GE 110 Business Logic Module PDF

**COURSE TITLE: GE 110 BUSINESS LOGIC** **Module 1. INTRODUCTION TO BUSINESS LOGIC** **Definition of Business :** - A **business** is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. - Businesses can be for-profit entities o...

**COURSE TITLE: GE 110 BUSINESS LOGIC** **Module 1. INTRODUCTION TO BUSINESS LOGIC** **Definition of Business :** - A **business** is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. - Businesses can be for-profit entities or non-profit organizations. - Business types range from limited liability companies, sole proprietorships, corporations, partnerships, and limited liability companies. - Some businesses run as small operations in a single industry while others are large operations that spread across many industries around the world. - **Sole proprietorships:** As the name suggests, a sole proprietorship is owned and operated by a single natural person - **Partnerships:** A partnership is a business relationship between two or more people who join forces to conduct business. Each partner contributes resources and money to the business and shares in the profits and losses of the business. - **Corporations:** A corporation is a business in which a group of people acts together as a single entity. Owners are commonly referred to as shareholders who exchange consideration for the corporation\'s common stock. **WHAT IS BUSINESS LOGIC?** **[Logic is a study to distinguish between correct and incorrect reasoning which is vital in making various business decisions. ]** - **Business Logic** Business logic is the custom rules or algorithms that handle the exchange of information between a database and a user interface. Business logic is essentially part of a computer program that contains the information (in the form of business rules) that defines or constrains how a business operates. Business logic can be seen in the workflow that they support, such as in sequences or steps that specify in detail the proper flow of information or data, and therefore decision-making. Business logic is also known as \"domain logic.\" - **Business Logic vs. Business Rules** Business rules are useless without business logic to determine how data is calculated, changed, and transmitted to users and software. But without business rules to create a framework, business logic cannot exist. Business logic is any part of a business enterprise that makes up a system of processes and procedures, whereas anything else is an example of a business rule. - **Business Logic Examples** A credit card issuer\'s business logic may specify that out-of-state credit card transactions above a certain limit, say Php20,000, be flagged as suspicious and the issuer contacted as soon as possible to confirm the authenticity of the transaction. The policy of flagging such a transaction is an example of a business rule; the actual process of flagging the transaction is an example of business logic. Given that millions of credit card transactions are conducted every single day, business logic enables such transactions to be checked and processed in an efficient and timely manner. Another example is the application of VAT on invoices is a business rule but the calculations involved in applying it are implemented as business logic. - - **Logic in business** In the world of competition, it has become crucial to prove something true or false but reaching at objectivity will help in business research and development and assist managers to make practical decisions. For discovering the objective reality, it is not rational to set aside logic. Businessmen and managers must think critically and objectively will be their key to success. Business persons need to be efficient in developing arguments and bargaining so this helps the businessmen become wise and make rational decisions, while understanding good argumentation can help them spot the faulty arguments that are used to manipulate them for instance sellers want to sell products that don\'t actually work or medical products that are not for the prescribed problem. Hence, they can be spared from waste of money by buying such products. **BENEFITS OR IMPORTANCE OF BUSINESS LOGIC IN THE DECISION- MAKING PROCESS** - *Truth connects us to the world, and logic anchors us to truth.* Logic is like a safety line that allows us to move unerringly from one truth to another. With logic we can make sure that the truths we claim are, indeed, truths and no mere illusion. And more than that: it allows us to convince others of the truth. So it not only keeps us bound to the world but also to each other. Logic can step beyond facts and deeper into them: it allows us to see more than what is revealed to our eyes: the atoms and the quarks within and the stars and galaxies without. It allows us to move back in time and to see into the future. If it is with perception that we see the landscape, it is with logic that we draw the map. The map helps us see where to go and it keeps us from getting lost. Logic is a bridge over the gaps between facts. What I perceive is but a sliver of reality, and it is logic that allows us to think and so to expand our otherwise narrow and close horizons. Like a ship allows for a safe passage across oceans, so too does logic bind truths together like a raft, allowing us to traverse the sea of knowledge and reach shores that we can neither see nor dream of. Without logic, we would be stranded on an island, with access only to what we see, hear, taste, smell, and feel immediately before us. We can, of course, think without logic, but trusting that insight is like braving the stormy waters with a raft full of holes, and so, with great likelihood, be swallowed by the waves when the hull gives in. Logic is more than thinking: it is thinking correctly. It is what separates man from beast. It brings us power: to first bind causes to effects and then to bring about the effects of our desiring. Scientia est potentia -- knowledge is power. If perception joins us to the here and now, logic joins us to the world beyond the here and now, takes us from the confines of our senses to the very edge of the universe -- and, perhaps, beyond. **IMPORTANCE OF BUSINESS LOGIC IN THE DECISION-MAKING PROCESS** Business logic plays a critical role in the decision-making process as it helps organizations make informed and rational choices. Here are some of the key reasons why business logic is important in decision making: 1\. **Consistency:** Business logic ensures that decision-making processes are consistent and follow a predetermined set of rules or guidelines. It helps in maintaining uniformity in decision making, reducing ambiguity, and minimizing errors. 