Understanding the three pillars of business planning without the jargon
If you've ever sat in a meeting where someone confused strategy with business model, or used "revenue model" when they meant something else entirely, you're not alone. These three concepts are constantly mixed up, even by experienced entrepreneurs and executives. Let's clear up the confusion once and for all.
Think of these three concepts as answers to different questions:
How do you create and deliver value?
How do you capture value (make money)?
How do you win against competitors?
A business model describes the fundamental logic of how your company creates, delivers, and captures value. It's the blueprint of your entire operation, answering questions like: Who are your customers? What problem are you solving? What resources do you need? Who are your key partners?
Value Proposition: What problem do you solve?
Customer Segments: Who do you serve?
Channels: How do you reach them?
Key Activities: What must you do to deliver?
Key Resources: What do you need to operate?
Cost Structure: What does it cost to run?
Business Model: Streaming platform aggregator
Creates value by licensing content and producing originals, then delivering unlimited streaming access through a proprietary platform. Requires massive content investment, technology infrastructure, and data analytics capabilities.
Business Model: Two-sided marketplace platform
Creates value by connecting riders with drivers through a mobile app. Doesn't own vehicles but provides the technology, payment processing, insurance framework, and matching algorithm. Value comes from network effects and convenience.
Business Model: Self-service retail with flat-pack distribution
Creates value through affordable, design-forward furniture that customers transport and assemble themselves. This requires showroom experiences, efficient supply chain, flat-pack design expertise, and warehouse retail locations.
Your revenue model is a subset of your business model. It specifically describes how you monetize the value you create. It's the pricing mechanism and payment structure that converts your value proposition into actual revenue.
Transaction-based: Revenue per sale or transaction
Subscription: Recurring fees for ongoing access
Freemium: Free basic service, paid premium features
Advertising: Revenue from third parties for access to users
Commission/Marketplace: Percentage of transactions facilitated
Licensing: Fees for using intellectual property
Business Model: Music streaming platform
Revenue Models: Dual revenue streams
1. Subscription — Premium users pay monthly for ad-free listening
2. Advertising — Free users generate ad revenue
Business Model: Professional social network
Revenue Models: Triple revenue streams
1. Subscription — Premium memberships for enhanced features
2. Advertising — Sponsored content and ads
3. Transaction — Recruiter fees for hiring tools
Strategy is about competitive positioning and making choices about how you'll achieve sustainable competitive advantage. It's not what you do (that's your business model), but how you do it differently or better than everyone else.
Cost Leadership: Be the lowest-cost provider
Differentiation: Be meaningfully different in ways customers value
Focus: Dominate a specific niche with either cost or differentiation
Business Model: Passenger air travel
Strategy: Cost leadership
Competes by being the lowest-cost operator through point-to-point routes, single aircraft type, no-frills service, and fast turnarounds. The strategy determines operational choices within the airline business model.
Business Model: Passenger air travel
Strategy: Differentiation
Competes through premium service, newest aircraft, superior training, and luxury positioning. Same business model (flying passengers), completely opposite strategic choices.
Let's use a complete example to see how all three work together:
Business Model: Streaming video platform integrated with e-commerce ecosystem. Creates value through licensed and original content delivered via proprietary streaming technology, bundled with e-commerce benefits.
Revenue Model: Subscription-based, but bundled into Amazon Prime membership (also includes shipping, music, etc.). The revenue comes from the overall Prime subscription, not standalone video fees.
Strategy: Ecosystem lock-in and differentiation. Unlike Netflix (pure streaming play) or Disney+ (content library play), Amazon uses video as a strategic tool to increase Prime membership stickiness, which then drives e-commerce spending. The video service itself may not need to be profitable if it increases overall customer lifetime value.
❌ Wrong: "Our business model is subscription-based"
✓ Right: "Our business model is a B2B SaaS platform, and our revenue model is subscription-based"
Why it matters: Subscription is just how you charge, not the entire logic of how you create value.
❌ Wrong: "Our business model is to be the low-cost provider"
✓ Right: "Our business model is retail distribution, and our strategy is cost leadership"
Why it matters: Being low-cost is how you compete, not how you fundamentally create value.
These are nested concepts. Your revenue model is always part of your business model, but your business model includes much more: value proposition, customer relationships, key resources, and more.
When someone uses one of these terms, ask yourself:
Business Model: "If I had to explain how this entire company works to an outsider, what would I say?"
Revenue Model: "How exactly does money flow from customers to the company?"
Strategy: "What choices has this company made to beat competitors that other companies aren't making?"
Understanding these distinctions isn't just semantic precision — it's strategic clarity. When you can articulate your business model, revenue model, and strategy separately, you can:
• Identify which element needs to change when something isn't working
• Communicate more clearly with investors, employees, and partners
• Make better decisions about resource allocation
• Spot opportunities where others see only one dimension
The next time someone conflates these concepts in a meeting, you'll not only notice — you'll be able to steer the conversation toward clearer thinking. And that clarity often makes the difference between a good decision and a great one.