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What is a Business Model? A Short Guide to Developing Successful Business Models

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You’ll often hear professionals discuss how important it is to have a clearly defined business model . A company’s business model can literally make or break their chances of success

But what is a business model exactly? Let’s take a look.

what is a business model

What is a Business Model and Why is It Important?

In essence, a business model is how a company plans to make a profit. This scope includes the business’s value proposition, key expenses, products or services, and its target market.

The value proposition, a central part of any business model, defines the company’s key offering or offerings, whether products or services. Importantly, it also describes what differentiates this offering from existing products, and what makes it attractive to the business’ target market.

Business models can be broadly grouped into categories, such as:

  • Manufacturer
  • Marketplace
  • Subscription
  • Fee-for-Service

It’s also important to note that one company may operate more than one business model concurrently. For example, eCommerce giant Amazon acts as both a retailer and a marketplace.

It is essential for new companies to define their business model, as it allows them to attract more investors and talent, as well as develop effective strategies . 

However, it’s equally important that established businesses regularly review and update their business model in the face of changing market trends and as their company grows.

What Makes a Strong Business Model?

A strong business model must clearly lay out how your business is going to generate revenue, including drilling down into your target market and value proposition.

Key elements of a good business model include:

  • A well-defined value proposition
  • The business’ target market
  • Start-up costs anticipated expenses
  • Revenue projection
  • Key competitors and how they measure up against the company
  • Marketing strategy
  • Key stakeholders and partnership opportunities

Additionally , the business models of successful companies generally share certain common characteristics. They often have a unique selling point, or unique selling proposition (USP), that sets them apart from their competition and meets their target customers’ needs, which they offer at an attractive price point. 

Furthermore, successful business models are financially sustainable and adapt to meet changes in the market or in the business’s own needs.

How to Create a Successful Business Model

1. conduct market research.

The best business models are based on a thorough understanding of current market trends, opportunities, and challenges. Start by conducting research into the latest trends, your top competitors, and what is and isn’t currently working well in the industry.

2. Define your Target Market

Next, you’ll need to identify who your business’ target market or customer base will be. Dig deeper into your ideal customer’s needs, and especially their key pain points. These will become the problems that your product or service will solve.

3. Develop Your Service Offering

Once you have a clear picture of your target audience and their main pain points, you can use this to develop a service offering that will most effectively address this.

Be sure to tie this back to your business’s value proposition: what makes your products or services not only desirable to your target market, but what differentiates you from your competitors?

4. Make a Road Map

Once you’ve defined your target market and the product or service you’re going to offer them, the next step is to work out what you need to make that happen. It’s essential to create a clear picture of the resources you’ll need to get your business up and running. 

At this point, you should also consider potential challenges you may face along the way, and how you plan to address them. 

Document all of these elements as part of a well-defined road map to launch your business.

5. Start Developing Partnerships

Another essential part of any business model is the partners who will help the company achieve success. This could be suppliers, service providers, contractors, advertising partners, collaborators, or other stakeholders. 

Having an idea of who these partners will be and how you will work together will help you to shape your business model.

6. Define Revenue Streams

Revenue is central to any business, and any strong business model must clearly define where revenue will come from. You’ll also need to consider how you will increase revenue over time, such as specific strategies to build your customer base and close sales.

7. Do Testing

The final step of this process is testing your business model to ensure you’re in the strongest possible position to go live. This could involve test surveys within your target market, or soft launches. The idea is to gauge how well your business model will perform and help you to reach your goals.

8. Continually Review and Adapt

Avoid taking a “set it and forget it” approach to your business model. There are many reasons why you may need to adapt your business model over time. Not only may the market change, but as your business begins to operate and grow, you may find you need to reassess some of your original ideas and assumptions.

Therefore, it is essential to take a flexible position and continually review and adapt your business model to reflect evolving circumstances, whether internal or external to your business.

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Get the Skills You Need to Develop a Successful Business Model

It’s not enough to understand what a business model is: you also need to be familiar with the various push and pull factors that will allow you to create a winning model.

Experience is an essential part of being able to develop a successful business model. Knowledge of the latest industry trends, data insights , and strategic thinking are also critical. 

EDHEC Online Master of Science in International Business Management can help you develop your strategic thinking in order to use data insights to create business models that are sustainable, inclusive, and impactful.

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why do we need a business model

Investopedia / Laura Porter

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 new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees 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.
  • There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
  • The two levers of a business model are pricing and costs.
  • When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. 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, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

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 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 and 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. 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.

Types of Business Models

There are as many types of business models as there are types of business. For instance, 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 .

Below are some common types of business models; note that the examples given may fall into multiple categories.

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. A manufacturer can also sell goods 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 by 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 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 what becoming an upgraded member can hold.

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.

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 are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

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 of 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)

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

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 or freight.

Example: ReMax

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 one can take to create their plan:

  • 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 understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • 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, your business may struggle to find its footing if there isn't a demand for your services or products.
  • 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.
  • 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.
  • 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.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • 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.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

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, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in 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 systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2023 ."

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What Is a Business Model?

  • Andrea Ovans

why do we need a business model

A history, from Drucker to Christensen.

A look through HBR’s archives shows that business thinkers use the concept of a “business model” in many different ways, potentially skewing the definition. Many people believe Peter Drucker defined the term in a 1994 article as “assumptions about what a company gets paid for,” but that article never mentions the term business model. Instead, Drucker’s theory of the business was a set of assumptions about what a business will and won’t do, closer to Michael Porter’s definition of strategy. Businesses make assumptions about who their customers and competitors are, as well as about technology and their own strengths and weaknesses. Joan Magretta carries the idea of assumptions into her focus on business modeling, which encompasses the activities associated with both making and selling something. Alex Osterwalder also builds on Drucker’s concept of assumptions in his “business model canvas,” a way of organizing assumptions so that you can compare business models. Introducing a better business model into an existing market is the definition of a disruptive innovation, as written about by Clay Christensen. Rita McGrath offers that your business model is failing when innovations yield smaller and smaller improvements. You can innovate a new model by altering the mix of products and services, postponing decisions, changing the people who make the decisions, or changing incentives in the value chain. Finally, Mark Johnson provides a list of 19 types of business models and the organizations that use them.

In The New, New Thing , Michael Lewis refers to the phrase business model as “a term of art.” And like art itself, it’s one of those things many people feel they can recognize when they see it (especially a particularly clever or terrible one) but can’t quite define.

why do we need a business model

  • AO Andrea Ovans is a former senior editor at Harvard Business Review.

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Why is a business model important?

why do we need a business model

Learning & Academics

A business model may seem like a straightforward concept. But the term has shifted and changed over time. Today, if a company is incapable of creating an innovative and flexible business model, that could be its downfall.

Today, technology and innovation are the main players in how successful businesses are run and reinvented. With an explosive amount of information available through big data and the resources provided by digital tech, companies can more easily create and continue to capture value for stakeholders.

Businesses that want to start and stay at the cutting edge use design thinking, strategy, and continuous, fearless change in their business models. Some of the most successful businesses today are those that have reinvented the model, disrupting the industry that was and creating the kind of value customers are looking for in the digital era .

Adults analysis brainstorming

What is a business model?

Does a business model have a simple definition? Yes and no. Business models are the logic behind a company, but the concept can be framed in many different ways. And today, the way the idea has been reframed is inspiring the business owners and CEOs of companies from startups to well-established multinationals.

In his book The New, New Thing , Michael Lewis explains that the business model has been thought of as simply the way a business plans to make money. Expanding upon this idea, Peter Drucker talks about the business concept in terms of flexible assumptions about what a company will and will not do: what they get paid for; markets, customers, and competitors; values and behaviors; technology; and a company’s strengths and weaknesses. Joan Magretta adds that a business model is basically a story about how the company will operate, including the activities involved in making and selling a product or service.

Alex Osterwalder offers a simplified format for thinking about these hypotheses adopted by startups and established businesses alike, called the busi n ess model canvas. This business map is a one-page template that includes space for designing, discussing, and reinventing business models. The nine building blocks included are customer segments, value propositions, channels for delivering value, customer relationships, revenue streams, key resources, activities and partners, and cost structure. The idea of having everything mapped out on one page enables forward-thinking leaders to keep things light and flexible in order to invent or innovatively reiterate their business models as situations change and evolve.

why do we need a business model

Types of business models and tech

Business models have been transformed by technology . Interconnectivity , globalization , and a digital, tech-driven world have all allowed innovative thinkers to rethink traditional models in sectors from travel to retail.

One example of an age-old business model that has been transformed by tech is the platform business model. In the simplest terms, this model brings buyers and sellers together in one space. An in-person marketplace, auction house, or shopping mall are examples of this model that have been around for decades or even centuries. But digital tech has meant these platforms are no longer confined by time and space. Technology has allowed innovative business owners to use this type of model to create enormous digital networks enabling participation and collaboration across the globe. Some of the most successful companies today, including Airbnb , WhatsApp , Facebook , Google , and Alibaba , are examples of reinvented platform business models that use tech to their advantage.

Accounting banking calculator

The global business model is another example of one which has been inspired by technology. These models focus on producing and selling globally in a short period of time, relying on the fast pace of globalization and interconnectivity to thrive. The clothing brands Mango and Desigual are good examples of successful models based on selling to small target segments globally in order to achieve economy of scale, in a way that is only possible in a globalized world.

Interconnectivity and the digital world has also led to the availability of big data, allowing businesses to make sure they are offering the goods and services customers are actually looking for. The “seeking-excellence” business model depends on creating innovative products or services that consumers didn’t even know they wanted. The most disruptive thinkers today can use big data to analyze trends and find new value propositions that reinvent the business model—like Apple did with the iPod and iTunes store in the early 2000s.

Inspiring business models that have broken the status quo

Airbnb is one of the most disruptive businesses of the digital era. Founded by a couple of young startupers in 2008, it is the result of a recognized opportunity (when no hotel rooms were available in San Francisco during a conference held in the city), and the technology capable of connecting hosts and renters from around the globe.

Airbnb Room

As they put it on their About Us page, “ Airbnb uniquely leverages technology to economically empower millions of people around the world to unlock and monetize their spaces, passions, and talents to become hospitality entrepreneurs. ” It is a sharing-economy-based business , eliminating the overhead of owning the rooms that are rented out, like traditional hotels do. And its platform business model—which uses advances in digital tech to create networks that continuously improve—has allowed the business to boom around the world.

Uber is at the top of the list as another example of a business that has taken an existing business model and reinvented the wheel. By looking at how a current business model—taxis—could be improved, Uber was able to take a share of a preexisting market using a disruptive, tech-based model for grabbing a ride.

Uber

Now they have expanded and continue to grow through reiterations of their model, including Uber Eats for food delivery; Uber Freight offering shipping services; Uber Health providing rides for patients and healthcare providers; and even technology groups working towards self-driving vehicles and shared air transportation.

