What Is a Business Model and Where Does It Go in the Business Plan?

I think I reached my 40s with 20 years in real business and an MBA degree before I ever heard the term "business model." It became fashionable in the late 1990s when Internet companies were absorbing millions of investment dollars on businesses that had no way to make money. "Business model" became the buzzword that explained how a company makes money.

One of the more amusing points about "business model" is that its definitions are so vague and far-ranging. For fun, go to Google and type in "define: business model." You'll come up with about a dozen definitions, ranging from extremely vague to downright confusing. My favorite definition is from ChangeWave.com: "In the New Economy it means: What does a company do? How does a company uniquely do it? In what way (ways) does the company get paid for doing it? How much gross margin does the company earn per average unit sale?"

I recommend that you avoid the term altogether in your business plan. Instead, cover the bases that all business plans cover. Explain your company point by point: what it sells, its market, its strategy, its management team, and its financial projections. Let the business model explain itself.

From what I see these days, people who talk about their "business model" usually don't have one.