Why Companies Need to Develop a Sound Business Model?

What is A Business Model?


The business model is the method the company employs to design a manner or structure by which the company deliver value to its customers.


Thus, the business model should reflect company’s assumption about customers’ needs and wants, and the management’s strategy.


In simple words, the business model is developed to determine and depict how the company is going to make money.


Therefore, the main components of a sound business model should summarize the resources needed for the company to efficiently perform its operations, resources deployment, the company’s competitive strategy, and relationship network with stakeholders and partners.


What is used for?


The business model also outlines how the company will manage customer’s experience to ultimately create value for them.


Intuitively, in order to deliver value to customer which is the ultimate objective of the business model, the company must use innovation to differentiate its products or services from competitors to gain a competitive edge and stand out from the rest.


However, building a sound business model is not enough to gain a competitive advantage as the validity of the business model doesn’t necessarily ensure its creativity; because it could be a very sound model, yet imitated.


Imitation is not hard; thus, many new business start-ups tend to imitate the business models of successful enterprises thinking that would guarantee their success.


But this is not what it takes to launch a promising new business simply because when a new business company chooses to imitate a successful existing business model it gives customers no reason to leave versed established competitors and opt for a new choice with nothing different to celebrate yet its quality to be established.


A differentiated, hard to replicate yet efficacious business model is more likely to achieve profit.


The power of innovation and differentiation originally stems from customer’ desire to have the ability to choose among different and distinct alternatives because different customers have different tastes and preferences; thus when the business enterprise becomes able to provide distinct value to customers it will establish itself as a prominent choice.


The business model also outlines the structure by which the company manages its financial aspects including costs, revenues, and profits associated with the process of delivering value to customers.


This is an essential concept really owing to the fact that designing a strong reliable financial structure will facilitate the process of making revenues along with delivering value to customers.




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