Come Yum Cha With Me: What, How and Whom

If you look at the title of this post, you are basically looking at what a business model is all about. Simply put it, a business model is a representation of how a business earns its money. It is a simplified picture of the real thing - that is to say without all the complexities of a real business - the organisational structure and culture, work methods, operation systems, intertwining human relationships, corporate strategies or production processes. Having a business model enables us to understand the essence of how a business works without having to deal with all the complexities.

A business model basically is just a story explaining how a business works. It provides answers to questions such as:

What is it that we are offering to the market?
Who are our customers?
How do we distribute to them?
In what ways do we communicate with our customers?
What are the resources that we need?
What are the key activities to be performed?
Who are our business partners?
How do we make money in this business?
What is our cost structure like?

Business models became very popular in the late 90's during the internet boom. Many new ways of doing business became possible due to the low cost of sharing information among businesses and which reached all the way to customers. New distribution channels were created and more customers were reached. Value chains were broken up and reconfigured. This led to globalization, intense competition and new ways of doing business. There is now a larger variety of ways of how businesses make money in terms of what they sell, how they sell it, and whom they sell to.

Today, it is just not sufficient to be in a lucrative industry. There can be many different business models operating in the same industry. For startup entrepreneurs, you may want to create new business models in order to make your mark in the market. It is important to have a competitive business model to differentiate yourself from the crowd. Not only that, but if your business model is successful, most likely it will be copied by your competitors. Therefore, it is also important to regularly innovate your business model to give yourself that competitive edge.