What is a Business Model?

The entrepreneur may have a business idea that is confirmed by market research. Market analysis may show potential business opportunities. But the same opportunity can be tapped in multiple ways. The approach that is proposed for tapping the opportunity including the configuration of resources is the business model.

For instance, the business opportunity may be in providing food at economical rates. Each of the following is an approach for tapping the same opportunity:

• Setting up owned food stalls outside all railway stations in Mumbai which will sell a limited range of ready-to-eat hot food.

• Setting up a mix of own and franchised restaurants all over India to offer a la carte menu of food items at a low cost.

• Offer tiffin service across a city, where food will be prepared in area-wise hubs and supplied to homes / offices on monthly purchase basis.

• Offer tiffin delivery service that will pick up food from the homes of customers and deliver to offices / education institutions for a monthly fee.

• Tie up with Self Help Groups in various locations to prepare food which will be distributed to homes / offices on advance purchase basis.

• Set up a manufacturing facility to manufacture ready-to-cook food and distribute in cities through shopping malls and other retail outlets.

Related: Resource Mobilisation, Valuation & Dilution

Each of the above represents a business model targeted at the business opportunity of providing value-for-money food. Every business model entails a configuration of resources that will ensure that the product or service is delivered cost-effectively at an acceptable risk while maintaining the quality standards promised.

For example, a business model that adopts the franchise route would entail lower investment and facilitate faster roll out. However, it might come with lower control over quality and customer, as compared to owned facilities.

The manufacturing facility comes with significant investment requirement, which increases the risk. However, it offers the opportunity of greater economies of scale, strong brand creation possibilities and more robust growth opportunities.

Choice of business model is often the main driver of business success or failure. Closer the business models of different companies in the space, more intense would be the competition within the industry.