In the fast-paced digital world, innovation is a key element of any business model. Executives and CEOs are not responsible for maintaining the status quo defined in one iteration of the business model, but rather for experimenting, learning, and continuously improving to stay ahead of the competition.

Author: IE University

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Business Models – Example, Types, Importance & Advantages

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Listen to this:

Every business or company makes a plan for generating profit. They create a model for identifying products and services to sell, the market they want to target and also take into account anticipated expenses. This is known as business models.

Even if the business is already established or even if it is a new business, a plan needs to be made. Businesses need to regularly update their plans and strategy as they need to take into account the challenges and trends for future models.

Table of Contents

What are the business models.

The strategy a business uses to turn a profit is referred to as its business model. It lists any estimated costs as well as the goods or services the company intends to sell, as well as its chosen target clientele.

Both new and established businesses need strong business models. They aid young, developing businesses in luring capital, hiring talent, and inspiring management and personnel.

Established companies must continuously alter their business models if they are to stay abreast of emerging trends and problems. Business models also assist employees in understanding the future of an organisation they might want to work for and investors in evaluating companies that interest them.

How to Evaluate Succesful Business Models

When developing their business concepts, many organisations frequently underestimate the costs of financing the venture until it turns a profit. It is not sufficient to calculate the costs of a product’s launch. A corporation must continue operating until revenues outweigh expenses.

The company’s gross profit can be used as one indicator for analysts and investors to determine whether a business strategy is successful. A company’s gross profit is its total revenue less its cost of goods sold (COGS).

The efficiency and efficacy of a company’s business model can be determined by comparing its gross profit to that of its main rival or its sector. However, relying only on gross profit can be misleading. Analysts also request access to net income or cash flow. This shows how much actual profit the company is making by taking gross profit and subtracting operating expenses.

Importance of Business Models

The business model helps to target the customer base of the company. It helps in making marketing strategies, and projections of revenues and expenses taking into account the type of Business models and clientele.

Every investor needs to review the business model in order to get knowledge about the company’s competitive edge . Understanding the business model helps investors to have a better sense of financial data.

Evaluating the business model helps the investors to get an overall view of the company’s products, its business strategies and future prospects.

Business Model Examples

For example, let’s take company A which rents and sells video games. So the company is in the business of video games. The company used to make a profit of 5 million after spending 3 million on their inventories for video games. So, the total gross profit margin is 2 million.

The Internet arrived in the market and the company now has to alter its business model by taking into consideration the Internet in order to survive in the market. So as a result the cost of holding inventory and distribution cost also gets reduced. Since expenses reduce profit increases.

Even though with the arrival of internet sales get reduced but the company was able to expand its business as technology helped it to change course.

In a similar way, there are various business models types-

What are Business Models Types?

We will discuss here 4 business models types:

Business Models - Example, Types, Importance & Advantages 2

1. Business -To- Business Models (B2B)

When dealings or transactions take place between two companies or businesses then this type of business model is known as business to the business model.

It has good market predictability and more market stability . Since under B2B sale is made in bulk amount this model leads to lower cost for the businesses.

The best example of this type of business model in India is IndiaMart InterMesh which is a wholesale B2B marketplace. It offers millions of products to its customers which includes consumer electronics, machinery, apparel and many more.

2. Business -To-Consumer Models (B2C)

The business-2-consumer business model is a model that refers to businesses that sell their services or products directly to the consumer who are the end users of the products or services.

There is an ongoing demand for the products as it provides the essential items. This thus eliminates the risk of fluctuation in demand and helps in maintaining consistency in the business. Since direct contact is there with the customers so information is shared with them directly and easily.

Customers are given products at a low price compared to their competitors for the business to run smoothly.

An example of business to consumer model is Avenue Supermart which provides goods directly to its customers.

3. Subscription-Based Models

Any application-based businesses or software companies have subscription-based business models. They offer their product as a one-time purchase, in return company earns monthly or annual revenues.

Business Models - Example, Types, Importance & Advantages 3

This type of business model allows the company to earn regular income by giving the client the opportunity to pay for the cost of the purchase in 12 equal payments rather than asking them to pay the wholesome amount in one go.

One of the leading examples is Infoedge for this type of business model.

4. On-Demand Business Model

It is the most recent form of model which is made out on the need by answering immediately. This type of business model is prepared in such a way that all the questions will be answered by just a click of a button in seconds.

It is very much convenient and easy for customers as even before customers have visited a particular city they get their hotels or places booked.

One of the examples is making my trip which allows customers to plan the holidays and make the bookings in advance.

Advantages of Business Models

  • A good business model gives the company a competitive edge in the industry.
  • A strong business model provides the company good reputation in the market place encouraging investors to remain invested in the company.
  • Making the business model strong leads to an ongoing business profit leading to an increase in cash reserve and new investments.
  • A proven business model brings financial stability to the organization.

Business models have disadvantages as well.

Disadvantages of the Business Model

  • Once a business model is created, then it restricts to implementation new ideas for the product.
  • Creating a business model is time-consuming as a lot of factors need to be considered.
  • There might be a chance that the business model may turn out to be inaccurate.

Apart from the disadvantages, the business model is mandatory to be prepared before starting of a new project.

To know more about Fundamental Analysis, you can join our course on Stock Valuation Made Easy Explore about business models and enhance your financial expertise through our premier stock investment courses . Enroll now for success!

A business is more than just a place where things are sold. It’s an ecosystem, therefore it needs a plan for who to sell to, what to sell for, how much to charge, and how much value it’s producing.

What an organisation does to consistently produce long-term value for its clients is described by its business model. A company should have a clearer understanding of how it intends to function and what its financial future looks like after developing a business model.

While preparing business and revenue models, one of the most important skills that is required is Ms Excel. Wish to learn it ? That also in Hindi? Then join our ms excel in hindi full course now!

Frequently Asked Questions

What is a good business model.

A good business model is one that provides the company with a competitive edge in the industry-leading to good business profits.

Why is a business model important?

The business model is important because it provides the investors with knowledge about the competitive edge of the company and provides better insight into the workings of the company. A strong business model leads to cash generation and future expansion.

How do you create a business model?

The business model is created by identifying the products and services that will be sold in the market to be targeted like B2B, B2C, subscription-based model or on-demand market.

What are the components of the business model?

The business model includes information about the company’s products, its target market and its future prospect related to its business type.

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A checklist for selecting the right business model for your startup.

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CEO at  MD Logica , as well as a speaker and author covering business, marketing and strategy.

Among the 4.4 million new ventures that were created in 2020, not all will survive due to the fiercely competitive nature of the business world. Therefore, ensuring a business idea that is well-suited and aligned with the current market is paramount for an entrepreneur.

This is where a business model helps.

A sustainable business model with the right messaging, price and delivery channel to connect with the intended audience enables you to unlock the potential value of your business ideas. Moreover, understanding the economic value of technology, product or service before introducing it officially into the market allows you to gauge the revenue you'll be able to generate.

An accurate business model anticipates the revenue precisely and lets you re-model and innovate your company-related plans if the outcome predicted is undesirable.

Why is it necessary to have a business model?

A business model describes how a company strategizes to deliver value to customers within a practical price range. Essentially, in a business model, you determine which services or goods you'll be offering, which markets you are planning to target, as well as the costs that might incur to the business. It helps new and growing enterprises to find experts, motivate employees and managers, and gain investors.

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A solid business model paves the way for the growth and success of a company. It enables you to take an objective look at your corporate idea and realistically assess your chances of achievement.

Factors To Consider Before Choosing A Business Model

The following are some of the factors you need to consider during the process to help you determine the most suitable business model for your new venture:

1. The Customer

It is vital to keep customers as the primary consideration when selecting an appropriate business model. Do your best to add value to the overall customer experience and their purchasing patterns by prioritizing their needs and comprehending how they buy.

Here are some of the questions you need answers to when deciding on your startup's business model:

• Who are your actual customers? Divide them from the rest of the population depending on their psychographics, behavior, geography and demographics

• What are your customers' purchasing patterns and behavior?

• What does your startup aim to target and offer?

• How do your offerings help customers solve their problem?

• What problem does your offering resolve or address?

The answers should help you define the qualities and characteristics of the customer you intend to serve.

2. The Value Proposition

A value proposition is a brand's promise to provide tangible benefits to customers.

And it's hidden in answer to this question: "How is your brand going to solve the potential customer's problem?" For instance, Uber helps people solve taxi booking problems by offering cabs on demand. Likewise, Google keeps making the internet more straightforward by introducing an algorithm that allows people to search for almost anything.

So it is vital to gauge if your business model revolves around capitalizing on the value proposition and helps you figure out how the customer will benefit from your products and services while assisting you in terms of sales.

3. The Market

The next crucial element is to analyze the market you serve. Creating a business model according to a particular need is essential for success in the long-term. First, see if your target audiences are interested and willing to buy your products and services. Furthermore, you may also notice that the initial idea that you started with no longer fits the current scenario during your market analysis or that your product is well-suited for a different niche or kind of market.

So, study your competitors. Take notes of the approaches they take to stay afloat and relevant. Then, contemplate different strategies and techniques you can implement to outshine the competition and entice more customers. And do factor in potential customers and newcomers in your business plan while analyzing the market. They will carve the future path of your business and enable you to understand the competitive landscape.

4. Scalability

Scalability refers to a business's ability to handle and manage market demands to increase profit margin while also growing sales volume (the units sold within a certain period).

Even though it is recommended to implement scalability once your business becomes profitable, your company's vision should be to pursue it since its inception. Otherwise, your startup will bypass possibilities of growth and success if it doesn't consider scalability as one of the essential factors while deciding on a business model.

Costs, both non-monetary and monetary, play a central role in opting for the business model of your new startup. Suppose if your business startup has high operating costs. You can't afford to transfer them all to the end-users for fear of alienating them. As a startup, your business can’t afford to do that. Therefore, it is essential to consider taking a strategic approach to overcome that limitation.

6. Customer Relationships

Any business's growth depends on its clientele. Therefore, it is imperative to concentrate and ponder upon the following questions.

• How can you acquire customers?

• How can you retain customers?

• How can you grow a business with a loyal customer base?

As a startup, you need to form lasting relationships with customers while ensuring transparency to perform smoothly. A customer encounters your product or business and purchases it, but it is your turn to retain them tactfully. Offering after-sales services, discounts, memberships, etc., are some of the ways to do so.

Including these relationships and focusing on them in your business model is paramount and helps you filter potential leads.

Wrapping Up

A business model changes with time, but ensuring it has the right combination of essential elements — such as scalability, repeatability, predictability and eventually profitability — will help maximize your chances of entrepreneurial success.

Strive hard to make your startup a long-term success, lay a firm foundation with a well-executed business model and make your company yield incredible results.

