A business model is a description of how your business intends to operate and make money. Sounds simple, right?

For most companies, the business model used to look like this: I buy X, add some value to it, and sell it as Y. If I sell it for more money than the cost of buying the raw materials and working my magic on it (which includes paying employees, operating my store, etc.), then I make a profit.

But innovative business models go beyond this simple formula to create customer loyalty, make value in unusual ways, and define new products or services that people didn’t know they needed. Think of the famous Gillette example – you pay once for the razor, but keep coming back for the razor blades. That was business model innovation. And it’s still an important part of business strategy.

Or, take newspapers: they make value for readers by creating or packaging information, and they make value for advertisers by serving up an audience of qualified prospects (the newspaper’s subscribers).

Today’s business model innovators are creating value through social media, and leveraging their expertise to turn themselves into product evangelists.

So what about you? How will you create value for your company and your customers?

Read more about optimizing your business model at Bplans.co.uk

Alan GleesonAlan Gleeson

Alan Gleeson was the general manager of Palo Alto Software UK, makers of Business Plan Pro and LivePlan. Alan has an MBA from Oxford and an MSc from University College, Cork, Ireland. You can follow Alan on Twitter @alangleeson.