A business model describes the rationale reason why an organization produces, delivers, and consumes value. The model is used to guide an organization’s decision-making process in all of its activities. The rational basis of business models is based on the assumption that the market exists with a defined set of interacting partners who value the product or services offered by the firm. In this Market with defined partners, the firm must establish and develop the processes necessary to ensure consistent and repeatable results. The model also includes the process of innovation and the associated development of new strategies.
There are four main components of business models, each contributing its own particular characteristics to the overall structure. The first is the Business Model itself, which consists of the basic modules of functionality that have been derived through analysis and research. The second is the sourcing and procurement of raw materials, labor, machines, technology, and other resources. The third is the production process itself, using tools and machinery to produce finished goods and services. And lastly, there are the sale and distribution of the final products and services.
Ecommerce and Internet-based businesses had evolved over the past decade, resulting in remarkable changes in business models. In commerce, there is the need for a flexible platform capable of facilitating a wide range of transactions. Electronic Commerce or eCommerce is usually conducted via the Web and includes online marketing, payment systems, data collection and integration into other applications, and a secure data transmission system. The most commonly implemented features include online catalog shopping, drop-shipping, and inventory management. There is no real-time data sharing and the bulk of the transactions occurs within the secure confines of the network and the Internet.
As a solution to some or most of these problems, the Internet has provided many solutions such as the wholesale sourcing business models. Wholesale sourcing enables small entrepreneurs to source components, materials, and equipment to manufacture and assemble products at reduced prices. It has eliminated the cost of purchasing premises and inventory while eliminating many middleman costs such as inventory control, distribution, and credit checks.
Unlike wholesale sourcing, a Business Model Innovation strategy will be required to address the financing of new business models. This will require a detailed business plan that details the new invention, its market opportunity, cost-benefit analysis, technical information, financial modeling, risk management, pricing and timing, and marketing strategy. A Business Model Innovation should demonstrate several key attributes. These attributes are:
Ecommerce and Internet-based business models can be implemented using web 2.0 tools. This includes the design of sales and ordering applications, content management, and social media integration. Web-based software has been designed to be easy to use by inexperienced as well as professional developers. It is compliant with all the essential standards of the current accounting standards such as ISO/IEC 27001.
Businesses can also implement a Business Model Innovation that will generate revenue from advertising. To do this, a Business Strategy must be developed that is internally consistent with the company’s product or service. This may entail extensive research in the marketplace or it may include establishing a strategic alliance with another company that can bring complementary products or services to the market. In either case, a Company needs to consider the impact of any new business models on the Company’s finances, including the possibility of increased financial liabilities if customer preferences change.
Finally, a third Innovation will be required to apply the principles of Business Model Innovation effectively. A business plan that is properly written will help the Company develop a business plan that will allow for significant financial risk and exposure. Additionally, a business plan that is written in a format that will attract funding will enable a Company to apply for initial investment from venture capital, angel investors, or pharmaceutical companies. There are numerous books that present examples of business plans and other forms of documentation that can be used to implement Business Models. The best solution for a budding entrepreneur is to consult with a business mentor who has experience implementing innovative Business Models.