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What is a business model? (Plus, how to define yours)

Last updated: September 2023

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Business model large

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

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There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

why do we need a business model

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

  • What is value-based product development?
  • What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Business model in Aha!

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

Lean canvas example in Aha!

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

Deliver more with Aha! — try it free for 30 days .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

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  • How to position your product

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Business model: What is it and why is it important?

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Imagine that you are going to build your own house, the one you have dreamed of and for which you have been saving for years, you have everything in your mind, but still nothing in writing, would you think of starting the construction without having the plans ready? Probably not, the builders would have a lot of problems with the dimensions and characteristics of the house, plus it would be difficult to determine the time and cost of the project.  They would not even know where to start.  

In the same way, every business should have a roadmap that sets out the elements necessary for it to function, and without it, it could run into problems along the way.  

In the past, companies manufactured their products or offered their services with an associated cost and that was it, they thought only about how the company made a profit from what it produced. There was no further analysis in the process, but consumer behavior has changed and today we can even say that we are facing an expert consumer. With technological advances, the presence of digital tools and the emergence of multiple channels, people have information in the palm of their hands and when faced with a problem, the answers are just a click away.  

Therefore, it is important to offer the customer added value, that they are not just buying one more product or acquiring a service, they require a complete experience because if their expectations are not met, the competitive market in which we find ourselves today offers them hundreds of other options.  

New needs have arisen and with this, so have opportunities for change.  

Index   

  • What is a business model? 
  • What is a business model for? 
  • When should it be defined for my company? 
  • Success stories 

What is a business model?  

According to Alexander Osterwalder and Yves Pigneur, in the book "Business Model Generation", they define a business model as that which describes the basis on which a company creates, provides, and captures value. As I said, in the past, not all the necessary elements were considered and therefore they are obsolete models. Today, innovative models are required that provide long-term value to both the company and the customer.  

If you want to read about the history of the concept of "business model" and the definitions provided by different authors, you can read  What is a Business Model? Harvard Business Review . 

It should be emphasized that the business model should not be confused with strategy, although associated, the business model explains how the company works while the competitive strategy defines the actions that will make you better than others in your sector. Moreover, the model should be established before the business plan.   >>14 Patterns of successful business model<<

Remember that in the end it boils down to trying to give the customer a value offer that makes money for the business. For this, you need to avoid improvisation and understand the elements that influence the day-to-day.  

In the book "Generating business models" it mentions 9 modules with which the company obtains its income.  

  • Market   segments : you must define the people or organizations that are potential customers; by grouping customers with similar needs and behaviors you are able to build strategies that target their opportunities for improvement.  
  • Value   proposition : based on the established market segments, you describe the products or services that offer value to customers. It is the differentiating element, the reason why a person chooses one or another company to solve his or her need.  
  • Channels : you must define the communication, distribution and marketing channels through which your company provides the value proposition to the market segments.  
  • Customer   relationships : the type of relationship you establish directly influences the customer experience, you can think about offering a personal relationship, self-service, automated, among others. Also, use different types of relationships depending on the stage the customer is in.  
  • Revenue   sources : you must correctly determine the selling price and be sure that it is a price that the potential customer is willing to pay, this section establishes the cash flow of the company.  
  • Key   resources : those physical, economic and/or human resources that allow you to produce and deliver the value proposition, bring it to the market, establish customer relationships and thus generate revenue.  
  • Key   activities : like resources, these are those actions that are indispensable to offer the value proposition to customers.  
  • Key   partnerships : you must establish alliances, whether strategic or supply-related; defining the network of suppliers and partners is key.  

business model elements

What is a business model for?  

As the philosopher Lucius Annaeus Seneca said, "no wind is favorable to those who do not know what port they are heading for". If you don't have a defined course, how do you know where to put your efforts? Remember the analogy at the beginning, as it is to start building a house without plans designed by the architect, so it is to run a company without a business model. Without a blueprint that tells you everything you need to get the project off the ground, you are adrift.   >>Business Model Fundamentals: What do you need to know?<<

Defining it correctly will give you a guide to your value proposition, the customers who are willing to buy it and how much it will cost. Also, the activities and resources needed to create the proposition, the channels, who your competitors are and what opportunities for improvement exist in your company.  

That is why it is so important to define the business model before leaving the port, if you establish the elements mentioned above you will know exactly how your company is doing and you will be able to fit all the pieces together in a way that generates profits.  

When to define it for my company?  

Having a business model is useful not only for new projects, in the pre-market introduction stage, but also for consolidated companies where management understands that stagnation and statics do not allow the company to grow. If you already have one, it is healthy to rethink the current business model to innovate on it, as well as to investigate other types.  

If you want to know more about the signs that may indicate that it is time to adjust, you can read  10 Signs that it is time to update your business model . 

If you are planning to go out into the world with your new business, it is essential that you have the plans to build it, and if you already have a business that is going on the road, it is never too late to develop a business model that will help you to optimize the current situation. The important thing to understand is that the business model gives you key information about how the business works and that it is not the same formula for all businesses.  

Success stories  

In this section we will talk about success stories, companies that have applied a type of business model and have managed to stand out in the market. Let's remember that there is not just one type of business model and you can't use any of them in your company.  Some that I can mention  are:  

  • Bait and hook   
  • Co-creation (crowdsourcing)  
  • eCommerce  
  • Franchising  
  • Freemium  
  • Long tail  
  • Multi-sided platforms (community)  
  • SaaS (cloud)  
  • Subscription  

In the following link you can find the explanation of some of these types of business models given by Strategyzer:   Types of Business Models . 

bait and hook business model

The first success story is based on the bait and hook model, which consists of offering a basic product at a low price (bait) and an accessory or associated product at a high price (hook), earning the profits from the latter. Gillette uses this business model because it changed the sale of durable razors by lowering prices for greater accessibility but generating revenue through blade replacements.  

franchise business model

Franchising involves replicating an existing business in a location where it does not exist, expanding its brand to other geographical areas. The leading company in this model is McDonald's with branches almost everywhere in the world, but Subway, KFC, Burger King, and others can also be mentioned.  

long tail business model

The next is the long tail model, which was developed by Chris Anderson. This model makes it possible to offer a wide range of specialized products that individually do not generate a large volume of sales, but in a summative way. The leading company is undoubtedly Amazon, which sells many low-selling products that cumulatively create a large market.  

business model subscription

Companies that operate this type of model offer a value proposition in exchange for the subscription payment, such is the offer that it compensates for paying a fee. As we all know, Netflix is a streaming platform that operates worldwide offering audiovisual content such as series, movies, and documentaries in exchange for a monthly subscription plan.  

With these cases of well-known companies, you can understand the influence that a correct business model has on the success of a brand. In conclusion, understanding the pillars that support your company is key to move forward in the market and find opportunities for improvement.  

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Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

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FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

Why Every Company Needs an Operating Model [+ Steps to Build One]

Martina Bretous

Published: October 05, 2021

If you are running a business, odds are, you’ve already figured out your business model.

Business owner creates operating model to visualize strategic and operational elements of company

It’s usually the first thing entrepreneurs build out, as it’s key to figuring out the value you’re bringing to the market and consumers.

Download Now: Annual State of RevOps [Free Report]

But what about your people, processes, systems, and technology? Those are all key components of your business that should be outlined in your operational model.

Let’s dive into what an operational model is and how it compares to a business model, plus cover the steps to create one today.

What is an operating model?

An operating model is a visual representation of how a company runs. It includes everything from how the company sources its products to how it structures its business areas and departments. An operating model serves as a blueprint for executing your strategy.

Many people confuse business models with operating models. However, they outline different things and serve different purposes.

A business model outlines how a company captures and offers value through its products/services, value proposition, customer segments, key partners, etc. An operating model, on the other hand, lays out how a company will run in order to deliver that value.

So, in simple terms, a business model looks at the what . An operating model focuses on the how.

Let’s take the example of a fictional lifestyle business called EarthBound. Their business model will describe their sustainable and eco-friendly approach as their value proposition, outline their various product lines, lay out their customer channels through brick-and-mortar and ecommerce stores.

Their operating model will focus on how they source their products, the roles they need within the company, the systems they use in each business area, their data management plan, and more.

Unsure why you should design an operating model? Here are the benefits:

  • It helps you identify the systems and structure necessary to serve your customers in a way that’s in line with your larger strategy.
  • It’s a blueprint for how resources are organized and operated so, that serves as a baseline from which to scale your business.

Operating Model Template

When you build out your operating model, you focus on three key elements: process, people, and technology.

There are two approaches you can take: role-based or process-based.

When you take the role approach, you design your operating model based on hierarchy and the roles within your company. With a process approach, you focus instead on the journey to deliver value to your consumers.

The template you follow will depend on what makes the most sense for your business based on strategy. For instance, say you’re reviewing your operating model because you’re considering restructuring or reallocation of resources. In this case, a process-based approach may work best.

What You Need To Build Your Operating Model Design

You have to start by asking yourself: "How do we manage our resources to effectively run our business and deliver our services as intended while meeting our goals?"

As you start to think about that, focus on each area outline here.

1. Strategy

To build your operating model, you first need to be clear on your strategy.

This is because your strategy and core priorities will inform your operating model. Once you define it, the next step is creating a set of design principles.

Bain & Company , a global management consulting firm, suggests drafting a list of around seven statements that outline what your company must do to execute your strategy. This will serve as an anchor as you build out your model.

Anyone on your leadership team should be able to state these concisely and clearly using simple language. Here are a few examples:

  • Standardize the customer experience across all regions.
  • Reduce siloes and align the organization on key company priorities.
  • Transition to digital-first approach.

2. Systems and processes.

For any company to run smoothly, they need systems and processes.

When creating or reviewing an operating model, you need to fully understand the inner workings of every business area.

What business systems are in place in X department? What hardware and software do they rely on?

As you think about these questions, make sure you consider both internal and external tools that your organization relies on.

This means knowing what every department needs to succeed in its roles. For instance, EarthBound’s finance department handles activities like invoicing, accounting, payroll, and billing. Going deeper, this means they may use software like Quickbooks .

The marketing team is likely responsible for lead generation and brand awareness through content, social media, paid advertisement, and more. As a result, they rely on tools like Casted to achieve their goals.

Once you know the systems and processes, you can figure out how it fits into your strategy and what changes can or should be made.

3. Organizational Structure

Over the years, new methodologies have been introduced that invite business leaders to revisit their organizational structure and make changes to their operational model.

One big shift in recent years has been how companies tackle projects. In the past, companies followed the waterfall methodology, which organized projects in linear, sequential phases. Today, many companies prefer the agile methodology, which is iterative and offers more flexibility.

Each framework is unique and comes with its own advantages and limitations. As such, it’s important for a business to know what direction they want to head in as they develop their operational model.

4. Talent Management

You can’t have a successful company without talent.

As you develop your operating model, one important question to answer is, " What do your teams look like? " and " What does success look like in every role?"

