of any organization. Here
are few ways a business plan can offer significant competitive edge.
1. Sets objectives and benchmarks: Proper planning helps a business set realistic objectives
and assign stipulated time for those goals to be met. This results in long-term profitability.
It also lets a company set benchmarks and Key Performance Indicators (KPIs) necessary
to reach its goals.
2. Maximizes resource allocation: A good business plan helps to effectively organize and
allocate the company’s resources. It provides an understanding of the result of actions,
such as, opening new offices, recruiting fresh staff, change in production, and so on. It
also helps the business estimate the financial impact of such actions.
3. Enhances viability: A plan greatly contributes towards turning concepts into reality.
Though business plans vary from company to company, the blueprints of successful
companies often serve as an excellent guide for nascent-stage start-ups and new
entrepreneurs. It also helps existing firms to market, advertise, and promote new products
and services into the market.
4. Aids in decision making: Running a business involves a lot of decision making: where to
pitch, where to locate, what to sell, what to charge — the list goes on. A well thought-out
business plan provides an organization the ability to anticipate the curveballs that the
future could throw at them. It allows them to come up with answers and solutions to these
issues well in advance.
5. Fix past mistakes: When businesses create plans keeping in mind the flaws and failures of
the past and what worked for them and what didn’t, it can help them save time, money,
and resources. Such plans that reflects the lessons learnt from the past offers businesses an
opportunity to avoid future pitfalls.
6. Attracts investors: A business plan gives investors an in-depth idea about the objectives,
structure, and validity of a firm. It helps to secure their confidence and encourages them to
invest.
Now let's look at the various types involved in business planning.
The Types of Business Plans
Business plans are formulated according to the needs of a business. It can be a simple one-
page document or an elaborate 40-page affair, or anything in between. While there’s no rule
set in stone as to what exactly a business plan can or can’t contain, there are a few common
types of business plan that nearly all businesses in existence use.
Here’s an overview of a few fundamental types of business plans.
1. Start-up plan: As the name suggests, this is a documentation of the plans, structure, and
objections of a new business establishments. It describes the products and services that are
to be produced by the firm, the staff management, and market analysis of their production.
Often, a detailed finance spreadsheet is also attached to this document for investors to
determine the viability of the new business set-up.
2. Feasibility plan: A feasibility plan evaluates the prospective customers of the products or
services that are to be produced by a company. It also estimates the possibility of a profit
or a loss of a venture. It helps to forecast how well a product will sell at the market, the
duration it will require to yield results, and the profit margin that it will secure on
investments.
3. Expansion Plan: This kind of plan is primarily framed when a company decided to expand
in terms of production or structure. It lays down the fundamental steps and guidelines with
regards to internal or external growth. It helps the firm to analyze the activities like
resource allocation for increased production, financial investments, employment of extra
staff, and much more.
4. Operations Plan: An operational plan is also called an annual plan. This details the day-to-
day activities and strategies that a business needs to follow in order to materialize its
targets. It outlines the roles and responsibilities of the managing body, the various
departments, and the company’s employees for the holistic success of the firm.
5. Strategic Plan: This document caters to the internal strategies of the company and is a part
of the foundational grounds of the establishments. It can be accurately drafted with the
help of a SWOT analysis through which the strengths, weaknesses, opportunities, and
threats can be categorized and evaluated so that to develop means for optimizing profits.
The Key Elements of a Business Plan
There is some preliminary work that’s required before you actually sit down to write a plan
for your business. Knowing what goes into a business plan is one of them.
Here are the key elements of a good business plan:
1. Executive Summary: An executive summary gives a clear picture of the strategies and
goals of your business right at the outset. Though its value is often understated, it can be
extremely helpful in creating the readers’ first impression of your business. As such, it
could define the opinions of customers and investors from the get-go.
2. Business Description: A thorough business description removes room for any ambiguity
from your processes. An excellent business description will explain the size and structure
of the firm as well as its position in the market. It also describes the kind of products and
services that the company offers. It even states as to whether the company is old and
established or new and aspiring. Most importantly, it highlights the USP of the products or
services as compared to your competitors in the market.
3. Market Analysis: A systematic market analysis helps to determine the current position of a
business and analyzes its scope for future expansions. This can help in evaluating
investments, promotions, marketing, and distribution of products. In-depth market
understanding also helps a business combat competition and make plans for long-term
success.
4. Operations and Management: Much like a statement of purpose, this allows an enterprise
to explain its uniqueness to its readers and customers. It showcases the ways in which the
firm can deliver greater and superior products at cheaper rates and in relatively less time.
5. Financial Plan: This is the most important element of a business plan and is primarily
addressed to investors and sponsors. It requires a firm to reveal its financial policies and
market analysis. At times, a 5-year financial report is also required to be included to show
past performances and profits. The financial plan draws out the current business strategies,
future projections, and the total estimated worth of the firm.
