Business Model

Every business needs to answer a few basic questions. Who are its customers? What problem does it solve for them? How does it deliver its product or service? And how does it earn more than it spends?

The business model brings these answers together. It covers the products or services offered, the target customers, how the business reaches them, its main costs, its key resources and partnerships, and, crucially, how it generates revenue.

For example, a coffee chain earns money by selling drinks and food in convenient locations, while a streaming service charges a monthly subscription for access to a library of content. A search engine offers its service free to users and earns revenue by selling advertising to businesses that want to reach them.

Investors look closely at business models because they determine how a company can grow, how profitable it can become and how vulnerable it is to competition. Two companies in the same industry can have very different business models, and therefore very different financial results.