Definition of the day: Business Model

If you watch Shark Tank, read an article about business, or just find yourself in a conversation with somebody who’s trying to sound smart about business, you’ll undoubtedly hear them use the term “Business Model.”

Textbooks define “Business Model” a lot of different ways, but my favorite was from the late, legendary Peter F. Drucker who said it is simply how the business makes money.

I think that applies to any organization, even if you consider your organization to be a not-for-profit, because even a not-for-profit has to make money in order to survive.

But if the whole “profit” thing ruffles any feathers, how about trying this definition on for size?

“The business model is the means through which the organization accomplishes its purpose.” (I’ve taken to using the word “Purpose” instead of mission in my later years just ’cause I think it’s more powerful).

The purpose involves stakeholders (customers) and the whole point of the organization is to serve them in some way, so any means of doing that could be considered the business model.

More specifically, you could say the business model is the set of systems used to help the organization achieve its purpose.

To be even more specific, there are three categories of systems: Hard systems, soft systems, and information systems. But that’s a discussion for another time.

Meanwhile, give some consideration to what your business model is all about. The new world we may find ourselves living in going forward will likely require a rethinking of how all of us should tweak, if not retool, our business models.