Updated for the 2026-2027 CFA® Level I curriculum.
A company's business model explains how it turns resources and activities into profit. CFA Level I candidates need this concept to interpret how a company creates, delivers, and captures value, not just to recite a definition. This reading sits inside Corporate Issuers because business model choices shape financing needs and capital structure decisions. This note focuses on the features that make up a business model. A separate note covers business model types.
Quick Answer
A business model describes how a company creates value for customers, delivers that value through its operations, and captures value as revenue and profit. For CFA Level I, business model analysis means identifying three features: the value proposition, value creation and delivery, and value capture. These features interact with the external environment and shape a company's financing needs.
Key Takeaways
A business model is how a company creates, delivers, and captures value, not a description of its product line.
Business model analysis on the exam means identifying value proposition, value creation and delivery, and value capture as separate features.
The value proposition defines the customer problem the company solves and the offering that solves it.
Value creation and delivery covers the operations, resources, and activities the company uses to produce and distribute its offering.
Value capture is the revenue and cost logic that turns activities into profit.
The external environment (technology, competition, regulation) can force changes to any of the three features and shift financing needs.
A common trap is treating business model analysis as industry analysis or a product description.
What You Need to Know for CFA Level I
Describe a company's business model using its value proposition, value creation and delivery, and value capture.
Distinguish a business model from a company's strategy or industry classification.
Explain how external environment factors, such as technology, competition, and regulation, can change a business model.
Connect business model choices to financing needs, since asset-heavy and asset-light models require different capital structures.
Apply the three features to any company scenario, not just a memorized industry example.
What Is a Business Model?
A business model is the way a company creates value for customers, delivers that value, and captures a portion of it as profit. It answers three questions: who is the customer, what does the company offer, and how does the company make money from the offering.
A business model is not the same as a strategy. Strategy explains how a company competes and defends its position against rivals. A business model explains the basic mechanics of how the company operates and earns income. A company can change its strategy while keeping the same underlying business model, or change its business model while pursuing the same strategic goal.
What Are the Key Features of a Business Model?
The 2026 curriculum describes a business model through three connected features. Each feature answers a different question about how the company operates.
Feature | What It Describes | Candidate Focus |
|---|---|---|
Value proposition | The customer problem the company solves and the offering that solves it | Identify the target customer and the core benefit offered |
Value creation and delivery | The operations, resources, and activities used to produce and deliver the offering | Identify how the company actually makes and distributes the offering |
Value capture | The revenue model and cost structure that convert activities into profit | Identify how the company gets paid and what drives its margin |
These three features work together. A weak link in any one of them, such as a strong offering with a poor revenue model, can undermine the entire business model.
How the External Environment Affects a Business Model
A business model does not operate in isolation. Technology change, competitive pressure, regulation, and shifting customer preferences can force a company to adjust its value proposition, its operations, or its revenue model.
For example, a media company that once sold DVDs may shift to a subscription streaming model as customer preferences and technology change. That shift changes all three features:
the offering (on-demand access instead of physical media)
the operations (servers and licensing instead of manufacturing and distribution)
and the revenue logic (recurring subscription fees instead of one-time sales).
These shifts also change financing needs. A subscription model often requires upfront investment in technology and content before revenue is collected, which increases working capital and financing requirements.
A business model that requires heavy upfront investment will typically need different financing sources than a model with low fixed costs and fast cash collection.
How to Analyze a Company's Business Model
Use this checklist when a question describes a company's operations and asks about its business model:
Identify the customer and the specific problem the offering solves. This is the value proposition.
Map the operations, resources, and partners the company needs to deliver the offering. This is value creation and delivery.
Identify how the company earns revenue and what drives its costs. This is value capture.
Check whether external factors, such as technology or regulation, are pressuring any of the three features.
Connect the business model to financing needs, since operating and asset requirements affect capital structure choices.
Common Exam Traps
Confusing the business model with the product
A product description only covers what the company sells. The business model also covers how the company delivers the offering and how it earns revenue from it.
Treating business model analysis as industry analysis
Two companies in the same industry can run very different business models. Industry analysis looks at competitive structure across firms. Business model analysis looks at one company's specific value creation and capture logic.
Listing business model types instead of analyzing features
Naming a model, such as subscription or franchise, is not the same as identifying its value proposition, value creation and delivery, and value capture. The exam tests the features, not the label.
Ignoring the link to financing needs
Some candidates treat business model analysis and financing decisions as unrelated topics. The 2026 curriculum connects them directly, since the operating and asset requirements of a business model drive its financing needs.
Forcing a fixed "three features" answer without reading the question
The framework has three features, but candidates should still identify which feature a specific scenario illustrates rather than reciting the list from memory.
Practice Question
A software company sells monthly subscriptions to small businesses for accounting tools. It builds and maintains its own cloud servers, employs a large in-house engineering team, and charges a flat monthly fee with a low-cost onboarding charge. Subscription revenue is recognized each month as customers pay, and the company recently increased spending on server capacity ahead of expected customer growth.
Which business model feature does the company's monthly subscription pricing best illustrate?
Value proposition
Value creation and delivery
Value capture
Correct Answer: C. Value capture
Monthly subscription pricing describes how the company converts its offering into recurring revenue and cash flow. That is the value capture feature.
Option A. Value proposition describes the customer problem and offering, accounting tools for small businesses, not the pricing or payment mechanism.
Option B. Value creation and delivery describes the operations behind the offering, such as the in-house engineering team and server infrastructure, not how the company charges customers.
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FAQs About Business Models
What are the key attributes of business modeling for CFA Level I?
The 2026 curriculum focuses on three features: value proposition, value creation and delivery, and value capture. It also expects candidates to connect these features to the external environment and to financing needs.
Is business model analysis the same as industry analysis?
No. Industry analysis looks at competitive structure across companies in the same industry. Business model analysis looks at how one specific company creates, delivers, and captures value.
Does the exam expect me to name specific business model types?
No. This reading focuses on describing the features of a business model. Business model types, such as subscription or franchise models, are covered in a separate study note.