WHAT IS A BUSINESS MODEL?
The term business model has a become a buzzword in recent years. The discipline of management operates from a theory of business, from a model of how the whole system will work. Major decisions and initiatives all become a tests of this model. Profits are not only important for their own sake, but also because they tell you whether your model is working or not. It is actually a set of hypotheses on which your company works. If you fail to achieve the desired results you expected, you need to re-examine your model. It is a managerial equivalent of the scientific methods, which are tested and revised over the time, or whenever necessary.
When EuroDisney opened its Paris theme park in 1992, it assumed that the enterprise would work in pretty much the same way as its counterpart, Disney America theme parks operated. Europeans, Disney thought, would spend the same amount of time and money per visit as did Americans, on food, rides and souvenir shopping. But this business model failed miserably as all the assumptions turned out to be wrong. For example, Europeans didn’t graze all day long at the park’s various restaurants as Americans did. Instead, they expected to be seated at precisely the same lunch or dinner hour, which over loaded the facilities, and created long lines of frustrated people. EuroDisney became a disaster in early years of operations. It became a success only after some key elements were iterated over a period of time.
A business model is a story of how an enterprise works. Like all good stories, a business model relies on basics of character, motivation and a plot. For a business the plot revolves around how it will make money. For a social enterprise, the plot is how it will change the world. In both cases, the character must be delineated, their motivations must be plausible, and the plot must turn on an insight about value.
Taking the case of one of the most successful business models of all time, American...