What is a business model

A business model describes the fundamental logic of how an organization operates and makes money.

It consists of 4 core components:

• The value proposition (what you offer)
• Target customers (who you serve)
• Revenue model (how you charge)
• Cost structure (what you spend).

These elements work together to create a sustainable business. Every successful business model solves a specific problem for a defined customer segment. The solution is not limited to building and providing products — it can also be a service or combination of both. Consider how Uber connects riders with drivers, or how Spotify provides unlimited music streaming. For a business model to be sustainable, what customers pay must exceed the costs of creation and delivery, ultimately generating revenue for the organization.

Business models aren't static. They evolve based on market feedback, competition, and changing customer needs. Understanding this helps product managers evaluate whether new features or pivots align with the company's economic engine and strategic direction.