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Setting up and successfully running a business involves differentiating between business strategy vs business model. To reach their goals and achieve success, owners need to adopt the right strategy for their business. Strategic thinking involves selecting among several business models and, sometimes, switching to a new model whenever required.
What is Business Strategy?
A business strategy is a complete contingent plan of action that a business uses to achieve its goals in the market. It lists out the various possible situations a business is likely to find itself in and specifies the set of actions that it should take in each of the situations in order to achieve its goals in the market.
A business strategy allows business owners to make decisions related to manufacturing, operations, and finances. It also helps the business manage risks effectively. It is not concerned with choosing specific goals in the market but only with how to achieve goals once they’ve been set.
After coming up with a business idea and setting targets for the business, an entrepreneur must formulate a suitable business strategy to efficiently and effectively achieve the targets. They include, but are not limited to, the following:
Sourcing new opportunities and utilizing existing opportunities effectively.
Ensuring efficient resource allocation and resource management.
Managing risks and effectively hedging against future market disruption.
What is a Business Model?
A business model is a structural model of how a business is going to operate in the market and how it is going to make money. It provides a detailed description of all relevant business processes and describes how the business will interact with other market participants.
A business model is essentially a blueprint of how the business will add value and make money in the existing market environment. Most business models can be separated into three distinct parts: planning and manufacture, sales and marketing, and revenue management.
Types of Business Models
1. Hard manufacturer
The business creates value by transforming raw inputs into a finished output. Examples of hard manufacturers include mining and agriculture.
2. Soft manufacturer
The business creates value by transforming raw inputs and other outputs into a finished product. Examples of soft manufacturers include automobile manufacturers such as General Motors and Volkswagen.
The business creates value by bringing together different products and services. Examples of aggregators include retail businesses such as supermarkets and department stores.
The business creates value by providing a uniform service across different locations. Examples include fast-food restaurants and cinemas.
Thank you for reading CFI’s guide to business strategy vs business model. CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.
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