Criticism of Business Models

There are two critical factors in judging business models. When business models don't work, it is because

  1. the story doesn't make sense anymore, for example, the airline industry;
  2. the numbers don't add up to profits, that is companies that suffered heavy losses or bankruptcy.
Lucy  (@lucy_d) - Profile Photo

@lucy_d

💰

Money

investopedia.com

MORE IDEAS FROM THE ARTICLE

The Business Model

A business model refers to a company's plan for making a profit.

  • It identifies the product or service
  • The target market
  • Anticipated expenses

A business model helps developing companies to attract investment, recruit talent, and motivate management and staff. Established businesses should regularly update their business plans to help anticipate trends and challenges ahead.

There are many types of business models for every kind of business.

  • Traditional business models include direct sales, franchising, advertising-based, and brick-and-mortar stores.
  • Hybrid models include businesses that combine internet retail with brick-and-mortar stores or sporting organizations.
  • The primary component of the business model is the value proposition. A value proposition is a description of the goods or services a company offers and why they are desirable to customers or clients.
  • A new enterprise's business model also covers projected startup costs, financing sources, the target customer base, marketing strategy, a review of the competition, and projections of income and expenses.
  • When evaluating a company as a possible investment, the investor should find out exactly how it makes money by looking through the company's business model.

A common mistake companies make in their business model is that they often underestimate the costs of funding the business until it becomes profitable.

Many analysts believe that companies that run on the best business models can run themselves.

  • One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit - the total revenue minus the cost of goods sold.
  • Analysts also want to see cash flow or net income - the gross profit minus operating expenses.

Deepstash helps you become inspired, wiser and productive, through bite-sized ideas from the best articles, books and videos out there.

GET THE APP:

RELATED IDEAS

Microeconomics: Comparative Advantage

The law of comparative advantage was first mentioned in 1817 by English economist David Ricardo.

A company has a comparative advantage when it is able to provide a good or service at a lower opportunity cost than others, helping it sell the same product at a lower cost, resulting in better margins.

OMV is the price an asset would get in the marketplace, or the value the investment community gives to particular equity or business.

Market value is also used to refer to the market capitalization of a publicly-traded company. It is calculated by multiplying the number of its outstanding shares by the current share price.

Black Friday has two relevant meanings
  • In history, Black Friday was a stock market disaster that happened on September 24, 1869, when, after a period of uncontrolled speculation, the price of gold crashed, and the markets crashed.
  • The contemporary meaning refers to the day after the U.S. Thanksgiving holiday, which has been a holiday itself for many employees. It is known as a day full of shopping deals and heavy discounts and is considered the beginning of the holiday shopping season.

❤️ Brainstash Inc.