2\. **Objectivity**: Business logic provides a logical and objective framework for decision making. By relying on predefined rules and algorithms, it helps in removing personal biases or emotions that might influence decisions, ensuring impartiality in the process. 3\. **Efficiency**: Having well-defined business logic allows decisions to be made quickly and efficiently. It helps in automating decision-making processes, simplifying complex tasks, and reducing the time and effort required to arrive at a decision. 4\. **Scalability**: Business logic provides a scalable framework that can be applied to various decision-making scenarios. It allows organizations to handle large volumes of data or complex situations by providing a systematic approach that can be easily adapted and scaled as needed. 5\. **Compliance:** Business logic ensures that decisions are aligned with legal and regulatory requirements. Organizations need to adhere to specific laws, policies, and industry regulations, and business logic helps in incorporating those requirements into the decision-making process, reducing the risk of non-compliance. 6\. **Precision**: By defining specific rules and criteria, business logic helps in making accurate and precise decisions. It enables organizations to evaluate data objectively and make informed choices based on measurable factors, leading to better outcomes and minimizing the likelihood of errors. 7\. **Transparency**: Business logic provides transparency in decision making by documenting the rules and rationale behind the decisions. This makes it easier to review and audit the decision-making process, ensuring accountability and allowing stakeholders to understand the basis for the decisions taken. For example, let's consider an application that allows users to purchase items from a catalog and pay using an existing payment method. If a customer tries to make a purchase using a payment method from another account, the transaction will be denied. This is because the application will not be able to verify the customer's identity. Therefore, the application would need to contain logic that allows it to verify a user before attempting to complete a transaction. Unlike more basic programming concepts, the concept of business logic is very flexible. You can even develop your own logic and apply it to your own applications with code. This code can be stored in an application or API, or it can be embedded into websites and other digital platforms. For example, a word processor might allow the user to format text and include images. The logic behind the formatting and appearance is defined in the code of the application itself. **BUSINESS LOGIC VS. BUSINESS RULES** Though the word 'business' is in both of these terms, business logic and business rules are no the same. The difference between these two terms is that **business logic** is about making decisions based on what makes sense for your company, while **business rules** are about following certain guidelines to make sure you're operating within your company's policies. In simpler terms, the collection of business rules are what make up business logic. **BUSINESS LOGIC VS. APPLICATION LOGIC** Similarly to the case with business rules, business logic is also often confused with application. Business logic is the logic that is used in a business. Essentially business logic is a collection of the real world business rules and regulations that are followed by a company to make sure that they are following their own rules and regulations. **Application logic**, on the other hand, is the logic that helps an application to run smoothly and efficiently. It is the logic that helps an application to perform its tasks without any errors or crashes. It's important to remember however, that despite the differences, business logic and application logic work together. In order for an application to follow both native functionality and business parameters, both need to be used within the application. **Benefits of Separation** - A key benefit of separating business logic from application logic is that it makes it easier to maintain and update your applications. - By keeping the business logic separate, you can make changes to the underlying rules and procedures without having to modify the application logic. - This means that you can change your business rules without worrying about breaking the application. - It makes it easier to reuse your business logic across multiple applications. - By separating the business logic from the application logic, you can create a library of reusable components that can be used in different applications. - This can save time and effort, as you don't have to rewrite the same business logic for each application. **BUSINESS LOGIC VS. BUSINESS OBJECTS** As we've established thus far, business logic refers to the set of rules that govern the behavior of a business. Conversely, business objects are the physical representations of business logic. Business objects are used to represent and manage data in a business. They can be anything from a customer, to an order, to an invoice. Business objects are also used as building blocks for other business objects. The difference between business logic and business objects is that while business objects are physical representations of the rules, they don't always have to be stored in databases. Business logic can also be implemented as code or as an algorithm. As you can see, from this description, business objects have a closer relationship with business rules than business logic. **Examples of Business Logic** Business logic examples are often used to make decisions about what to do next. For example, if you are deciding whether or not to hire someone, you would use business logic to decide whether or not they have the skills and experience that you need for your company. The following are some examples of business logic: If a person has a high salary but no experience, then they might be overqualified for the job. If a person has experience but no salary, then they might be underqualified for the job. If a person has both high salary and experience, then they might be qualified for the