In this phase, you’ll want to understand the key roles and responsibilities needed to run the business and how those roles will evolve over X period of time.

Furthermore, you should also have a clear culture code that outlines the norms and behaviors you expect from your team and the values you celebrate.

These elements seep into other areas of your business and as a result, are incredibly important when working on your model.

5. Technology

As we’ve seen in recent months, the world is constantly changing.

More teams are remote than ever before and companies are investing in virtual tools like video conferencing and messaging. With this shift comes a need to have the technology to support growing global teams.

Beyond that, there is also the business technology needed to keep everyone in sync. Too often, companies suffer from siloes and have difficulty creating cross-functional teams. By understanding how you envision your team operating, you can seek out software that meets those needs.

Building your operating model is essential in maintaining the health of your company. Whether you’re just now creating one or revisiting an old one, doing so will help you better understand how to execute your strategy.

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What is the business model canvas and why do i need it.

Business Model Canvas- Floship

Starting a small business is a monumental task. It seems like there are a million things you have to take care of before you can make your first dollar. You need to register your business, set up your website, work out your budget, figure out your marketing plan, test your products, and establish good relationships with your manufacturers and suppliers.

You also need to create your business plan and your business model. So much to do.

You know what a business plan is. It’s your step-by-step guide on how your business will achieve its objectives. What you might not fully understand is you business model.

A business model is simply a design for the successful operation of a business. It’s how you create value for yourself (e.g. make money) while delivering products or services to your customers.

There are numerous types of business models, and they can all be mapped onto physical chart called the “business model canvas”.

The business model canvas and was developed by Alex Osterwalder, and if you don’t have a business model canvas it’s a great tool to use to improve the focus and clarity of what your business is trying to achieve.

It eliminates all of the fluff from the traditional business plan and lets you zero in on what’s important.

The Business Model Canvas Explained

Business Model Canvas

The business model canvas is broken into nine building blocks for your customers.  We’ll break down each of those segments so you can get a better understanding of what each of them means for your company.

#1 – Value Propositions

The first section is about your value proposition. Your value proposition is what your company is making and who they’re making it for. It’s not about your specific idea or product, it’s about solving a problem or filling a need. It’s also about who you are solving that problem for.

Once you know what problem your solving and who you’re solving it for, you can get into what exactly your product or service is. This is where you list all the benefits and features of your product and what they do to solve the problem.

#2 – Customer Segments

Perhaps the most important part of your canvas is the customer segments. If you don’t know who your business is catering to you’ll never be able to sell to them. You need to figure out who your customers are and why they would buy from you. You want to get very specific and figure out where your customer lives, what their social habits are, how old they are, if they’re male or female, etc. You want to be so detailed that you could draw a picture of your customer, put it on a wall, and have it detail their exact persona.  On day one this is nothing but a hypothesis, but as you start testing and selling your products, you will be able to change this accordingly.

#3 – Channels

Your channels are what you use to deliver your product from your company to your customer. In the old days you really only had one channel and that was the physical channel. You had a storefront and your goal was to get people to visit your store.

With the rise of technology, a storefront is no longer necessary. Now many people use the internet and mobile devices as their channels. Even if you have a physical channel setup, you’re most likely still going to have a web presence. You need to decide which outlet or outlets are best for you to get your product to the customer.

#4 – Customer Relationships

Customer Relationships

Your customer relationships are the fourth piece in your business model canvas. This section is about how you get your customers, how you keep your customers, and how you grow your customer. The channel you choose to distribute your product will also help determine your customer relationships.

A physical store will acquire its customers differently than an online store. If you’re using a website as your main channel, you need to figure out how to get them to your website, how to get them to buy once they are there, and how to get them to hang around and buy more of your products. Just like previous steps this is only a hypothesis on day one and will be figured out as your business grows.

#5 – Revenue Streams

Your revenue streams are how you will actually make your money from your value proposition. What value is your customer paying for and how are you going to capture that value?

Depending on your company it could be a direct sales model, a freemium model, a subscription model, or a licensing model. Again, the model you choose depends on your business, and your business could use multiple revenue models. Your revenue streams aren’t about the actual pricing of your product, it’s just your way of capturing revenue.

#6 – Resources

The next section of your business model canvas deals with is your resources. This is what you need to sell your product, the assets that are required for you to be successful.

The most important resource for many new companies is financing. Do you have enough cash on hand to fund your business? WIll you need funding or a line of credit?  There are also physical needs like a store, manufacturing plant, or delivery trucks. You might need intellectual properties as patents and customer lists. You might also need a good, strong workforce of salesmen, programmers and manufacturers.

#7 – Key Partners

Your key partners are the people and companies who are going to help you grow your business. There are some things you aren’t going to be able to do and some you just won’t want to do on your own, so you’ll want to partner with people that can do them for you. Two of the most common partnerships are suppliers and buyers.

The two main questions you need to ask yourself before forming a partnership is what you’re going to get from them and what activities they are going to perform. If you have a one man startup, your partnerships will likely be different than the partnerships a larger company has.

In your first year you might choose to do everything yourself just to save money. As your business grows, you will be able to invest in partnerships that can save you time and help grow profits.

#8 – Key Activities

business model

Your key activities are the most important things your business must do to make your business model work. If you’re in the production business you’ll be making products.  Maybe you’re a consultant and you’re in the business of solving problems. You could also be in sales and be responsible for getting people to buy various products.

Whatever it is that your business does, your key activities are what you need to become an expert in for your business to be successful.

#9 – Cost Structure

Your cost structure is what it’s going to cost you to keep the business running. You have to think beyond the obvious costs like your payroll, rent, and materials and be sure you are including everything.

You need to know what the most important costs are, what your most expensive resources are, and how much your activities and partnerships cost. Then you will need to ask the typical accounting questions like what your fixed and variable costs are, and any economies of scale. Anything that is going to cost you money to keep your business operational needs to be included here.

The Lean Business Model Canvas

Something that has become increasingly popular over the last few years is the “lean business” or “lean startup.” The lean business is essentially a business method that gets you from idea to business as fast as possible.

In a lean business you put out wh at is called your “minimum viable product”. This is your product in its most basic form with none of the extra bells and whistles. You put that product out to a select group of people to see if they like it. If they like it you can move on with that product, if they don’t you either pivot or scrap the idea all together.

The lean model allows you to get to market as fast and as cheaply as possible. The lean business model canvas was made in the spirit of the lean business. It’s more actionable and entrepreneur based and focuses on the way time can affect the revenue stream of a business. When the lean business model canvas was created, four more elements were added.

#1 – Problem

A problem box was created because many businesses spend a lot of time and money on a product that isn’t needed or doesn’t solve a problem. It’s important to know what problem you are solving before you do anything else.

#2 – Solution

Once you know what problem you are solving, it’s time to work on your solution. This is where you would describe your MVP (minimum viable product).

#3 – Key Metrics

Your key metrics are the range of products or services you want to provide.  It is key to choose the right metrics because choosing wrong could lead to disaster for your business.

#4 – Unfair Advantage

Your unfair advantage is just that – any unfair advantage you might have over your competitors. It is very important to know if you have any unfair advantages over your competitors, or if they have any over you.

To truly make it the “lean” canvas, they had to remove the elements they didn’t think were necessary. They removed:

  • Key activities
  • Key resources
  • Key partnerships
  • Customer relationships.

They were removed because they were either a waste of time to a lean startup, covered in another element, or they were more outside focused and not focused directly on the business.

business plan

Whether you’re an established business or just getting started, a business model canvas is an amazing tool to help you reach your goals. It provides you with a one page document that cuts out the fluff lays everything out right in front of you. It’s easily editable so as your business changes you can change your canvas to match. And if you’re creating a lean startup, there is a business model canvas made just for you.

For other Canvas Models check out  Toptal’s Technology Product Canvas

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  • 11.2 Designing the Business Model
  • Introduction
  • 1.1 Entrepreneurship Today
  • 1.2 Entrepreneurial Vision and Goals
  • 1.3 The Entrepreneurial Mindset
  • Review Questions
  • Discussion Questions
  • Case Questions
  • Suggested Resources
  • 2.1 Overview of the Entrepreneurial Journey
  • 2.2 The Process of Becoming an Entrepreneur
  • 2.3 Entrepreneurial Pathways
  • 2.4 Frameworks to Inform Your Entrepreneurial Path
  • 3.1 Ethical and Legal Issues in Entrepreneurship
  • 3.2 Corporate Social Responsibility and Social Entrepreneurship
  • 3.3 Developing a Workplace Culture of Ethical Excellence and Accountability
  • 4.1 Tools for Creativity and Innovation
  • 4.2 Creativity, Innovation, and Invention: How They Differ
  • 4.3 Developing Ideas, Innovations, and Inventions
  • 5.1 Entrepreneurial Opportunity
  • 5.2 Researching Potential Business Opportunities
  • 5.3 Competitive Analysis
  • 6.1 Problem Solving to Find Entrepreneurial Solutions
  • 6.2 Creative Problem-Solving Process
  • 6.3 Design Thinking
  • 6.4 Lean Processes
  • 7.1 Clarifying Your Vision, Mission, and Goals
  • 7.2 Sharing Your Entrepreneurial Story
  • 7.3 Developing Pitches for Various Audiences and Goals
  • 7.4 Protecting Your Idea and Polishing the Pitch through Feedback
  • 7.5 Reality Check: Contests and Competitions
  • 8.1 Entrepreneurial Marketing and the Marketing Mix
  • 8.2 Market Research, Market Opportunity Recognition, and Target Market
  • 8.3 Marketing Techniques and Tools for Entrepreneurs
  • 8.4 Entrepreneurial Branding
  • 8.5 Marketing Strategy and the Marketing Plan
  • 8.6 Sales and Customer Service
  • 9.1 Overview of Entrepreneurial Finance and Accounting Strategies
  • 9.2 Special Funding Strategies
  • 9.3 Accounting Basics for Entrepreneurs
  • 9.4 Developing Startup Financial Statements and Projections
  • 10.1 Launching the Imperfect Business: Lean Startup
  • 10.2 Why Early Failure Can Lead to Success Later
  • 10.3 The Challenging Truth about Business Ownership
  • 10.4 Managing, Following, and Adjusting the Initial Plan
  • 10.5 Growth: Signs, Pains, and Cautions
  • 11.1 Avoiding the “Field of Dreams” Approach
  • 11.3 Conducting a Feasibility Analysis
  • 11.4 The Business Plan
  • 12.1 Building and Connecting to Networks
  • 12.2 Building the Entrepreneurial Dream Team
  • 12.3 Designing a Startup Operational Plan
  • 13.1 Business Structures: Overview of Legal and Tax Considerations
  • 13.2 Corporations
  • 13.3 Partnerships and Joint Ventures
  • 13.4 Limited Liability Companies
  • 13.5 Sole Proprietorships
  • 13.6 Additional Considerations: Capital Acquisition, Business Domicile, and Technology
  • 13.7 Mitigating and Managing Risks
  • 14.1 Types of Resources
  • 14.2 Using the PEST Framework to Assess Resource Needs
  • 14.3 Managing Resources over the Venture Life Cycle
  • 15.1 Launching Your Venture
  • 15.2 Making Difficult Business Decisions in Response to Challenges
  • 15.3 Seeking Help or Support
  • 15.4 Now What? Serving as a Mentor, Consultant, or Champion
  • 15.5 Reflections: Documenting the Journey
  • A | Suggested Resources

Portions of the material in this section are based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.

