Business model: what is it, 7 formats and how to validate?

For innovative companies, one of the biggest difficulties is adapting the existing business model or inventing completely new styles. However, this topic is very important for the value proposition of an enterprise.

Understanding what the business model is and what results in it will bring is fundamental to the creation process. In this way, the results will be positive and the relationship with customers will be favoured.

To understand how to validate this, check out the post we’ve prepared!

What is a business model?

The purpose of a business model is to make it easier to fully understand an enterprise. This concept was developed by the Swiss Alex Osterwalder with the aim of delineating in detail each step and phase of a company and, thus, integrating the complete organization of the process. In other words, the business model is how your company behaves, creates, delivers and captures the value proposition.

In addition, when used in a well-planned and consistent with the company’s proposals, it helps its growth. Defining issues such as your avatar and how your product or service can solve the customer’s problem are important achievements.

How to define the business model?

Canvas: elaboration of the business plan

The Canvas tool is essential to help with the definition of a business model, as it allows observing all the fundamental points of the value proposition in just one frame. Using Canvas, it is possible to analyze issues such as:

  • Partners;
  • Activities;
  • Resources;
  • Offer of value;
  • Cost sources;
  • Revenue sources;
  • Customer segment;
  • Cost structure.

The Canvas model was first introduced to the market through the book Business Model Generation, by Alexander Osterwalder, and has proven to be a fundamental tool for managing successful companies.

For this, it is necessary to have good planning and be strategic. Thus, it is important to analyze, understand and, if necessary, correct the desired model.

It is necessary to understand that, initially, the model may undergo some changes, as there will be errors that must be corrected before defining the final business model.

Remember, this resource serves as an outline for recording ideas, validating possible hypotheses, and making changes. Furthermore, it can be used as a mechanism for analyzing results and prospecting for the direction of the business.

Watch the video below to learn how to build your online business Canvas:

Famous Business Model Formats

After understanding what a business model is, it is necessary to understand which formats are most used in the market. So, below, see the seven most used types, ranging from more traditional models to models that have gained more traction recently:

1. Deductible

Even though it is a traditional model, there is no single definition for the franchise. We can say that this is a model for distributing and selling products or services.

This model can work as a Formatted Business Franchise or as a division between franchisor and franchisee. In the latter case, the franchisor owns the brand patent which, in turn, is used by others to expand the business.

When the relationship is established with the franchisor and franchisee model, it is the patent owner’s obligation to provide training and promote the rules on how the service should be provided. This guarantees the quality of service and standardizes the business. Regardless of where the customer goes, in that brand, he will always be served in the same way.

The profit belongs to the franchisee, but the franchisor receives remuneration for granting the rights to a brand, in addition to transmitting knowledge of an established business model. As an example, we have McDonald’s, Boticário, Chilli Beans, Subway and much more.

2. Freemium

Freemium emerged as a modern variation on the subscription model. This model offers a free service and only limited features. Having a free service allows the service to reach a wider audience. Furthermore, it encourages the user to migrate to the premium version, which will have more advantages and tools.

An example that is very successful in this area is Spotify. In this case, it offers a free plan that has no limit to be used. However, it is always showing the advantages of premium, which prompts users to subscribe.

3. Marketplace

In this model, large retailers rent space in their online store for another store to sell online. This format benefits small stores that have low visibility and helps to expand sales through large store visitors.

However, it is noteworthy that the smaller store may not be remembered by its name, is always attributed to the larger company, thus creating a dependency on the marketplace. Examples of this business model are Magazine Luiza and Netshoes.

4. Subscription Templates

Subscription models occur through the concession of products or services to the user upon payment of a recurring fee, which is usually monthly. The niche that most uses this model is entertainment or dissemination of information, such as magazines and newspapers.

To avoid cancellation, the company must always seek to deliver a quality service or product, in addition to exclusive benefits and advantages to subscribers.

To attract new customers, a good strategy is to offer discounts for new users or a free subscription period as a form of “tasting”. This business model is commonly used by several companies, such as Netflix, Amazon Prime Video, O Novo Mercado and Estadão.

5. Bait and hook

This business model is called “bait and hook” because it offers a product or service linked to another. Generally, one has a lower profit margin and the other a higher profit margin. In this way, the customer feels “obliged” to continue buying from the same company.

An example are printers that act as bait so that the consumer is always in need of ink cartridges (which would be the hook). This makes the purchase of the product more expensive, as one does not work without the other.

6. Collaborative economy

The collaborative economy method connects the economic interests of different people. Thus, a person can offer something to another person who is interested in hiring. Names like Airbnb and Uber are examples of this model.

7. Social Business

This business model has gained strength in the market, as it combines social and environmental objectives with profit-making purposes. In general, these companies are concerned with the image they convey to the public and, therefore, seek social development in different ways, according to the purposes and values ​​of the brand.

How to validate the business model

The customer is fundamental for a successful business model. Therefore, it is essential to define the segments and the avatar right at the beginning of your business. From there, the value proposition is developed according to the niche and strategies to establish a good relationship with the customer.

Another important point for the organization is to find out how much the public is willing to pay for the product or service. Only in this way will it be possible to define the revenue sources for each customer segment.

For those who wish to create a business model that provides positive results, it is recommended to use a program that provides all these questions in a quick and simplified way.

With the acquired knowledge, sketch everything you imagine for your business, mainly through Business Canvas and adapt it to the best business format for your reality.

Choosing a business model for your company is the first step in analyzing how it behaves and how its structure will be established. Thus, it is necessary to contemplate the revenue sources — which mean the money the company generates on each customer segment.