job. Business logic also involves decisions at the organizational level. For instance: If you have more than \$100,000, then you need to pay taxes on it If you have less than \$1,000, then you don't need to pay taxes on it. **Business logic flaws** Despite these benefits, business logic doesn't come without risk as vulnerabilities can be especially problematic. If your application relies on business logic to function, vulnerabilities in that code could allow an attacker access to sensitive data. It could also cause your system to act in ways that aren't intended. It could even cause your entire system to crash. These issues often occur due to human error, as they can be difficult to spot when testing your application. Sometimes these vulnerabilities stem from weaknesses in the software you use to develop your applications. Such as the programming language or development platform. In other cases, they can be the result of defects in the business logic itself. But keep in mind, these vulnerabilities aren't unique to applications. As we mentioned above, they also impact APIs as APIs can also be governed by business logic. The first 5 of the OWASP Top 10 API Security Threats are business logic related. One of the most common vulnerabilities is broken access control in the business logic. This means that the API failed at authenticating that the user was actually allowed to access the sensitive data. Broken access control can also occur if a user is able to inject malicious code into the business logic. This could allow them to modify the behavior of your system or carry out unauthorized actions. These types of vulnerabilities can be hard to identify during testing. This is because they only occur when the attacker is logged in using the credentials of an authorized user. This means that they might only be identified once they have been exploited in the real world. **How to prevent business logic attacks** There are several ways to avoid developing business logic vulnerabilities in your APIs. First, make sure that all of your code is properly tested before it's released. Test the code thoroughly to ensure that users will be able to complete their tasks without running into any bugs or errors. Second, use proper coding practices. This means using good software development standards and following guidelines for writing code that is easy to read and maintain. Next, implement a good development process for updating and improving existing code. Always update your existing code rather than creating new versions of your software from scratch. This will help you avoid introducing new bugs and inconsistencies into your systems. An important step here is maintaining a complete, accurate, and current inventory of the APIs and their capabilities. You should also have visibility into where your code is stored and who has access. Finally, evaluate which languages, libraries, and development platforms are most appropriate for the task at hand. When choosing your tools, consider how easy it will be to find developers and how quickly your code can be developed. By taking these steps, you can help to avoid developing business logic vulnerabilities in your APIs. Overall, business logic helps organizations make effective and rational decisions by providing a consistent, objective, and efficient decision-making framework. It enhances decision quality, reduces risks, and aligns decisions with organizational goals and external requirements **RELATIONSHIP BETWEEN BUSINESS LOGIC AND BUSINESS MODEL** - The relationship between business model and business logic can be referred to Osterwalder et al (2005, p. 11), who contend that "business models help to capture, visualize, understand, communicate and share the business logic" - Business Logic is the way you think about a certain problem, i.e. the rationale behind your opinion and it is subjective. A business Model is how you will do business covering all related parties, costs and revenue elements and it is more objective to the extent that it has a clear format (Business model Canvas) **What Are The Components of A Business Model?** Precisely, a business model answers the following key questions -- 1\. Who is the customer? 2\. What value does the business deliver to the customers? 3\. How does the business operate? 4\. How does the business make money? Who Is The Customer? What Value Does The Business Deliver To The Customers? - What are the jobs the customer wants to be done? - What are their pains in doing the job? - What do they gain by doing the job? Once these questions are answered, the business answers another set of questions that relate business to the customers: - How does business get the job done? - How does the business relieve the customer\'s pain? - How can the business help the customer gain gains? The business model acts as a blueprint and a roadmap for its success (or failure). This tool helps the founders decide how their business will work and make money. It is the only documentation that makes a clear 1. The business concept -- the market opportunity the business capitalizes on 2. The target market the business caters to 3. The problems the business intends to solve 4. The solution the business offers and how it creates customer value 5. How the business gets its customers 6. The operating model the business follows 7. How does the business make money, and what are the costs incurred to get the same? Moreover, the business model gives a reason for the customers to choose the offering over others in the market. People chose Facebook because it helped them connect and chat with people around the world (operating model) and it didn't even charge or it (revenue model) **What Is a Business Model?