Learning Objectives

By the end of this section, you will be able to:

  • Define a business model and its purpose
  • Describe a business model canvas
  • Describe a lean model canvas
  • Describe a social business model canvas

According to Alexander Osterwalder and Yves Pigneur , the authors of Business Model Generation , a business model “describes the rationale of how an organization creates, delivers and captures value.” Nevertheless, there is no single definition of this term, and usage varies widely. 29

In standard business usage, a business model is a plan for how venture will be funded; how the venture creates value for its stakeholders, including customers; how the venture’s offerings are made and distributed to the end users; and the how income will be generated through this process. The business model refers more to the design of the business, whereas a business plan is a planning document used for operations.

Each business model is unique to the company it describes. A typical business model addresses the desirability, feasibility, and viability of a company, product, or service. At a bare minimum, a business model needs to address revenue streams (e.g., a revenue model), a value proposition, and customer segments. In non-jargon English, this means you want to address what your idea is, who will use it, why they will use it, and how you will make money off it.

A canvas is a display that would-be entrepreneurs commonly use to map out and plan different components of their business models. There are several different types of canvases, with the business model canvas and the lean canvas being the most commonly used. There are hard-copy canvases modeled after an art canvas as well as digital versions. The original physical canvases are meant to serve as visual tools, used with sticky notes and sketches.

As developed by Osterwalder and Pigneur, the business model canvas has nine components, as shown in Figure 11.6 .

Link to Learning

Visit this site to see examples of completed Business Model Canvases for a variety of industries for a deeper understanding of how the different categories are filled in.

Osterwalder and Pigneur wrote Value Proposition Design as a sequel to Business Model Generation . Their value proposition canvas is a plug-in that complements the business model canvas, going in depth on activities such as encouraging entrepreneurs to address and tackle customer pains, gains, and jobs-to-be-done trigger questions, and designing pain relievers and gains. The complementary and accompanying activities and resources can be useful for a deeper dive into and understanding of customer value creation in the form of value proposition, although there are other approaches to conceptualizing your value proposition. For Christensen, the originator of the disruptive innovation and jobs-to-be-done theories, a value proposition is a product that helps customers do a job they’ve been trying to do more effectively, conveniently, and affordably.

Finding the intersection of your customers’ problems and your solutions is how you create a unique value proposition, according to the entrepreneur Ash Maurya , the author of Scaling Lean and Running Lean . In Running Lean , Maurya offers the following formula for creating an initial value proposition in the canvas, as shown in Figure 11.7 .

Maurya deviated from the standard business model canvas to create the lean canvas. It overlaps the business model canvas in five of the nine components: customer segments, value proposition, revenue streams, channels, and cost structure ( Figure 11.8 ]. Rather than addressing key partners, key activities, and key resources, the lean canvas helps you tackle problems, solutions, and key metrics instead.

Visit this site to see examples of completed Lean Model Canvases from some major companies for a deeper understanding of how the canvas can be applied.

While the business model canvas and the lean canvas are similar in format, there are differences in how they are used. It is generally accepted that the lean canvas model is a better fit for startups, whereas the business model canvas works well for already established businesses. The lean canvas is simpler; the business model canvas provides a more complete picture of a mature business.

Watch this Railsware video that demonstrates how the lean canvas model might be applied to startups to learn more. In the case example in the video, the lean canvas model is applied to the successful P2P ride-sharing app Uber, as if it were a startup.

Both the business model canvas and the lean canvas are designed for constant iterations, allowing for multiple versions and changes throughout the entrepreneurial process. Part of that process involves customer discovery; thus, the canvases invoke customer-focused design. The target customer is integrated into the canvas from the start through the use of a customer empathy map and a number of design-thinking ideation activities. 30 The customer empathy map is a portrayal of a target customer —the most promising candidate from a business’s customer segments—that explores the understanding of that person’s problems and needs ( Figure 11.9 ). Osterwalder and Pigneur used a customer empathy map as part of the design ideation phase of developing a business model canvas. There are differing versions of customer empathy maps, but most seek to answer common questions pertaining to the customer, such as:

  • With whom are we empathizing?
  • What do they need to do?
  • What do they see?
  • What do they say?
  • What do they do?
  • What do they hear?
  • What do they think?

Phillips, Proctor & Gamble, Microsoft, and Yeti are examples of well-known companies that make use of customer empathy mapping because, according to the journal Entrepreneur , every transaction can be turned into a meaningful and valuable customer interaction. 31 Once a company analyzes the results of customer mapping exercises, it may very well lead to new products that serve customer needs and/or wants.

For example, Philips used empathy mapping to detect a high level of fear in young patients immediately before an MRI medical procedure, so it invented a miniature version of the CAT scan equipment used in the procedure called the “kitten scanner” along with toy animal characters that were used to dispel the fear of MRIs among children. Proctor & Gamble created a new advertisement that was released for the 2012 Olympics visualizing the trials and tribulations of mothers raising young athletes, demonstrating Proctor and Gamble’s awareness that some of its customers wanted or needed empathy for the sacrifices they had made to help their children succeed. Likewise, Microsoft has attempted to demonstrate empathy with customers’ privacy concerns by developing an interactive website that explains not only how data is stolen but also how we can better protect our own data. 32

On their company website, the now-famous Yeti cooler company publicly extols the value of empathy mapping, explaining that it leads to better products. Yeti doesn’t just create one on its own, it actually asks its clients to work with the company to create an empathy map. 33 Thus, empathy mapping for Yeti is part of its product development process.

Customer empathy maps also strive to address customer pains (in this case, fears, frustrations, and anxieties) and gains (wants, needs, hopes, and dreams). 34

Strategyzer offers six videos outlining the business model canvas that total about 12 minutes; specifically they cover the prototyping journey from ideation to visualization of conceptualization.

Business Model Canvas 35

As Osterwalder and Pigneur describe it, according to Media Innovation and Entrepreneurship , their business model canvas blocks include revenue streams, customer segments, value propositions, cost structures, channels, key activities, key partners, key resources, and customer relationships.

Early on, your greatest focus should be on the right side of the canvas because:

  • These are, in many ways, the most critical aspects of starting a new venture (customer segments, value propositions, channels, and revenue streams).
  • The most fluid (revenue streams, channels, and value propositions will likely differ for the differing customer segments and, as you iterate and adapt throughout the customer discovery process, could likely change).
  • These follow a logical temporal order (there’s no need to focus on the costs of building a company if you won’t have customers).

In a follow-up to business model generation, the Strategyzer team created a second canvas, the value proposition canvas: https://www.strategyzer.com/canvas/value-proposition-canvas. The value proposition canvas is a new tool that pulls out the customer segment and value proposition blocks of the business model canvas, and encourages more in-depth exploration of those blocks to achieve a good fit between the two. The value proposition canvas tool looks at customer pains, gains and jobs to be done on the customer side and painkillers, gain creators, and products and services on the value proposition side. 36

Read this blog that provides a walk-through of how to fill in a value proposition canvas to learn more.

When you peel away the language used to describe business models, the early startup planning stages come down to a series of questions. When it comes to formulating a business model for a startup concept, another popular framework used in entrepreneurial circles is that of desirability-feasibility-viability Figure 11.10 ). This framework forces the entrepreneur to address broad questions about the startup concept:

  • Desirability: How desirable is the product? Who will use it and why?
  • Feasibility: How feasible is this idea? What are the costs of making it? How practical is the concept?
  • Viability: Will this idea remain viable? How will it make money? How will it be sustained over time?

These questions then begin to connect to form a narrative about where the startup concept came from, whom it serves, why it’s needed, how it will make money, and how it will be sustained in the future.

The value propositions, customer relationships, customer segments, and channels address the assumptions that will create customer value (desirability). The cost structure and revenue stream blocks are aimed at viability, or overcoming flawed business models. The key partners, key activities, and key resources are about execution and address feasibility. The risk of poor execution can undermine your assumptions that you chose the right infrastructure to execute your business model (feasibility). The risk of solving an irrelevant customer job (sometimes derisively labeled “a solution in search of a problem”) undercuts desirability in your business. The risk of a flawed business model would hamper the financial assumption that your business will earn more money than you spend (viability). Adaptability is about the assumption that you chose the right business model within the context of external factors such as technology change, competition, and regulation.

The business model canvas is not an exhaustive planning tool by any means. 37 , 38 The risk of such external threats is not specifically addressed on the canvas blocks. The external threats not specifically covered by the canvas blocks can be designed for adaptability, that is, the business model canvas is a necessary but insufficient component of determining the viability of the business idea/concept. There are many elements not included in the canvas that entrepreneurs must address. Industry analysis, including a competitive analysis, for example, falls “off canvas” but is important nonetheless.

The Lean Model Canvas

The lean model canvas is Ash Maurya ’s adaptation of the original business model canvas. As we noted earlier, gone are the customer relationships, key activities, key partners, and key resources blocks. Instead, a problem block is added, because as Maurya explains, “Most startups fail, not because they fail to build what they set out to build, but because they waste time, money and effort building the wrong product. I attribute a significant contributor to this failure to a lack of proper ‘problem understanding’ from the start.” Maurya next added a solution block to the lean model canvas, which corresponds well with features on a minimum viable product (MVP), which you will recall was covered in depth in Launch for Growth to Success . The lean model canvas also adds an “Unfair Advantage” block, similar to the block for competitive advantages or barriers to entry found in a business plan. 39

Social Business Model Canvas

As you’ve noticed by now, the core canvas components are common throughout the various versions. Many of the blocks of the social business model canvas are similar to those used in the business model canvas and the lean model canvas. 40 A few differences, as developed by Tandemic , focus on areas unique to social entrepreneurship ventures. For example, the new areas added include measures of what kind of social impact you are creating or developing, measures of surplus to address what happens with profits and where you intend to reinvest them, and measures of beneficiary segments, and social and customer value propositions. 41 These could be measures such as the number of trees planted, number of refugees housed and fed, jobs created, or investments made—depending on the venture. Social impact looks at an organization’s social mission beyond the bottom line. Measurement can differ among social entrepreneurs, but in terms of the canvas, impact measures are an effort to establish quantifiable metrics.

