Lesson 1 of 7 · 13 min
What a business model describes: customers and offering
A business model is a plain description of how a business works: who it serves, what it sells and why customers buy, where it sells, how much it charges and how it is organised to deliver, and the analyst should build that picture independently rather than take management's word for it.
In short
- A business model answers five questions: who (customers), what and why (offering), where (channels), how much (pricing) and how (key assets, partners, suppliers).
- It should be detailed enough to show how the parts fit together, but not so detailed that it becomes a business plan.
- Its consequences show up in the revenue model, cost structure, asset profile, financial structure and, ultimately, profitability.
- Customers are described by segment, by type (B2B = selling to businesses, B2C = selling to consumers) and by geography.
- Asking which job the customer hires the product to do reveals the true competitors and substitutes.
- Management descriptions are a starting point only: they may overstate differentiation or the addressable market, and the model can change over time.
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