** - The term business model refers to a ***company\'s plan for making a profit***. It identifies the products or services the business plans to sell, its identified target market, and any anticipated expenses. Business models are important for both new and established businesses. They help companies attract investment, recruit talent, and motivate management and staff. - Businesses should regularly update their business model or they\'ll fail to anticipate trends and challenges ahead. Business models also help investors to evaluate companies that interest them and employees to understand the future of a company they may aspire to join. **Key Takeaways** - A business model is a company\'s core strategy for profitably doing business. - Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses. - The two levers of a business model are pricing and costs. - A business model should be periodically revised to make sure it still reflects the business environment and customer demands. - Analysts and investors often look at a company\'s gross profit to evaluate the success of a business model. **Understanding Business Models** A business model is a high-level plan for profitably operating a business in a specific marketplace. This plan helps the company to identify the best way to go about doing its business while also serving to attract investors and talent. A primary component of the business model is the value proposition. This is a description of the goods or services that a company offers and why they are desirable to customers or clients; it should ideally be stated in a way that differentiates the product or service from its competitors. **IMPORTANCE OF A BUSINESS MODEL** The business model is a critical aspect for entrepreneurs, as it serves as the blueprint for how a company creates, delivers, and captures value. Here are some reasons why a solid business model is important for entrepreneurs: - **Value proposition**: The business model helps entrepreneurs define their value proposition---the unique combination of products, services, and benefits that differentiates their offering from competitors. It enables entrepreneurs to identify and articulate the value they intend to deliver to their target customers. - **Revenue generation**: A well-designed business model outlines the revenue streams and pricing strategies that will generate income for the company. It helps entrepreneurs understand how they will monetize their products or services, ensuring the financial sustainability and profitability of the venture. - **Resource allocation**: A business model allows entrepreneurs to identify the key resources, both tangible (e.g., equipment, technology) and intangible (e.g., expertise, intellectual property), needed to operate the business. It helps in efficiently allocating resources and determining where to invest to create the most value. - **Target market identification**: A business model requires entrepreneurs to define their target market and understand their customers\' needs, preferences, and behaviors. It enables entrepreneurs to tailor their products, marketing strategies, and customer experiences to effectively serve their target audience. - **Competitive advantage**: A well-crafted business model helps entrepreneurs identify and leverage their competitive advantages. It allows them to differentiate their business by offering unique features, cost advantages, superior customer service, or innovative solutions that give them an edge over competitors. - **Scalability and growth potential**: A business model provides entrepreneurs with a framework for scalability and growth. It allows them to envision how their business can expand, enter new markets, or introduce new products/services. A scalable business model ensures that the company can grow and adapt as market conditions and customer demands change. - **Risk mitigation**: A thorough understanding of the business model helps entrepreneurs identify potential risks and challenges. It enables them to assess and mitigate these risks by developing contingency plans, diversifying revenue streams, or creating strategic partnerships. A robust business model increases the likelihood of business success and resilience in the face of uncertainties. - **Investor and stakeholder communication**: A well-defined business model is crucial when seeking funding or attracting stakeholders. It provides a clear and compelling narrative about the business\'s value proposition, market potential, and financial viability. Investors and stakeholders need to understand how the company plans to generate returns and create value, which a solid business model can effectively communicate. - **Decision-making framework**: A business model provides entrepreneurs with a structured framework for making informed decisions. It helps them evaluate new opportunities, assess the feasibility of different strategies, and prioritize actions based on their alignment with the overall business model. In summary, a well-designed business model is essential for entrepreneurs as it defines their value proposition, revenue streams, target market, competitive advantage, and growth potential. It serves as a strategic roadmap, guiding decision-making, resource allocation, and risk management. A strong business model increases the chances of business success, attracts investors and stakeholders, and enables entrepreneurs to adapt and thrive in a dynamic marketplace. **HOW TO CREATE A BUSINESS MODEL** There is no \"one size fits all\" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps someone can take to create a plan: 1. **Identify your audience**: Most business model plans will start with either defining the problem or identifying your audience and target market. A strong business model will reflect who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience. 2. **Define the problem**: In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need that creates demand for your services or products, your business may struggle to find its footing. 3. **Understand your offerings**: With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you\'re able to provide. 4. **Document your needs**: With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future. 5. **Find key partners**: Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be. 6. **Set monetization solutions**: A business model isn\'t complete until it identifies how the company will make money and turn a profit. This includes selecting the strategy or strategies laid out in the business model types section above. 7. **Test your model**: When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so. Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others. **TYPES OF BUSINESS MODELS** There isn\'t one type of business model. Not all companies are the same and each has different ways of making money. Business models can vary considerably. An aerospace company such as Boeing, for example, may operate similarly to a peer such as Airbus but won\'t share much in common in terms of how it makes money with, say, a shoe store or bar. [Direct sales, franchising, advertising-based, and brick-and-mortar stores] are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA. - **Retailer** One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers. *Example: Costco Wholesale* - **Manufacturer** A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass-produced products and can sell what it makes to distributors, retailers, or directly to customers. *Example: Ford Motor Company* - **Fee-for-Service** Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training. *Example: DLA Piper LLP* - **Subscription** Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries. *Example: Spotify* - **Freemium** Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of becoming an upgraded member. *Example: LinkedIn/LinkedIn Premium* Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version. - **Bundling** If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products. *Example: AT&T* - **Marketplace** Marketplaces receive compensation for hosting a platform for business to be conducted. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster. *Example: eBay* - **Affiliate** Affiliate business models are based on marketing and the broad reach of a specific entity or person\'s platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both. *Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni* - **Razor Blade** Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component needed to use that product. Also referred to as the \"razor and blade model\", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run. *Example: HP (printers and ink)* - \"Tying\" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades. - **Reverse Razor Blade** Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable. *Example: Apple (iPhones + applications)* - **Franchise** The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee. *Example: Domino\'s Pizza* - **Pay-As-You-Go** Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed. *Example: Utility companies* - **Brokerage** A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development and freight. - **Brick-and-Mortar** Brick-and-mortar is a traditional business model where retailers, wholesalers, and manufacturers deal with customers face-to-face in an office, a shop, or a store that the business owns or rents. - **E-commerce** E-Commerce business model is an upgrade of the traditional brick-and-mortar business model. It focuses on selling products by creating a web store on the internet. - **Bricks-and-Clicks** A company that has both an online and offline presence allows customers to pick up products from the physical stores while they can place the order online. This model gives flexibility to the business since it is present online for customers who live in areas where they do not have brick-and-mortar stores. Examples - Almost all apparel companies nowadays. - **Nickel-and-Dime** In this model, the basic product provided to the customers is very cost-sensitive and hence priced as low as possible. For every other service that comes with it, a certain amount is charged. Examples - All low-cost air carriers. - **Freemium** This is one of the most common business models on the Internet. Companies offer basic services to the customers for free while charging a certain premium for extra add-ons. So there will be multiple plans with various benefits for different customers. Generally, the basic service comes with certain restrictions or limitations, such as in-app advertisements, storage restrictions etc., which the premium plans shall not have. For example, the basic version of Dropbox comes with 2 GB of storage. If you want to increase that limit, you can move to the Pro plan and pay a premium of \$9.99 a month for it. Other examples are Zoom, Dropbox, MailChimp, Evernote etc. - **Aggregator** The aggregator business model is a recently developed model where the company has various service providers of a niche and sells its services under its own brand. Also called the On-Demand Delivery model. The aggregator business model is a network model where the aggregator firm collects information about a particular offering provider, sign contracts with such providers, and sells their services under its own brand. Since the aggregator is a brand, it provides an offering which has uniform quality and price, even though it is offered by different partner providers. The offering providers never become the aggregator\'s employees and continue to be the owners of the product or service provided. Aggregator just helps them in marketing in a unique win-win manner. The money is earned as commissions. Examples - Uber, Airbnb, Oyo. Zillow - **Online Marketplace** Online marketplaces aggregate different sellers into one platform who then compete with each other to provide the same product/service at competitive prices. The marketplace builds its brand over different factors like trust, free and/or on-time home delivery, quality sellers, etc., and earns a commission on every sale carried on its platform. Examples - Amazon, Alibaba. **EVALUATING SUCCESSFUL BUSINESS MODELS** A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs up to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses. One way analysts and investors evaluate the success of a business model is by looking at the company\'s gross profit. Gross profit is a company\'s total revenue minus the cost of goods sold (COGS). Comparing a company\'s gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income---that is, gross profit minus operating expenses, which is an indication of just how much real profit the business is generating. The two primary levers of a company\'s business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. In that case, if expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves. When evaluating a company as a possible investment, find out exactly how it makes its money---not just what it sells but how it sells it. That\'s the company\'s business model. **HOW DO I BUILD A BUSINESS MODEL?** There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you\'ve launched, evaluate your plan and adjust your target audience, product line, or pricing as needed. The Bottom Line A company isn\'t just an entity that sells goods. It\'s an ecosystem that must have a plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to make a profit. After building a business model, a company should have a stronger direction on how it wants to operate and what its financial future appears to be. **MIDTERM ENDS**