So this is the first video of business model cars.
And in this video we will talk about what exactly is a business model in a single statement.
Business model is a framework for how your company will create value, and the way by which your company
can create value is by taking a product, offer it to the market, and then driving sales.
And to understand this value creation part, I'm going to take an example of three of my favorite companies.
The first one is Amazon.
Now, Amazon used a marketplace kind of business model, and a marketplace normally bridge a gap between
buyers and sellers.
So if some buyers wanted to purchase some product that are solved by the sellers, they can purchase
that from these marketplaces.
The second company is Netflix.
Now, Netflix is a video on demand platform and you can watch your favorite web series or a movie on
this platform.
But for that, you have to pay a monthly subscription fees that can be $5 or $10 depending on the type
of country you live in.
The third company, which is also a part of Amazon, is your AWS.
That is Amazon Web Services.
So if you are into programming or web development, I'm sure you have heard of this company.
Now, AWS is a cloud computing platform and they use pay as you go kind of pricing in their business
model.
Now, just like these three, we have hundreds or maybe thousands of these different types of business
model and pricing strategy.
And we will talk about all these different business model in the coming videos.
But let's come back to our same topic, which is what exactly is a business model?
And to understand that, I'm going to take an example of a business model of a hospital before understanding
about the business model that is used by a hospital.
We first have to understand about the lifecycle of a patient.
So a patient normally go through these three important stages in their lifecycle.
The first one is appointment.
They normally reach out to these hospital, their website, and they book an appointment.
Then the console to a doctor and if they have some problem, the doctor normally suggest them to go
for a diagnosis and then the billing process will happen.
And if.
The patient is having a severe problem.
The doctor normally recommend them to revisit after a week or two, and that's the life cycle of a patient.
Now, the mean part of a business model is value.
And let's understand about three core pillar of value.
That is your value creation, value delivery and value capture.
So let's expand on this.
Let's understand about all these three different types of values in a business model.
The first one is your value creation.
Now.
Value creation is a technique by which you take a problem and then you try to solve that problem.
Now, the hospital normally solves the problem of their patient by bringing the best doctors and medical
equipment under one roof.
And that's how they are creating the value, and that's your value creation part.
The second one is your value delivery, and now it's the best time to execute on the problem that you
are solving.
So the best way you can deliver value is by making sure that you are taking the good care of your patient
in a hospital and that's your value delivery.
The third part is your value capture.
And what I'm going to say may sound a little counterintuitive, but a hospital want you to be chronically
sick so that you would keep coming back.
So these are the three core value pillars in a business model.
The first one is value creation, where you take a problem and you try to solve that problem in the
best possible way.
Then you have value delivery where you execute on that specific problem.
And finally, the value capture, which is also known as retention.
So you need to make sure that you are retaining your customers so that you can generate more profits
or more income, or maybe you can deliver more value.
Now, when we talk about business model, some people confuse the business model term with revenue model.
So let's talk about what exactly is revenue model?
So revenue model is how your business will earn income and produce profit by generating a higher return
on investment.
So in a business, if you have invested some capital and if you're able to generate more money from
that specific business, well, you have a positive cash flow business.
And these businesses are normally good.
But on the other side, if you have invested more amount of capital into a business and you are able
to generate less money, well, you will soon go insolvent and you should avoid these kind of businesses.
Now, the way you understand a positive cash flow business and a insolvent business is by understanding
these two important terms, that is your customer acquisition cost and customer lifetime value.
So let's say if you are investing more amount of money, acquiring a customer and you're not able to
generate enough money from that customer, well that's not a good value proposition.
And you may not be able to continue the operation because you are losing out on revenue on every single
customer.
So now that you understand about revenue model, I'm sure you may have some other questions related
to business model as well.
Like who is my customer?
What kind of value should I offer to that specific customer and at what price and maybe what sorts of
revenue stream can I pursue?
Now we will get an answer of all these questions in the coming videos.
So in the next video, let's talk about business model innovation.