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Early in this book the author tells us that business models are about making money. They are sometimes called business concepts or profit models. The author warns us to not confuse revenue models with business models. Revenue models are merely a part of a business model and describe how revenues are obtained, i.e., advertising, auction, markup, production, or subscription. On the other hand, business models are described by answering the following 5 questions:
1. What product are you going to make or what service are you going to provide? And how will you do it?
2. How will you generate revenues from what you make or provide? (revenue model) And how will you market what you have to offer?
3. What are your costs?
4. How will you price it?
5. Why will customers use you (or keep using you) rather than your competitors?
Business models are usually not all that hard to document. Take any store on the main street, in which you live and answer the above 5 questions about that company. Many of the answers can be found just by looking at the store while walking down the street. And some of the answers will require a little investigation or research. But the pieces of the puzzle will fit together not too long after the project was started. And what you will have is a diagram of an existing business at a specific point in time making a certain profit on a certain amount of gross sales.
Once armed with the documented business models for the competitors in the market you want to start your business, then you are in a position to create a business model for your new business so it will be able to compete with those competitors. And to actually transform your business model document into a real life business, then all you will need to do is write a 25-35 page sound business plan which you can then implement.
Now that I think I have adequately described what a business model is (and is not) I have to say that much of the book does not stick to talking about business models. The book has 13 chapters, and I did not find the following five chapters to be relevant to the subject at hand:
2. Customer value and relative positioning
7. Executing a business model
11. Financing and valuing a business model
12. Business model planning process
13. Corporate social responsibility and governance
They covered customer analysis, business plans, business plan topics, and business ethics. None of which are directly relevant in a discussion of business models. They don't relate to any of the five questions listed after the first paragraph above.
And I did not find ANY of the cases in Part II of the book to relate to the subject at hand: business models. The case studies simply described certain products or services offered by various companies. It never dissected the business models used in these cases.
I had hoped that the author in this book would have dissected the following generic business models in detail:
>>Retail businesses
>>Service oriented businesses (part service and part product)
>>Product oriented business (part product and part service)
>>Personal service business (all personal services)
>>Distribution companies
>>Internet companies
But this book did not do what I had hoped it would. And unfortunately for me I still haven't found a book that does. All in all, this book was a disappointment. 3 stars!
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Business Models: A Strategic Management Approachby Allan Afuah represents a new kind of book. Business models are about making money and most firms are in business to make money (a profit). It is therefore no surprise that the phrase "business model" is increasingly finding its way into CEO speech after speech and in business school functional areas from accounting to finance to marketing to strategy. Because strategic management is inherently integrative in nature and increasingly more focused on firm performance, strategy textbooks have come closest to addressing the subject of business models, but only implicitly and partially so. Business Models: A Strategic Management Approach draws on the latest research in strategic management to explicitly and fully explore business models. It draws on the latest research on to explore which activities a firm performs, how it performs them, and when it performs them to make a profit. It offers an integrated framework for understanding the relationship between the set of activities that a firm chooses to perform, its revenue model, its cost structure, its resources and capabilities, the competitive forces in the firm's industry, and its ability to sustain a competitive advantage even in the face of change. It provides the link between resources, product-market positions and profits―how resources and product-market positions are translated into profits. (Existing strategy texts demonstrate correlation between resources or product-market positions and profits, not their translation into profits). Additionally, it explores the relationship between business models and corporate social responsibility as well as the international component to business models. It offers a definition of business models that is deeply rooted in the resource-based and product-market theories of strategy.
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