Netflix and its business model

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Many beginning entrepreneurs, even some with more experience, have doubts about the first steps when starting a business and end up focusing on what they consider most urgent.

Priorities end up being set by the most practical activities and that, in the long term, can mean big problems for your company.

One of the first fundamental and essential steps when opening a company is to develop a business model. Why?

The business model is what will shape what your company will do! It is from this that all the main actions of your business will be observed and documented.

It will even help you understand the main aspects of your business and ensure that everyone is aligned to execute all tasks in the best possible way.

Because it is a relatively new concept, many people get confused when creating a business model. And, as we have already understood that this is crucial for your company, it is necessary to understand not only what it is, but the entire process surrounding a successful business model!

Ultimately, what is a business model?
The business model is the way in which your company generates and delivers value to its customers . Or, more practically, it is the structuring of the elements and stages that make up the way in which your company does what it does.

In this document , the entrepreneur must cite and describe all the main actions of the company and their relationships with each other.

This makes it easier for them to understand exactly how the business will operate and what the strengths and weaknesses of what you are running are.

This macro vision of your company will be essential to strategically evaluate how to deliver the best product or service to your client in the most practical and profitable way for you, in the short, medium and long term!

This explanation may seem very abstract at first, but with a few examples you will see how simple and fundamental the structuring of a business model is.

What is a business model for?
In other words, a business model serves to generate income in a sustainable way .

It can be used both by those who already have a company and need to restructure it, and by those who are starting from scratch.

In it, you have a broad vision of your business and it allows you, among other things:

Get to know your company/project and your goals better.
Reflect exactly what your company is at the present moment and then consider changes.
Identify and eliminate what is not so important at first.
Analyze and obtain value propositions that address and enhance the main objectives of your business.
Generate opportunities for strategic innovation.
Create a common understanding between the people involved in the venture, so that they walk in the same direction.
These are just some of the aspects that a business model takes into account to ultimately serve as a guide. That is, a business map that allows you to structure your resources and processes to meet customer demand and, consequently, generate income.

Difference: model and business plan
Many people associate the plan with the business model. It is important to understand that these two processes are different!

A business plan is a fully detailed document that serves to understand the viability of your business, through market, economic and procedural analysis. This is the document that, for example, must be delivered to an investor, when appropriate.

As for the business model, it is the process prior to a business plan. It will help you observe all the stages that should be included in your business plan, but in a less detailed, more practical and visual way.

That is to say: should I have a business plan?
Yeah!

The difference is that the business plan structures “what” you do in the most detailed way possible. Costs, income, processes, structure, etc.

They are long and structured, they take time to be developed and they are also the result of your work; ultimately, no detail of your business can be left out.

And the business model is the mapping of “how” you do it: how you generate revenue, how you generate value for the customer, the way you work on your deliverables and how all those stages relate. These are quick and easy to understand.

That is to say, it will be easier to think about all the essential elements for a complete business plan.

Business Model Generation
The Business Model Generation is a book, written by entrepreneurs Alex Osterwalder and Yves Pigneur, that revolutionized the way companies around the world understand their business model. That's why it's a must-read for any entrepreneur.

In it, the concept of a business model was consolidated and a simple and practical way of developing it emerged: The Business Model Canvas.

Canvas is a chart divided into 9 stages so that any entrepreneur can develop and clearly visualize their business model without any difficulty.

In addition to the topics, on each tab of the chart, the stages are detailed with key questions that need to be answered in each part of the chart, making it easier to fill out!

business model
The stages of developing a business model from Canvas, which should ideally be completed in this order, are:

Market segments
At this point, fill in the box listing who your ideal clients are. It is important to define a profile, or better yet, a persona , with all the main information about that person so that they are never forgotten by you or your team.

All activities must be planned around that field, in the end, it is who you want to reach and that is why it must be at the center of your plan.

Value proposition
This is a very important part of your Canvas: what is the solution your company wants to achieve? What are the differentials of that delivery for customers?

This chart determines not only your activity, but also what it is like for other companies that do the same thing as you. It is essential to have this clear across the entire team, as this will be the aspect that will determine a client's decision for your company and not for a competitor.

