Business Model Innovation

Business Model Innovation: The Need to Define or Redefine your Business Model in 2022

Business Model Innovation: The Need to Define or Redefine your Business Model in 2022


By Olatuja Gabriel-Wealth (Marketing/Business Strategist).


The subject of “business model” is what every business should prioritise ab initio even before the starting of the business. A clear business model should be defined. This can be a part and parcel of your business plan.

Unfortunately, not many have clarity of purpose for their business at the beginning. So many didn’t even have business plans.

The good news is, this article got you covered whether you have been able to define your business model or not. This means that if you have a defined business model, you can redefine it to suit the course you are following this year. However, if you don’t have one, you can define it today and take your business to the level it ought to be.

The process of business model construction and modification is also called business model innovation and forms a part of business strategy.


First, what is a Business Model?

According to Wikipedia, a business model describes how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts.

In a simple term, business model is the plan you as a company or business puts in place to make profit.

Elements of Business Model

The major elements of business model are:

  1. Value Proposition. Identifying the products or services the business plans to sell. Value Proposition is a primary component of the business model, which is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.
  2. Target Audience. Identify target market. You need to identify the different categories, classes, segments of your potential buyers. Develop a buyer persona to have a clearer picture of your ideal customers.
  3. Expenses and Revenues. Estimate the expenses and identifying the source(s) of funding. Estimating your startup costs and identifying financing sources for the business is paramount.
  4. Marketing Strategy. Plan and formulate your marketing strategy. It will help you to concentrate your limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage.
  5. Competitive advantage. There must be a uniqueness of your product or service that can’t easily be copied by competitors.
  6. Cost structure. You need to structure fixed and variable expenses required for your business to function and how they affect pricing.
  7. Key metrics. Your company must have a way to measure success or performance.
  8. You need to identify the physical, financial, and intellectual assets of your company.
  9. Revenue model: Devise a framework that identifies viable income sources to pursue.

Like I mentioned earlier in this article, business models are important for both new and established businesses.

Importance of Business Model

Why is a business model and regular modification essential to your business? The following are the importance to running a successful business, Business model helps:

  1. to attract investment
  2. to define opportunities in partnership with other businesses
  3. in recruiting talents and
  4. in motivating management and staff
  5. to reflect changing business environments and market demands.

It is expedient for businesses to regularly update their business plans. This helps to anticipate trends and challenges ahead. Business plans help investors evaluate companies that interest them.

Successful businesses have business models that allow them to meet and exceed customers’ needs and expectations at a competitive price and a sustainable cost.

When an investor evaluates a company with the aim of possibly investing in it, they usually find out exactly how it makes its money. Looking into the business model gives him or her an overview and can easily make better sense of the financial data.

You must not underestimate the costs of funding the business until it becomes profitable. You need to know the cost of starting a line of business and what keeps it running until its revenues exceed its expenses.


How Investors or Analysts Evaluate the Success of a Business Model

  • By looking at the company’s gross profit which is the company’s total revenue minus the expenditure.
  • Comparing the company’s gross profit to that of its main competitor or its industry.
  • Analysing cash flow or net income.

Net Profit = Gross Profit – Operating Expenses. This shows how much real profit the business is generating.


Actions to Increase Gross Profit

The two major factor on which you can leverage your business model are

  • costs. – find inventory, raw materials, requirements or resource at reduced costs.
  • pricing – (a) raise prices and retain the quality and the quantity of your product or service or (b) keep prices and reduce quality and the quantity of your product or service.

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