What the Hell is a Business Model?

I bet that the phrase “business model” pops up in your life every day. But have you ever asked yourself a question what in fact a business model is? What differentiates a business model from organizational or financial one? In times called the era of business model generation it seems to be reasonably sound to have a clue what we refer to when talking about business models. Especially if you currently work on your own one.

I’d like to get your attention to academic and business approach in business models defining. I believe that both complement to each other resulting in great value to them, who are looking for it.

First “academic” approach comes from J. Hill, author of “Theory of Strategic Management”. He describes business models as mental model encompassing the totality of how company will:

– Select its customers
– Define and differentiate its products
– Create value for customers
– Acquire and keep customers
– Produce goods or services
– Lower the costs
– Deliver goods and services to the market
– Organize activities within the company
– Configure the resources
– Achieve and sustain high level of profitability
– Grow the business over time

By addressing these issues you should work out a concept how strategies your company purse should work together to achieve competitive advantage, superior profitability and profit growth.

Another “business” approach comes from A. Ostervalder and Y. Pigneur “Business Model Generation”, and bases on famous “business model canvas” you use to design your business model. What’s different in this approach is how you use it. Authors encourage to draw the “business model canvas” in form of a chart, think with group of people on business model canvas elements and pin the ideas generated to it with “post it notes”. It is quite novel concept, and there are companies, which use these canvas not only for creation of new businesses, but also for preparation of official business offerings.

You can find “business model canvas” here. It consist of the following elements:

Left side (focused on resources and costs):

– Key resources (every physical, financial, intellectual resources you need,
considering owning, leasing, subcontracting, or outsourcing them)
– Key activities (everything that engages customers and turns into profit)
– Key partnerships (everything that reduces your costs or gives you access to
resources you need)
– Costs structure (every fixed or variable expense that may occur)

Right side (focused on what you’ll deliver and profits):

– Customer segments (every customer type you are going to reach
remembering that mass market or market niches require different approaches
– Customer relationships (everything you will do to serve distinct customer
segments)
– Channels (every “customer touch points” are you going to use
– Revenue streams (every monetization mechanism, which will build your
business – “one-off deals”, licenses, subscriptions)

Centre (the most important part):

– Value proposition (what will led customers to do business with your
company,rather than with your competition)

Thinking about business model is pretty big thing. Sometimes it’s good to take a step back and ask oneself the question “why do you want to do this”. ?

As Simon Sinek points out, the answer to this makes the whole difference and has tremendous impact on everything what comes next.

Source: www. youtube.com

Dzida !