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Definition

Importance of Business Model

Developing a business model indicates planning- on paper – the basics of a business. It assists an entrepreneur to develop a realistic assessment of the potential success of her/his business concept. An appropriate business model helps an entrepreneur to recognize elements such as the business idea; what problems is s/he solving for whom; how s/he will generate customer value; how the product/service will reach customers; how the business will remain competitive; and all costs and revenue s/he can assume.

A business model performs an important role in the success of any business because it describes how the business will generate revenue. A business model helps in getting investors and developing partnerships for entrepreneurs.

Possessing a clearly designed business model is important because it serves the following purposes:

  • Gives a continuous extension of feasibility analysis (a business model keeps asking the question, is the business feasible?)
  • Concentrates on the way all the elements of a business come together and how they form a working whole.
  • Explains the reason for the network of participants required to form a business idea viable for working together.
  • Demonstrates the core logic of a business to all stakeholders, including the business’s employees.

Use of the term in Sentences:

  • The professor is discussing the importance of business models in the introduction to business class.
  • An entrepreneur should understand the importance of business models before starting a business.
  • You should understand the importance of business models before doing the actual planning on paper.
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