Mediaboss Marketing

Greg Satell Digital Tonto: What is a business model? Yesterday at 11:04 | Greg SatellHow do you expect to make money?There is probably no more important question in business.

If you cant answer that, youre not likely to get very far or, in fact, anywhere at all.

Of course, conditions can change and very quickly, so the question is a fluid one. A highly competitive approach ten years ago might not be viable today and companies that are barley five years old are commanding valuations in the billions.

Thats why theres so much talk about business models. Somebody claims to have new one, while another says that an old one is defunct. But what is a business model really? As innovation researcher Tim Kastelle points out, there a multitude of definitions representing different points of view. That can be confusing. Its time to clear things up.

For instance, Henry Ford realized that by using an assembly line to manufacture cars, he could take a very niche product, a curiosity really, and make it into a product for the masses. Lou Gerstner transformed IBMs diverse product line into a powerful consulting model. More recently, the Google guys realized that the same logic that conveys authority is an academic setting could create a better search engine.

Sometimes, the innovation isnt about the product itself, but merely the way its sold. Tim Kastelle gives a great example in the story of Xerox, where they failed when they tried to sell copiers but then when on to great success when they began leasing them.

In other words, a business model is a lot more than just a key insight (Jon Kleinberg of Cornell had an idea for a search engine that was very similar and, some believe, superior to Googles concept, but it never really gained traction). You need to also figure out the mundane stuff, like how much your product will cost to make, who youll sell it to and so on.

However, even after you have all that figured out, you still need to get some idea if your business will be steady for years, grow very quickly or whether its likely to decline over time. For that, youll need more than just clever ideas, youll need to plug in some numbers.

Thats fairly obvious with a start-up, but its also true of an established business. As Ive pointed out before, prediction is a tricky business, even if you have a wealth of data at your disposal. The past cant be automatically extrapolated into the future.

Read the rest here:
Digital Tonto: What is a business model?