Channels
Your customer buys your product. How will the product reach them? Always think about the best channel for your customer profile and document it to avoid possible deception by the team throughout the sales process.

Customer Relations
What are the channels and how does your company intend to maintain a relationship with customers? This should be the question answered in this table.

In it, you define the communication channels even before this person actually becomes a customer and also in the maintenance of that relationship. They can happen online, at the point of sale, etc.

Source of income
In this section, list everything that represents an income for your business: clients, marketing strategies , etc. Detail how much and how your client is willing to pay for what you offer. In the end, this is the purpose for which your business exists: profit!

Key Resources
They are defined, obviously, after determining the company's key activities. At this stage, you describe what is necessary for your company to execute that value proposition to customers.

For example: essential equipment, human capital and production facilities, if applicable.

Key Activities
In this table, write down the main activities responsible for the value delivered to your customers by your company.

They should always be thought of as the solution to some problem of your ideal client.

Key Partnerships
In this block, the associations that contribute to the delivery of the company must be listed, such as outsourcing, suppliers (when the material provided is a fundamental part of the delivery), alliances, etc.

It is important to identify these companies, as they will directly contribute to the quality of the deliveries and services offered, and they must be considered strategically.

Cost structure
What are the costs required to run and maintain your activities? List them all under the “Cost Structure” section.

These even help you determine the price to be charged for your product or service without causing you short- or long-term harm.

At this point, you should focus on the most important costs, not the details, and also list the most expensive activities related to your deliveries.

As you can see, this chart makes it easier to structure your business model map without forgetting the most relevant parts.

All of these must be completed always thinking about the value that is delivered to customers; ultimately, that is the goal of any business model.

And, in case you still have doubts, look at a Canvas already prepared and it will be easier and clearer for you to fill it out in your mind.

Here, as an example, we have one of the most famous Canvases to date: the Apple iPod. Yes, the company structures, in addition to a Canvas of activities, one for each new product, because in each of them, a new value is thought of to be delivered to customers.

This applies depending on the size of the company and its sales. However, in general, a single business model applies to the vast majority of companies.

The interesting thing is to observe what the criteria were for filling out the table, in this case, to guide you when creating your own.

business model
Note how the boxes were filled in, what was the most relevant information, and this will be your guide when structuring yours. And notice that the boxes are filled in, hypothetically, with sticky notes.

Ultimately, as your business develops, these fields will likely change many times, and they should be reviewed from time to time to ensure that the business is meeting your initial objective.

If you liked this innovative and practical way of developing your business model, on the book's official website , you can access the chart for free and in excellent resolution, so that you can really have yours structured and accessible to everyone involved in your business.

The site is in English, so is the painting. Just in case it's not your strong point, you can search for Canvas on Google. There you will find countless models, all of them with basically the same format.

Business models and innovation
Business and innovation models are directly related. Ultimately, this describes the way you deliver value to your customer, and this should be a differentiating criterion!

If your company has a generic and common business model compared to your competitors, you will probably not stand out for it. Therefore, you must always present your differential in relation to the others and this will be reflected in your deliverables.

This innovation can be related to any of the stages described in the Canvas: in the value proposition, in the channels, in the relationship with the client or in the activity.

The key is to think differently and find a “why” that makes you stand out and makes your future clients see that in the clearest possible way in you, when choosing who to hire or buy from.

You can even adapt a business model that already exists, that is, the “how to generate value” of other companies or types of businesses similar to yours, which developed a functional model, but which makes sense for both your company and the client, even if that example model is not in your branch of activity.

Types of business model
There are some business models that have many similarities and, for this reason, they are separated into large groups. This is because the way of being of some businesses works very well for a category of companies. Look at some examples:

Franchises
The franchise model is a system in which companies expand by marketing the use of the brand and, consequently, the business model for other entrepreneurs.

This strategy allows entrepreneurs to start with a solid and recognized structure and proven and standardized processes, reducing the possibility of errors in many cases. The best known are the international Subway and McDonald's.

