What Really is a Business Model?

A business model serves as the foundation of any organisation. It explains how a business creates, delivers, and captures value — essentially providing a roadmap for long-term success. Whether you’re launching a start-up or refining an established business, understanding what a business model is and its core components is crucial.

In this article, we’ll explore the 10 key elements of a business model and how business owners can leverage them to drive growth and sustainability. Let’s use Optus as an example of how each element comes into play.

Customer Segments

At the heart of every business is its customers. Customer segments represent the different groups your business aims to reach. Knowing your audience is critical—whether it’s small business owners, millennials, or a niche market. Ask yourself, who are your primary customers? What problems do they face? How can you best serve them? For instance, knowing their target market, a telecommunications company like Optus could decide to focus on millennials who live their lives online, creating campaigns that resonate with this tech-savvy generation.

Value Propositions

Your value proposition is the reason customers choose you over your competitors. It’s about solving a specific problem for a particular customer segment. If your business doesn’t clearly deliver value, if your value proposition is not discernable, customers will look elsewhere. Optus, for example, might offer cost-effective data bundles to meet the high demand from millennials for affordable internet access. Your value proposition is essential in retaining and attracting customers in a highly competitive market.

Learn how BridgePoint Group can help you define a sustainable Business Model.

Channels

Channels refer to the methods you use to reach your customer segments and deliver your value proposition. This can include physical stores, e-commerce platforms, social media or a combination of the above. Understanding where your customers spend their time is vital to reaching them effectively. Continuing with Optus, their millennial customers are highly active on social media, making platforms like Instagram or TikTok key channels for communication and product promotion.

Customer Relationships

Building meaningful customer relationships is a real key to long-term success. Different customer segments require tailored relationship strategies. Whether it’s personal assistance, automated services, or community engagement, these relationships need to be nurtured. Optus might build stronger loyalty with millennials by engaging with them through personalised offers and interactive customer service, perhaps even using chatbots or AI-driven platforms for quicker issue resolution. Having spent up to attract the millennials market, holding on to them through excellent customer relationships gives Optus a chance to profit from them for years to come.

Revenue Streams

Understanding your revenue streams—the sources of income—is another core aspect of a business model. Explore the ways your business can generate revenue from different customer segments. Ask yourself: What are customers willing to pay for? What payment methods do they prefer? Optus might discover that while millennials prefer affordable bundles, they also appreciate flexible payment options, such as ‘pay as you go’ models rather than monthly contracts.

Read: Smart Ways to Tackle Inconsistent Cash Flow

Key Resources

Every business relies on certain key resources to function, whether it’s physical infrastructure, intellectual property, or human resources. Identifying and optimising these resources is vital for your business model’s success. Optus relies heavily on its mobile network infrastructure. By improving coverage in rural areas, for example, they could ensure better service for their customers, which directly impacts customer satisfaction and loyalty.

Key Activities

The core operations of your business—your key activities—drive the creation and delivery of value. These activities can range from production, marketing, and customer support to software development, depending on your business. For Optus, ensuring high-speed data access and continually improving their network capabilities are critical activities that keep them competitive in the telecom industry.

Key Partnerships

No business operates in isolation. Establishing strong key partnerships allows businesses to focus on what they do best while relying on others for non-core functions. These partnerships can include suppliers, distributors, or technology providers. Optus, for example, collaborates with tech giants like Apple and Samsung to provide the latest smartphones to their customers, enhancing their service offerings.

Cost Structure

Every business must manage its cost structure—the expenses involved in running operations. It’s important to analyse the cost-efficiency of your business model and find ways to reduce costs without compromising value. Optus might reduce overhead by improving online customer service and reducing its reliance on expensive call centres, leading to cost savings and higher profitability.

Competitive Advantage

A competitive advantage is the unique edge that sets your business apart from others. This could be through innovation, exceptional customer service, proprietary technology, or a specialised niche offering. Optus’ focus on providing tailored services to different customer segments, particularly millennials, could be considered a competitive advantage. Offering exclusive bundles and cutting-edge tech can position them as leaders in the telecom market.

The strength of your business model will determine the success of your business. Speak to a trusted business advisor if you need assistance.