well what is a business model in this video we're going to answer this question and then we're going to also get into the four key components of every single business model so to start let's talk about what a business model is a business model very simply describes the rationale for how a business or how a venture accomplishes three things and those three things are creating delivering and capturing value now many people often think of a business model as a way of answering the question how a business makes money and in some ways this is actually accurate but it's a very simplistic description of what a business model is while a business model does address how the business makes money commonly referred to as a revenue model it's really more all-encompassing than that the revenue piece is really one aspect of it when we talk about creating value we're talking about solving problems when we talk about delivering value we're talking about really all of the activities that go into trying to deliver value to customers so think about marketing and distribution but also the infrastructure piece and then capturing value very simply is all about selling a product at a price that people will pay and then of course covering our cost so those are the simple elements of a business model every business model addresses those three areas how a business creates value how it delivers value and how it captures value now going into the four areas let's look at the four key areas of every single business model so these are areas that need to be addressed in every model in order for the business model to be somewhat successful or at least have the potential for success so let's start with the first area the first thing that every business model has to address is what we call the offer now the offer is one of the now the offer represents what we're actually selling to customers and typically the offer addresses something very important and that's what we call a value proposition and this is a term that you've probably heard before in some capacity and it's used a lot especially in entrepreneurship and we're talking about startups uh entrepreneur a value proposition very simply answers the question how are you different and why are you worth buying and so it's very important that we of course offer products that solve real problems from consumers and by real i mean that we've undergone some type of testing process to make sure that the uh problems that consumers have aren't simply made up in our minds but are actually real and that most importantly people will pay for an actual solution so our offer gets into the product that we're creating and then ultimately uh that product going to the consumer and so trying to have this idea of product market fit all of that is encompassed in the actual offer itself now once we get to or through the offer piece then the next piece is the customer and the customer of course is the most important segment simply because without the customer there is no venture there is no business so the customer really is simply the you could say the target consumer for our product so for the customer it's really important that we have an accurate understanding of who this person is and that's why we talk about doing things like customer discovery interviews and all sorts of things to try to get a finer depiction of the shared characteristics of our consumers and so when describing a target market right we want to focus on identifiable characteristics things like demographic variables to try to identify those commonalities that the people that we think are going to best respond to our offer are going to have and so we have need to have our customer there so the offer and the customer really go hand in hand because this offer here is really created for a specific person in mind so these are really done almost simultaneously it's not like we think of an offer and then go out and try to find someone that it appeals to right that's kind of a backwards way instead you know we're having an idea of who our customer is and creating things specifically for that particular demographic or that particular group of individuals now moving on so we've got offer we've got the customer the next piece that many people don't consider is what we call infrastructure now infrastructure incorporates a lot of the things that really when people are thinking about starting businesses they're not necessarily thinking of right we're really good at thinking of the money piece and how we're going to actually gain money we're going to what our revenue model might be and we're really good at the offer and the product we want to create but when it comes to the infrastructure we often overlook this because this is kind of the nitty-gritty if you will of running a venture and so with infrastructure we're talking about resources these are all of the things that we need to be able to create our offer and offer it to consumers our customers our customer more specifically so when you think about infrastructure we're thinking about uh whether it's a certain type of skilled labor force whether we need access to certain suppliers whether we need certain key partners what are the activities that are really important for us to do in order to be able to execute in our offer and obviously sell to consumers those are all the things that are folded into the infrastructure piece and this is very much dependent upon the business and so each of these things the offer will in turn have an impact on the infrastructure that's needed to accomplish our overall objective whatever that may be so if you're operating a subscription-based business your infrastructure looks a little bit different right you're going to need some back-end support with regards to infrastructure that becomes really important obviously having some skill set with regards to coding could be really helpful if your business model is kind of manufacturing where it's very asset based or you're producing a good and selling it to someone else your infrastructure needs are a little bit different right it's mostly efficiency high access to capital up front you need building and obviously people and machinery and so all of these things are very much dependent upon what the business model is so the last piece now that we've gone through offer customer and infrastructure is financial viability and every business model needs to be financially viable otherwise it simply won't work and it's not a successful model and you need to have all four of these really to have a chance and being able to launch a successful venture so with financial viability we're finally going to introduce that revenue piece so the two key components here are going to be the revenues for the business or the revenue model and also the costs and ultimately what we're trying to figure out at this stage is if the business has a chance of profitability and what that profitability looks like what i would encourage students to do at this stage uh is to do what we call a break even analysis which is a somewhat involved type of analysis where we are costing the uh what our product is so trying to identify what the product costs to make we call that the economics of a unit and so determining all of the variable cost right so direct materials direct labor other variable costs that go into creating a product or offering a service determining the price per unit or the price that we think that the market will bear and then of course dividing the result of that by our fixed expenses determining how much we need to sell in order to break even it's a very very simple uh kind of financial analysis that we can do sort of back of the napkin math if you will that really can help us get a better idea for whether or not the venture has some viability right ultimately we need to know that we can charge a certain price we need to know if that price can cover our costs here and we need to know if we can sell enough to actually break even and cover our fixed cost because if we can't do that within a reasonable time frame well then the business is going to be in trouble and that could become very problematic so whenever you're thinking about business models again just to kind of recap as we finish up we're always thinking about how we're going to create value right creating value being our offer to consumers we're thinking about how we're going to deliver that value via infrastructure and all the things that we need to do to be able to get our product to consumers and be successful and replicate that at scale and then lastly the financial viability piece which is of course can we capture the value for ourselves so assuming we create and we deliver it is it going to be financial rewarding for us in the long run you