Social impact can be hard to measure, but nonetheless, many social entrepreneurs aim for long-lasting impact. 42 A 2014 report by the think tank, consultancy, and member network SustainAbility lists cooperative ownership, inclusive sourcing, and the “buy one, give one” model as three forms of social impact. 43 In addition to the Tandemic social business model canvas, there are other versions of similar canvases used for social entrepreneurship. For instance, Osterwalder adapted the business model canvas for mission-driven organizations into a mission model canvas. 44 There’s also a social lean canvas that adds purpose (explaining your reason for creating the venture in terms of social or environmental problems) and impact sections (describing the intended social or environmental impact). 45

This completed social business model canvas for the popular peer-to-peer lending platform Kiva illustrates how the business model canvas can and perhaps should be adapted for social entrepreneurship ventures.

What Can You Do?

Toms Shoes is perhaps one of the best-known companies for adopting a social entrepreneurship purpose into its business model. Part of its early success hinged on the fact that for every pair of shoes a customer bought, the company donated a pair of shoes to someone in need. The company won a prize in 2006 for its innovative solution to poverty. This “ 1-for-1 business model ,” sometimes commonly called the “Toms model” after the shoe company that popularized it, gained traction among other companies that followed suit in similar fashion, seeing both the social and the financial successes in the Toms model. Warby Parker is another example of a company that does essentially the same: A customer purchases a pair of eyeglasses, and the company donates a pair (although Warby Parker pays a third party to procure the glasses, as eyeglasses require an individual prescription, whereas shoes do not).

  • Can you think of an innovative social entrepreneurship business model?

The Birthday Party Project

Paige Chenault wanted homeless children in Dallas to feel special on their birthdays. Many have never experienced a birthday party. So this professional event planner sprang into action in January 2012. She launched the Birthday Party Project (https://www.thebirthdaypartyproject.org/), a nonprofit group whose mission is to celebrate the lives of homeless children (ages one to twenty-two). The group organizes monthly birthday parties with partner shelters. Since its inception, the concept has spread beyond Texas to cities across the United States, including Atlanta, Chicago, Los Angeles, New York, and San Francisco. In six years, the Birthday Party Project has celebrated 4,800 birthdays with 30,000 kids in attendance, eaten 40,000 cupcakes, cracked 30,000 glow sticks, and performed 1,100 renditions of “Happy Birthday.”

  • Identify a need in your community that could become a social entrepreneurship business, as Paige discovered with an initial passion project.
  • 29 Alexander Osterwalder and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, NJ: Wiley, 2010.
  • 30 Charlene Perrin. “Create A Customer Empathy Map in 6 Easy Steps!” Conceptboard . March 28, 2019. https://conceptboard.com/blog/create-a-customer-empathy-map-in-6-easy-steps/
  • 31 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
  • 32 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
  • 33 Mike Godlewski. “The Secret to Knowing What a Client Is Thinking? Empathy Maps.” Yeti. February 8, 2016. https://yeti.co/blog/the-secret-to-knowing-what-your-client-is-thinking-empathy-maps/
  • 34 Germán Coppola. “What Is an Empathy Map, and Why Is It Valuable for Your Business?” Medium . November 28, 2017. https://medium.com/swlh/what-is-an-empathy-map-and-why-is-it-valuable-for-your-business-14236be4fdf4
  • 35 This material is based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.
  • 36 Michelle Ferrier and Elizabeth Mays. Media Innovation and Entrepreneurship . The Rebus Foundation, 2017. https://press.rebus.community/media-innovation-and-entrepreneurship/.
  • 37 Jennifer van der Meer. "Do You Suffer from Value Proposition Confusion?" Linkedin . October 19, 2016. https://www.linkedin.com/pulse/do-you-suffer-from-value-proposition-confusion-jennifer-van-der-meer/
  • 38 “The Value Proposition Canvas.” Strategyzer . n.d. https://strategyzer.com/canvas/value-proposition-canvas
  • 39 Ash Maurya. “Why Lean Canvas vs Business Model Canvas?” Medium . February 27, 2012. https://blog.leanstack.com/why-lean-canvas-vs-business-model-canvas-af62c0f250f0
  • 40 "Social Business Model Canvas.” Business Model Toolbox . 2013. https://bmtoolbox.net/tools/social-business-model-canvas/
  • 41 “The Business Model Canvas Reinvented for Social Business.” Tandemic . n.d. http://www.socialbusinessmodelcanvas.com
  • 42 Ayse Guclu, J. Gregory Dees, and Beth Battle Anderson. “The Process of Social Entrepreneurship: Creating Opportunities Worthy of Serious Pursuit.” Duke/Fuqua case . 2002. https://centers.fuqua.duke.edu/case/knowledge_items/the-process-of-social-entrepreneurship-creating-opportunities-worthy-of-serious-pursuit/
  • 43 Lindsay Clinton and Ryan Whisnant. “Model Behavior: 20 Business Model Innovations for Sustainability.” SustainAbility . February 2014. https://sustainability.com/wp-content/uploads/2016/07/model_behavior_20_business_model_innovations_for_sustainability.pdf
  • 44 Alexander Osterwalder. “The Mission Model Canvas: An Adapted Business Model Canvas for Mission-Driven Organizations.” Strategyzer . February 25, 2016. https://blog.strategyzer.com/posts/2016/2/24/the-mission-model-canvas-an-adapted-business-model-canvas-for-mission-driven-organizations
  • 45 Social Lean Canvas. n.d. https://socialleancanvas.com/

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Kavedon Kapital

What is a business model, and why do we need them?

As a first-time entrepreneur, 20 plus years ago, i had not even the faintest idea of the difference between a business and a revenue model. however, i soon realised that there was a significant difference. if i was to get anywhere in structuring a winning revenue and business model for my startup and finding funding, i had to know why each of these models were important and how to pitch them to an investor., what’s the difference.

Most people define a business model as the company’s way of making money. But there’s much more to the business model than meets the eye. Let’s first understand the differences before we dive deeper into what investors look for when evaluating a startup.

A business model is how the company creates, delivers, and captures value.

A revenue model is how a startup generates revenue from the value it creates for its customers.

Founders engaging for the first time with an investor need to have a well-designed and efficient business model as there will be many questions at the first meet. And if your 5 min elevator pitch is a success, you’ll get invited for a meeting. If your startup lacks any of the essential elements of a business and revenue model, you will struggle to capture any investor’s attention.

An investor evaluating a prospective investment has to reduce investment risk by looking at a couple of vectors. Without a revenue model, the business model will not work. When you first start, make sure you get these right, and you are sure to increase your chances of success both with getting funding and happy returning customers. Should we design a sustainable business model?

Of course, yes! With sustainability being such a hot topic and with Kavedon’s circulatory ethos, we must design even business models with sustainability in mind. When we create more value than we capture and capture more value than it costs to deliver, we have a sustainable business model. Keeping this equation in mind, let’s dissect the business model further.

Sustainable Business Model = Created Value > Capture Value > Cost of Delivery

What is a business model.

Nine individual components describe and assess a business model. It involves identifying customer segments, customer relationships, value propositions, delivery channels, key resources, key activities, key partners, cost structure, and revenue model.

An intelligent founder can design a superior business model by using the following magic triangle and slotting these nine activities into four individual components of a business model: Figure 1 — Triangle of Business Model Development (own illustration based on Business Model Navigator .)

why do we need a business model

  • WHO are the target customers? (Customer segments and relationships)
  • WHAT is offered to the customers? (Value propositions)
  • HOW is the value proposition created and delivered to the customer? (Key activities, partners, and resources)
  • WHY is the business profitable? (Cost structure & revenue model)

Figure 2  – Using the Business Model Canvas (BMC) developed by Alexander Osterwalder) is worthwhile.

why do we need a business model

The BMC is a typical tool used for helping entrepreneurs develop different ways of structuring a company that solves a problem, adds value to its customers, and delivers a profit. Osterwalder talks about the “front stage” and “backstage” sides of the business model canvas. The front stage is everything to do with the customer-facing elements of the business, and backstage handles all the aspects of the business process.

In other words, the front stage is customers, relationships, channels, and revenue (the right half of the canvas). Backstage includes partners, key activities, key resources, and cost (the left half of the canvas). And the essential “value” part is in the centre of it all. Founders need to ensure that both sides of this model, the customer aspects and the business aspects are in alignment for an efficient model.

Why do we need a business model?

To better understand how the Business Model Canvas works, I have an exercise for you. Take some time out of your day, grab a cup of coffee, sit down in a quiet place, and apply the Business Model Canvas to your business. Using this tool will make it easier for you to apply the logic to your own business. It’s a valuable exercise to do at the beginning or at a time of misalignment in your business since it can help pinpoint a troublesome area that needs innovating.

When one component of the business model changes, it often leads to a change in other parts. A change or innovation in the revenue model often can effect change across the company’s entire business model. So, if you have been struggling to gain traction or received feedback that your business and revenue model are misaligned, take comfort that it’s happened to the best.

For example, PayPal, Apple, and YouTube were flexible enough to change their strategies, proving to be a significant asset. PayPal, founded in 1998, was initially meant to be a cryptography company and then later a mechanism of transmitting money via PDAs. Yet after several years of trial and error, PayPal discovered a working business model as an online payment system that allowed them to go public in 2002.

Apple was also failing at consistently generating a profit from about 1993 to 1997. After several internal issues, Steve Jobs left but later returned in 1997 and led the company through a drastic change in Apple’s business model and, the rest is history.

The Takeaway

The essence of a successful business model is how an organisation creates, delivers, and captures value. And when you make a business strategy that goes beyond the revenue model and technology, you create a more holistic business. You don’t have to operate under a single business model. Companies today can have a few business models.

Lastly, don’t forget that businesses often need to revise and update their business model to stay current and prepare for changing markets. This way, you can power a successful business and deliver value to the company, investors, and customers.

why do we need a business model

Leslie Maliepaard

Previous post what makes a good founder, next post 5 steps to getting vc leads.

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Innovation in Business: What It Is & Why It’s So Important

Business professionals pursuing innovation in the workplace

  • 08 Mar 2022

Today’s competitive landscape heavily relies on innovation. Business leaders must constantly look for new ways to innovate because you can't solve many problems with old solutions.

Innovation is critical across all industries; however, it's important to avoid using it as a buzzword and instead take time to thoroughly understand the innovation process.

Here's an overview of innovation in business, why it's important, and how you can encourage it in the workplace.

What Is Innovation?

Innovation and creativity are often used synonymously. While similar, they're not the same. Using creativity in business is important because it fosters unique ideas. This novelty is a key component of innovation.

For an idea to be innovative, it must also be useful. Creative ideas don't always lead to innovations because they don't necessarily produce viable solutions to problems.

Simply put: Innovation is a product, service, business model, or strategy that's both novel and useful. Innovations don't have to be major breakthroughs in technology or new business models; they can be as simple as upgrades to a company's customer service or features added to an existing product.

