Posted on February 8, 2013 @ 08:06:00 AM by Paul Meagher
If your answer is along the lines of sell units and make money, then sorry, that is not a business model. Why? Because it is not precise enough to be formalized into a program that generates estimates of revenue, cost, and profit over time. That is a business model. Reminds me of Crocodile Dundee who famously said "that's not a knife, this is a knife".
Many entrepreneurs have gotten along in business without having to develop a formal business model so why is it necessary or important to create a business model? A formal business model may not, in fact, be necessary to grow and run your business if you are able to grow your business organically without outside loans or investment (a sell units and make money orientation is sufficient). If, however, you require outside loans or investment to grow your business then the process of raising capital becomes more efficient for the investor and the entrepreneur if you can run a business model that can be used to generate estimates of cost, revenue, and profit over time. A shared understanding of the business model is a valuable tool to move the investment process along. Like any model, a business model does not account for all aspects of your business, only the critical elements, and for specific purposes. What is most important is that you and the investor can agree that this is how the business can work given some reasonable assumptions.
So what does a business model look like? Stay tuned next week when I will post a simple business model formalized as a PHP program.