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Developing a Business Model

FastTrac, Kauffman Foundation

Your business model will explain who your customers are, what they value, and how you'll profit from providing them that value in your product or service. In other words, how are you going to make money?

Two businesses that sell the same product or service can have quite different business models. For example, both Dell®, Inc., and CompUSA® sell computers and peripherals. Dell Computers receives orders via the telephone or online, receives payment from the customer/user before the computer is even built, builds the computer, and ships it directly to the consumer. CompUSA is a retail operation, selling various brands of computers it has purchased from manufacturers or distributors. The choice of business model has a profound effect upon all aspects of their businesses.

The Customer Comes First

In 1991, CarMax® surveyed shoppers to find out what they liked and disliked about the car-buying process, and then built their business model around consumers' responses. They are a bricks and mortar business, with both franchises and a strong Internet presence. Customers at CarMax pay a fixed price for a car, because their market research told them that consumers hate haggling over price. Because of their size, CarMax is able to buy a customer's car at a discounted price even if that customer is not purchasing another car from them. They can turn around and sell that car, then, to a different customer for a profit. This unique combination of business models arose through customer surveys and market research.

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