Access your free e-book today.

Types of Innovation

Innovation in business can be grouped into two categories : sustaining and disruptive.

  • Sustaining innovation: Sustaining innovation enhances an organization's processes and technologies to improve its product line for an existing customer base. It's typically pursued by incumbent businesses that want to stay atop their market.
  • Disruptive innovation: Disruptive innovation occurs when smaller companies challenge larger businesses. It can be classified into groups depending on the markets those businesses compete in. Low-end disruption refers to companies entering and claiming a segment at the bottom of an existing market, while new-market disruption denotes companies creating an additional market segment to serve a customer base the existing market doesn't reach.

The most successful companies incorporate both types of innovation into their business strategies. While maintaining an existing position in the market is important, pursuing growth is essential to being competitive. It also helps protect a business against other companies affecting its standing.

Learn about the differences between sustaining and disruptive innovation in the video below, and subscribe to our YouTube channel for more explainer content!

The Importance of Innovation

Unforeseen challenges are inevitable in business. Innovation can help you stay ahead of the curve and grow your company in the process. Here are three reasons innovation is crucial for your business:

  • It allows adaptability: The recent COVID-19 pandemic disrupted business on a monumental scale. Routine operations were rendered obsolete over the course of a few months. Many businesses still sustain negative results from this world shift because they’ve stuck to the status quo. Innovation is often necessary for companies to adapt and overcome the challenges of change.
  • It fosters growth: Stagnation can be extremely detrimental to your business. Achieving organizational and economic growth through innovation is key to staying afloat in today’s highly competitive world.
  • It separates businesses from their competition: Most industries are populated with multiple competitors offering similar products or services. Innovation can distinguish your business from others.

Design Thinking and Innovation | Uncover creative solutions to your business problems | Learn More

Innovation & Design Thinking

Several tools encourage innovation in the workplace. For example, when a problem’s cause is difficult to pinpoint, you can turn to approaches like creative problem-solving . One of the best approaches to innovation is adopting a design thinking mentality.

Design thinking is a solutions-based, human-centric mindset. It's a practical way to strategize and design using insights from observations and research.

Four Phases of Innovation

Innovation's requirements for novelty and usefulness call for navigating between concrete and abstract thinking. Introducing structure to innovation can guide this process.

In the online course Design Thinking and Innovation , Harvard Business School Dean Srikant Datar teaches design thinking principles using a four-phase innovation framework : clarify, ideate, develop, and implement.

Four phases of design thinking: clarify, ideate, develop, and implement

  • Clarify: The first stage of the process is clarifying a problem. This involves conducting research to empathize with your target audience. The goal is to identify their key pain points and frame the problem in a way that allows you to solve it.
  • Ideate: The ideation stage involves generating ideas to solve the problem identified during research. Ideation challenges assumptions and overcomes biases to produce innovative ideas.
  • Develop: The development stage involves exploring solutions generated during ideation. It emphasizes rapid prototyping to answer questions about a solution's practicality and effectiveness.
  • Implement: The final stage of the process is implementation. This stage involves communicating your developed idea to stakeholders to encourage its adoption.

Human-Centered Design

Innovation requires considering user needs. Design thinking promotes empathy by fostering human-centered design , which addresses explicit pain points and latent needs identified during innovation’s clarification stage.

There are three characteristics of human-centered design:

  • Desirability: For a product or service to succeed, people must want it. Prosperous innovations are attractive to consumers and meet their needs.
  • Feasibility: Innovative ideas won't go anywhere unless you have the resources to pursue them. You must consider whether ideas are possible given technological, economic, or regulatory barriers.
  • Viability: Even if a design is desirable and feasible, it also needs to be sustainable. You must consistently produce or deliver designs over extended periods for them to be viable.

Consider these characteristics when problem-solving, as each is necessary for successful innovation.

The Operational and Innovative Worlds

Creativity and idea generation are vital to innovation, but you may encounter situations in which pursuing an idea isn't feasible. Such scenarios represent a conflict between the innovative and operational worlds.

The Operational World

The operational world reflects an organization's routine processes and procedures. Metrics and results are prioritized, and creativity isn't encouraged to the extent required for innovation. Endeavors that disrupt routine—such as risk-taking—are typically discouraged.

The Innovative World

The innovative world encourages creativity and experimentation. This side of business allows for open-endedly exploring ideas but tends to neglect the functional side.

Both worlds are necessary for innovation, as creativity must be grounded in reality. You should strive to balance them to produce human-centered solutions. Design thinking strikes this balance by guiding you between the concrete and abstract.

Which HBS Online Entrepreneurship and Innovation Course is Right for You? | Download Your Free Flowchart

Learning the Ropes of Innovation

Innovation is easier said than done. It often requires you to collaborate with others, overcome resistance from stakeholders, and invest valuable time and resources into generating solutions. It can also be highly discouraging because many ideas generated during ideation may not go anywhere. But the end result can make the difference between your organization's success or failure.

The good news is that innovation can be learned. If you're interested in more effectively innovating, consider taking an online innovation course. Receiving practical guidance can increase your skills and teach you how to approach problem-solving with a human-centered mentality.

Eager to learn more about innovation? Explore Design Thinking and Innovation ,one of our online entrepreneurship and innovation courses. If you're not sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

why do we need a business model

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Why a business model canvas is important to organizational innovation.

Mark Hemmer

How can an organization innovate?

That's the question every business leader should be asking themselves in 2016. Failing to innovate successfully could mean closing your doors in today's business and technology climate.

To achieve organizational innovation , every facet of a business needs to move together in the same direction. That can be difficult without a clear visual of what your business model is and how your activites should be aligned. You need to identify what your company wants - and is prepared - to do before innovation can turn from a buzzword into an action.

Need help with your company's innovation strategy? Request a consultation. We'd love to talk.

Are you familiar with a Business Model Canvas? You should become familiar - the Business Model Canvas is a methodology on the rise. It helps companies visualize and position their business models for growth and innovation.

What is a Business Model Canvas?

Strategyzer defines it : "The Business Model Canvas, is a strategic management and entrepreneurial tool. It allows you to describe, design, challenge, invent, and pivot your business model."

The Business Model Canvas breaks your business model down into easily-understood segments: Key Partners, Key Activities, Key Resources, Value Propositions, Customer Relationships, Channels, Customer Segments, Cost Structure, and Revenue Streams.

By digging into these elements of your company, you can recognize and act on areas that can be improved. It also reveals clear paths on which to build your organizational innovation strategy.

Gaining a better understanding of your business never hurts. It helps you communicate your goals to your team. It helps communicate to clients why they should do business with you. It helps pull into focus what your business does and how it will continue to do it - successfully - into the future. The Business Model Canvas is an invaluable tool for startups and Fortune 500 staples alike.

Watch this for more information on why your company should use the Business Model Canvas:

How can it help organizational innovation?

Innovation is disruptive. But, not every business is prepared for disruption. Without a plan, pivoting is next to impossible. For an organization to innovate, it has to have a fine-tuned strategy that guides it towards a viable future business model. Using a tool like the Business Model Canvas can serve to unite your company under a clear visualization of where your organization sits today and where it can be tomorrow (and how it will get there).

The Business Model Canvas moves innovation out of the 'in-theory' stage and into the planning stage. See clearly, for example, what your strongest revenue streams are and how they can complement each other. Or, more closely examine your value propositions and discover better ways to position your product or service to customers. Use customer segments to find out exactly who you're talking to and how to approach them more effectively.

Your company's future is hidden in the details. Find it and you'll be ready to innovate successfully.

Learn More About Organizational Innovation:

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How to Create a Sustainable Business Model

Table of contents.

Creating a sustainable business model is a top priority for many companies. A sustainable business helps the planet and may prove more successful in the long run; customers want to work with companies that care about making a positive contribution to the world. 

Sustainability isn’t just for large corporations. Businesses of any size can work toward a sustainable business model by following specific practices and adopting a sustainable strategy.  

What is sustainability?

Sustainable means the ability to be maintained at a certain rate or level, and sustainable development meets current needs without compromising future generations’ ability to meet their own needs.

However, we must dig a little deeper to understand how the concept of sustainability is relevant to business development.

What is a sustainable business model?

To Rex Freiberger, president of Superlativ Media, a sustainable business model helps generate value for everyone involved, without draining the resources that help to create it.

“A business model meant to capitalize on a trend isn’t sustainable, for example, because the social resources that get it started won’t exist in years or even months,” Freiberger said.

Lia Colabello, managing principal of Plastic Pollution Solutions, noted that there’s a difference between a sustainable business model — a business that will likely achieve profitable growth —  and a business model that prioritizes sustainability.

“A sustainable business model is what every business leader hopes to achieve — a business that will turn a profit quickly and stay afloat for the long term,” Colabello explained. “A business model that prioritizes sustainability is one that, at a minimum, considers all stakeholders, assesses and addresses environmental impacts, and is transparent and thorough in its reporting.”

Eco-friendly packaging practices are a way to commit to sustainability. Other methods include careful resource usage and donations to worthy organizations.

What makes a sustainable business model work?

There are four key elements of a sustainable business model.

1. A sustainable business model is commercially profitable.

You can make a profit and be socially responsible . No business can succeed or scale unless it attracts customers. What is your value proposition? Who are your target customers ? Why is your business valuable, and what niche do you fill?

2. A sustainable business model can succeed far into the future.

A trendy business or one that relies on limited resources may be profitable for a few months, but how will it fare in a year or two? Resource availability and pricing are never guaranteed or fixed; you don’t want to build your castle on a sinking rock. 

3. A sustainable business model uses resources it can utilize for the long term.

You can’t have a sustainable business model without sustainable resources. Many business activities are limited by finite resources or exceptionally high prices. On the other hand, some resources may be readily available yet environmentally harmful. 

Palm oil is a famous example of a cheap and plentiful resource. However, farmers are razing acres of land and causing severe environmental destruction by cultivating the crop. Cheap resources may be tantalizing for business, but consider the big picture instead of taking a shortcut now.

4. A sustainable business model gives back.

One theory is that a truly sustainable business model is one that gives as much as it takes. This concept is called the cyclical borrow-use-return model. 

Bob Willard, expert and author on quantifiable sustainability strategies, contrasts this model with the current “linear take-make-waste model” that so many modern businesses are built upon, which he said is “culpable for contributing to [this world’s] unsustainability.”

Instead of taking from the Earth, a sustainable business “borrows” resources with the intent to replenish them. This concept of responsible consumption is one that both businesses and consumers can promote and practice.

Reducing resource burn — wasted time, money and other resources — is another way a business can prioritize sustainability.

What is a sustainable strategy?

A sustainable strategy takes the big picture into account. “A sustainable strategy is one that understands the flow of ‘in’ and ‘out’ — not just cash flow, but again, the resources, both tangible and intangible, that are required to create the product or service,” Freiberger explained.

