Building Profitable Business Models: The 9-Block Framework for Success

Each business operates within the boundaries of its objectives, which shape its position in the market. Saying that making a profit is the sole goal is an oversimplification, but profitability is essential for survival.

To bring business to the forefront of market movers, company management must keep it both profitable and mission-driven by navigating opportunities through creating and adjusting well-known market strategies.

A business model explains how a company will generate income, identifies its target markets, and projects future expenses to sustain growth — all to create, deliver, and capture value for its audience.

The number of business models is virtually infinite as new technologies and markets continue to emerge. Each is unique, and successful management must go beyond the established templates by adding its own market vision to survive.

One company can operate under multiple frameworks. Whether the model is long-standing or completely new, it must provide answers about how it adheres to the key components of a business model.

Nine key components exist, each of which can be changed, thus changing the methods of delivering value and keeping the business afloat.

For example, while the subscription model has existed for a long time in industries like magazines and cable TV, companies like Netflix and Spotify transformed it by making their platforms accessible on virtually any device, anywhere. Additionally, Spotify uses a freemium model, allowing users to access limited features for free.

Let's explore these components and see how they help a business satisfy customer needs, attract new ones, and maintain growth.

Businesses must group customers based on their behavior, needs, and other defining attributes. Large and small CS should be identified, and the company must decide whether each segment is worth serving — and to what extent — given limited resources.

The VP describes the value that a company's products and services create for a specific CS. It answers the question, "Why should customers pay for it?"

Value can be quantitative (e.g., price, efficiency, time) or qualitative (e.g., design, convenience, service quality).

A business has three channels to reach its CS, describing how it communicates and delivers its VP.

Channels can be categorized by:

Ownership

• Own: Direct control (e.g., company website, retail store)
• Partner: External help (e.g., logistics providers, marketplaces)

Interaction

• Direct: Straight from business to customer
• Indirect: Through intermediaries

Usually, own channels are direct, while partner channels are indirect. However, franchisee stores are owned, but indirectly. A partner acting as an exclusive agent functions as a direct seller.

Five channel phases:

1. Awareness: How do we raise awareness of our products and services?
2. Evaluation: How do we help customers evaluate our VP?
3. Purchase: How do we allow customers to purchase our products and services?
4. Delivery: How do we deliver our products and services?
5. After-sales: How do we provide post-purchase customer support?

Each company must define how it interacts with its customers. Common types include:

• Personal assistance (e.g., Amazon support)
• Dedicated personal assistance (e.g., private banking services)
• Self-service (e.g., IKEA)
• Automated services ( e.g., Netflix)
• Communities (e.g., Reddit)
• Co-creation (e.g., LEGO’s user-submitted sets)

Revenue streams represent the amount of cash a company generates from each customer segment. The core question: "For what value is each CS truly willing to pay?"

There are two types of RS:

1. Transaction revenue: One-time customer payment
2. Recurring revenues: Ongoing payments for continued access or services

Revenue can be generated through asset sales, usage fees, subscription fees, licensing, and more.

For example, Apple earns from both one-time device sales and recurring service subscriptions.

Key Resources are critical assets needed to run a business. They can be physical, intellectual, human, and financial.

For example, physical semiconductors are KR for tech companies, financial resources are KR for insurance firms and banks, humans are KR for entertainment businesses, and intellectual resources are KR for most businesses.

Key Activities are the most important tasks a company must perform to operate effectively. 

They can be classified as:

• Production: Core for manufacturing companies
• Problem solving: Essential for businesses like healthcare and consulting
• Platform/network: Central to digital ecosystems like Facebook.

Key Partnerships involve the company’s suppliers and partners. They include:

• Alliances with non-competitors
• Strategic alliances with competitors
• Joint ventures with partners
• Supplier-buyer collaborative

Partnerships are formed to:

• Optimize operations (e.g., shared infrastructure, outsourcing)
• Reduce risk and uncertainty (e.g., logistics, manufacturing)
• Access resources and capabilities (e.g., acquiring or sharing facilities)

Cost structure outlines all expenses associated with operating the business.

Companies typically fall into one of two categories:

• Cost-driven: Focused on minimizing costs by automating manufacturing and outsourcing (e.g., Walmart, IKEA)
• Value-driven: Focused on maximizing customer value even at higher costs (e.g., Apple, Starbucks)

Once defined, these nine building blocks serve as a roadmap for business leaders.

When expanding globally or seeking investment, companies are evaluated not just based on financial reports or stock screens but also on their business models. A well-structured model answers critical questions about the company's longevity and makes a compelling case for capital allocation.

This article was written in cooperation with tradingview