However, on the other hand, freedom of operations and actions are restricted to the approval of the franchisor (brand owner), which often limits the franchisee's possibilities.

Thus, the franchise business model, in general, has many common characteristics, such as channels and revenue streams.

If you are on the other side and have the desire to open a company that will be franchised in the future, the business model must be even better structured and tested, to ensure that franchisees are successful and consequently, your brand. In general, the model will have many common features with other franchises, however, you cannot forget your differential.

Signature
The signature business model has gained prominence in recent years, especially in terms of online businesses.

You can pay monthly to receive products from various categories, from drinks to personal hygiene products, cosmetics and books. For example, ClubeW from the wine company Wine and Glambox for beauty products.

The idea guarantees a recurring income for the company, which helps with the maintenance and guarantee of activities within certain time frames, giving a certain peace of mind to the entrepreneurs who opt for this model.

However, the great difficulty of the model is usually associated with the cost structure, which is generally high, and the loyalty of the niche, which can interrupt the firm at a certain time when the novelties or interest in those products run out.

In this case, the differences are usually in the delivery method and in the novelties and exclusivity associated with the firm.

Saas
SaaS or Software as a Service is the business model that offers the client access to a platform through a monthly fee.

They are associated with the signature model, but in this case, delivery is made online and all maintenance is the responsibility of the company. Good examples of this model are Spotify and Netflix .

The problem with this model is that it is usually associated with the buyer's need for quality internet to ensure that the platform or software works efficiently. And, as in the case of firms, the product must have a truly relevant differential to ensure customer loyalty.

Startups and the business model
Many people have doubts about the concept of Startups and this has a direct connection with the concept of business model.

One of the criteria for a startup to be classified as such is precisely to have an innovative, scalable and replicable business model. Let's understand each of these characteristics.

A startup's business model must be innovative, as this is the only way it will be scalable and replicable.

It is very difficult for a business idea to do something that other companies already do and in the way they already do it and have significant exponential growth; ultimately, there is no differential that contributes to it being chosen instead of your competition.

Scalable because the difference of a Startup is rapid growth with low subsistence costs. Therefore, when thinking about a business model and determining whether it fits into a Startup, the parts of the Canvas that talk about Cost Structure and Source of Income tend to be very different from those of traditional companies.

Finally, it must be replicable, as we mentioned above, proving that the methodology or way of being of that Startup can be applied to other businesses and, even so, be synonymous with success.

That is to say: if you have doubts between opening a traditional company or a Startup, the first points to be taken into account are to fill out the Canvas.

Business model example
There are various types of organizations, of many sizes and segments, and each has its own particularities, thus, each company also has its own business model.

To give an example, we will talk about a model that has managed to prove quite successful.


Created in 1998, Netflix has revolutionized the video company industry worldwide.

Until then, the market was dominated by BlockBuster, which, despite its huge stores and wide variety of videos, maintained the traditional pay-per-day model.

The lack of convenience of having to go to physical stores and the punitive model of fines for late returns of videos were its great weaknesses.

A weakness that, of course, Netflix's founders were aware of when creating their DVD rental model.

In this early business model, customers paid a fixed monthly fee and could receive a DVD in the mail to watch whenever and however they wanted. To rent a new one, they had to return the one they had already rented.

There were no late fees or need to go to the stores. Everything was done through their website austria mobile database and by the couriers who brought and picked up the rented DVDs.

The company was able to make a profit if customers rented up to 7 DVDs per month, but the average customer rented between 3 and 4 DVDs.

With technological changes, the founders migrated the service to streaming: a new business model emerged.

Customers can now watch as many movies as they want, on-demand, for the same monthly fee previously charged.

The change was a success; the company has reduced costs (postage, purchase and replacement of DVDs), increased its operations and gone on to have a global presence, expanding rapidly across five continents.

To make money, Netflix keeps its operating costs below its revenues through monthly payments.

Low prices are used to sell on a larger scale and serve a greater number of people and social classes.

Thanks to its current business model, the company benefits from economies of scale.

Also learn how Netflix has become a valuable example of how to do content marketing .