The business world has evolved over the centuries to take advantage of new trade opportunities, technologies and consumer demands. The business models that entrepreneurs create have also changed. A business model is a strategic plan for earning a profit, the means of showing how income will exceed expenses. Each new business era emerges as a natural evolution of its predecessors, so understanding yesterday’s business models can serve as a starting point for creating tomorrow’s.
The Production Era
After the Industrial Revolution the agricultural and colonial business models that dominated the world for centuries gave way to the production era. From the end of the 19th century into the 1930s, limited industrial supply meant producing goods almost guaranteed consistent sales. Manufacturing business models became popular as advances in production machinery allowed businesses to produce far more than before. Business models relied on those machines to achieve economies of scale, pushing costs lower and increasing profits.
The Marketing Era
As industrial supply increased over time, companies began to face tougher competition. The introduction of the marketing era in the 1950s, in which businesses learned they needed to set themselves apart in the marketplace to gain competitive advantages, was the natural result. Business models began to shift toward market segmentation and brand differentiation. Marketing campaigns became just as important as manufacturing capacity as market research became the starting point for product-development efforts. Brand pricing arose as a driver of profitability as effective marketing allowed consumer-goods companies to set prices well above production costs.
The Relationship Era
As businesses became increasingly efficient in marketing and brand development, savvy entrepreneurs began to realize long-term customer relationships and brand champions were a key to long-term survival. The relationship era, when the pace of change in communications technology introduced development of business models leveraging the Internet, began in the 1990s. Consulting and service businesses could now serve customers in a much larger area and communication between them became more efficient and open. In this era, solutions rather than products became the paradigm as business models focused on solving the changing needs of customers with customized products and services.
Next Year’s Model
The current era mixes elements of each previous era while experiencing the most rapid technological development since the Industrial Revolution. Businesses in the early 21st century can connect with customers in more meaningful ways than ever before via the Internet and social media. Crowdsourcing has altered business models to seek product-development input or start-up capital directly from consumers through two-way conversations. Brand positioning strategies are becoming both more targeted and more global. Lean business models are becoming increasingly popular amid a focus on core competencies and the use of contractors for specialized functions.