It is so important to understand the business model for a company. It helps to understand the drivers and the motivations for all the people that you work with. So, maybe it is for a company that you work for, perhaps you’d like to understand the business model of your customers or your competitors or your partners, your vendors. It doesn’t matter. But it’s fundamentally important to understand the business model of any company.
And at the core of it, a business fundamentally is doing three things. It is –
- Creating value, which is about creating value for its customers.
- Then it is about capturing value, which is what we call as pricing. This is a way for the business to make some money, i.e., capture value.
- And the third one is to deliver value to its customers.
This is where the business or that company is creating, not just creating value and capturing value, but delivering that value for their customers.
How does it help?
So, for example, let’s say, well, let’s take an example of a software business, right? Let’s say the software business is creating value for its customers. And maybe the way this software business creates value is by, let’s say, it lowers travel costs for its customers, right? So, this company is in the business of creating value by reducing travel costs for its customers. And it charges some money for that value it provides.
For example, maybe it helps its customers lower travel costs by $100. And then it captures $20. Let’s say the price for that product is $20. So it captures a fraction of the value that it creates. It sounds like a fair deal. You know, it reduces $100 in costs and keeps $20 as the price. And then it has to deliver the value. So, which means the software is implemented and the customer takes advantage of that software to lower the travel costs that they have within their company.
And so, this is an example of a business model for the software company. And you can take that same framework of a business model and understand the business model for your customers, for example, so that you can serve those customers better.
You can understand the motivation and the drivers of your customers so that you can make sure that the way you work with your customer is streamlined to their business model.