The concept of business model is not always clear to many business leaders. I have even run into senior level executives of Fortune 500 companies that have only a hazy idea of what a business model is. Almost everyone knows about all the major elements of the business model (though usage of several terms is pretty standard, and quite acceptable), not many understand the framework in which the key elements need to exist and tie together with each other. In addition to that, it should also be understood that a business model is not a business plan. You will provide an outline of your business model in your business plan, but the two are totally different. 

In my opinion, a business leader should be able to describe her or his company's business model on a single piece of paper in way it makes sense to a sixth-grade kid. If that is not possible, something is terribly wrong with your business model and you need to fix it.  And if you started off with a simple business model and it became complicated later on, you need to simplify by destroying it.  Jack Welch used to call it "destroy-your-business" and Ed Zander recently said, "At the height of success, break your business".  It is perfectly fine to break a business into more than one so that they both have simple business models.  (Related article:  Keep your business model flexible)

So what is a business model?

Definitions are always tricky, but in very simple terms, a business model (also called a business design, only rarely though) is the mechanism by which a business creates value (or in other words, makes money).  A simple definition!  

I am a big fan of simple business models.  That is why I like the business model of that gas station that sells only gas.  I simply do not think it is a great idea to add car wash, oil change, and a convenience store to a gas station business model.  It is desirable to add all of these to exploit customers who might need these conveniences at one location but these should be run as independent businesses.  What you need to run a gas station is totally different from what you need for a convenience store.  What I am saying is that an enterprise can have many lines of businesses, but these should be organized in a manner that each can have its own simple business model.  When employees are being asked to pump gas, check your oil, wash your car, and sell soda, it just makes business messy.  An example of a messy business model is General Motors.  It has stopped being an automobile company.  In fact, major portion of its earnings are derived from non-automobile activities.  And an excellent example is the business model that Warren Buffet uses.  Leave each business alone and let them stay simple the way they are.  (Related article:  Are old business models under threat due to outsourcing/offshoing?)