Colabello noted that the most effective sustainability strategies start with an organization’s purpose. She encouraged businesses to ask these questions, similar to what you’d ask when crafting a vision or mission statement :

  • Why does the organization exist?
  • What problem is it solving?
  • How is it going to improve the world, environment and society?

“From there, a strategy can emerge that engages the entire brand ecosystem — internally, the supply chain, its communities and its industry,” Colabello said. “The approach is prioritized and diagrammed out, complete with goals, KPIs [key performance indicators] and a timeline. These are communicated both internally and externally, in keeping with transparency.”

Why do we need sustainable business models?

There are many ways to approach the issue of sustainability, but the simplest one, which can unite all stakeholders, is this: Kind businesses attract more customers. According to the 2022 Global Buying Green report , 86 percent of consumers under 45 were willing to pay more for sustainable packaging, and 68 percent purchased items in the past six months based on companies’ sustainability credentials.

It’s OK to be open about your sustainability goals and use your sustainability as a selling point. Customers will ask, and the friendlier you are about it, the more likely they will be to share that news with their friends.

But maybe you’re not motivated entirely by money. Perhaps you’re driven by the desire to be the change you’d like to see in the world. 

After all, the larger a business grows, the greater its impact is on the world and the people around it. And it’s better to start sustainably than to make the switch 10 years down the line — or when stakeholders begin pushing back on unreasonable business practices.

Going green can boost business and profits. Businesses are marketing green innovation to show consumers they prioritize environmental concerns.

How can you start and maintain a sustainable business model?

Getting started with a sustainable business model can be straightforward. Consider the following guidelines. 

1. Plan your resource usage. 

Consider the resources your business requires to operate, and then do the following:

  • Make a list of the raw materials you’ll need. This list will vary dramatically by business type. Software-as-a-service companies, for example, don’t require the raw resources that clothing brands do.
  • Consider where your materials might be sourced. Who is making or harvesting your product materials? How are they being sold?
  • Consider where the resources are coming from and how they are being transported. How far do they have to travel to arrive at your home or warehouse? How can you cut down on fuel miles? What are the riskiest resources on your list, and how can you increase their productivity while lessening your dependence on them?

After you address your resource usage, outline your manufacturing and business processes. Ask yourself these questions:

  • Which manufacturing processes are the most wasteful? How can you mitigate the adverse effects of these processes?
  • For physical materials, is it possible to source locally?
  • How are you packaging your products? (Sustainable, biodegradable packaging can reduce the amount of trash stuck in landfills.)
  • Which materials on your list are the riskiest or least sustainable? How might you replace them? Could you replace them now?
  • What are the end products of these processes? How can you reuse waste material? Does it have to be thrown away?
  • Can the produced waste be used as a resource or be fed into a different process to be used again? How can you reduce unusable waste?
  • Where can you reduce waste? How can you stretch your raw materials? Can you lower the number of resources used to create a specific product while maintaining its quality?
  • What are the labor conditions like? Are your laborers being paid fairly? Is their quality of life improving or worsening because of your business processes? Is their time being respected?

To make your business’s computing eco-friendly , implement cloud computing, allow your employees to work remotely, and eliminate paper from your workflow.

2. Consider alternative forms of company ownership.

The traditional top-down business model can create unreasonable wage gaps between those at the highest rungs of the ladder (CEO, other C-level executives, founders, managers) and those at the lowest (laborers tasked with creating raw materials or carrying out the manufacturing processes). Including everyone in your sustainability goals can help you keep your business on track and give those who are typically disadvantaged a larger say.

3. Engage your customers.

Going green can improve your brand reputation among consumers, but your dedication to sustainability may result in higher prices. But that’s OK; in a compelling blog post, series of posts or dedicated brand story page , tell your customers why they’re paying more for your products.

You might choose to engage customers by pledging a percentage of revenue to support a charity or by offering different shipping or packaging options. Customers who love your product can be converted into brand ambassadors when you create messaging that resonates with them. 

If you involve your customers in your discussions about sustainability, they will become more invested in your company’s success and your products. You could also consider crowdsourcing sustainability ideas from consumers through a forum or online group.

Sustainable businesses must lead with transparency when dealing with customers and shareholders. This means sharing wins and being honest when things don’t work out as planned.

What roadblocks are there to a sustainable business model?

Building a sustainable business can be daunting. If your business is stuck, you may struggle with one or more of these issues:

1. You hold innovation meetings, but ideas don’t go anywhere.

Many good ideas arise when founders or leaders get together at a workshop or meeting. However, you must nurture these ideas and draft a plan of action.  

2. Ideas are not implemented.

Another issue founders face is that the plans for change are never implemented. This could be because it seems too challenging to change the status quo or because the members of the company aren’t yet convinced of the need for a greener, kinder business model.

3. The implemented business models fail in the market.

Two of the most common reasons businesses fail to move toward sustainability include the wrong mindset and a reluctance to dedicate resources to change.

To address these issues, find your allies — those who believe sustainability is essential for the company’s bottom line and the larger world — and connect with them. Together, you can remove or alter harmful, outdated systems and encourage innovation.

Practicing and following through with your sustainability goals helps consumers feel closer to you and instills more trust in your brand. This is crucial at a time when customers expect more warmth and honesty from companies.

Why is sustainability important in business?

Shel Horowitz, an expert on green and transformative business profitability, raised three points about why sustainability is crucial in business:

  • Sustainability allows you to be here decades from now because you’ve created something of lasting value.
  • Sustainability makes you much more attractive in the eyes of customers, employees and other stakeholders who actively want to do business with companies that think beyond the single bottom line.
  • Sustainability helps the planet and its creatures heal from the abuse humans have piled on it, especially in the past 250 years or so.

Aside from businesses’ immense environmental impact, Colabello noted these forces putting pressure on companies to build robust sustainability strategies:

How is a business sustainable?

Freiberger believes a business can make itself sustainable by focusing on the bare essentials it needs to survive and then growing from there. Make long-term projections, and keep an eye on the distant future instead of focusing on more immediate profits, he advised.

As part of making your business sustainable, consider these statistics from the SUMAS Sustainability Management School , and determine where you can cut back to reduce your business’s carbon footprint :

  • An estimated 5 trillion plastic bags are used worldwide each year.
  • 400 million tons of plastics are produced globally every year.
  • Globally, only 9 percent of plastic ever produced has been recycled; 79 percent can now be found in landfills, dumps or the environment; and 12 percent has been incinerated.
  • With rapid population growth and urbanization, annual waste generation is expected to increase by 70 percent from 2016 levels to 3.4 billion tons in 2050.
  • If it continues at the same rate, the plastic industry will account for 20 percent of the world’s total oil consumption by 2050.
  • The construction and later demolition of buildings produce 40 percent of all waste.

If you are thinking about implementing a sustainable business model, consider the short-term expenses you will incur. However, these costs are a small price to pay for a better future and a compelling brand value for increasingly eco-conscious consumers. In other words, sustainability sells.

Jamie Johnson contributed to this article. 

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Business Process Modeling: Definition, Benefits, and Examples

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In today's complex business world, CIOs use technology as a key tool to improve how a company works. One important tool they use is Business Process Modeling.

Even though Business Process Modeling isn't a new idea, it's still a game-changer. As CIOs push for new IT initiatives that match wider business goals, they know that the key to better productivity is seeing, studying, and improving the detailed processes that make their organizations run.

So, what is Business Process Modeling, and why do you need it? This guide will look at Business Process Modeling from a CIO's perspective. We'll explain what it is, how it works, and how it can transform business productivity and efficiency. Just like a CIO uses technology to achieve strategic success, business process modeling acts as a roadmap, leading businesses towards a future of efficient processes, improved teamwork, and excellent performance.

Table of Content

  • What is Business Process Modeling?

Why Use Business Process Modeling?

Business process modeling techniques.

  • What Do I Need in a Process Modeling Software

What is Business Process Modeling (BPM)?

Business process modeling   (or) process modeling, is the analytical representation or put simply an illustration of an organization’s business processes. Modeling processes is a critical component for effective  business process management .

Process modeling software gives an analytical representation of 'as-is' processes in an organization and contrasts it with 'to-be' processes for making them more efficient.

Many business process modeling tools end up producing something like this:

business_process_modelling_diagram-1

Get rid of redundancies through effortless process design.

Your first step in modeling is actually pen and paper. However, to actually run a   business process , you will need to digitize that process in a way that a workflow engine can understand.

Business process modeling software   allow you to represent your process in a digital way that can then be transferred to a live automated process.

There are many benefits to business process modeling:

  • Gives everyone a clear understanding of how the process works
  • Provides consistency and controls the process
  • Identifies and eliminates redundancies and inefficiencies
  • Sets a clear starting and ending to the process

Business process modeling   can also help you group similar processes together and anticipate how they should operate. The primary objective of business process modeling tools is to analyze how things are right now and simulate how should they be carried out to achieve better results.

Kissflow, our   BPM Software , Streamline your business with superpowered processes.

Business process modeling can be expressed through flowcharts, programs, hypertext, or scripts. There isn’t just one way to implement business process modeling; in fact, you can choose from   as many as 12 techniques.

Here are some of the most common business process modeling techniques:

1. Business Process Modeling Notation (BPMN)

BPMN 2.0 has become something of a standard syntax used by process analysts and those who create business modeling tools. It is a relatively simple usage of lines, arrows, and geometric shapes that all communicate the flow and nuances of the process. A process consultant can look at a BPMN 2.0 model and know exactly how it should function.

“Eventually, when [those] companies get their products shipping and crank up their marketing machines,  BPMN  will be the unquestioned standard for process modeling and execution. But right now, we are still between the news and the reality.” - Bruce Silver, Process Consultant and Author of the book BPMN Method and Style

However, BPMN 2.0 is still a learned language, and although relatively simple, isn’t immediately intuitive for the regular business user. It is a great tool for process consultants, but not helpful for those looking to create their own applications.

2. Universal Process Notation

Instead of having a new language to learn, a more intuitive system is   Universal Process Notation   or UPN.

UPN provides a simple box for each task to be completed. The box shows what happens, who is assigned to it, and when it happens in the sequence. It is extremely useful for IT to design and analyze processes, for management to comply to business norms, and - more importantly - for end business users to understand processes as intended. Kissflow uses UPN in its modeler.

3. Flowchart Technique

flowchart_technique

Flowcharts explain complex process flows in a simple yet effective way. They illustrates process steps in their sequential order, going from inputs to actual process to outputs. In fact, flowcharts provide the basic framework for BPMN to display advanced process flows.

Kissflow, our   process tracking software , can help your business stay constantly aware of every last business process.

4. Gantt Charts

Rather than showing the steps sequentially, Gantt charts are able to show the entire process using ‘time taken’ as one of the main axes. It does a better job of showing the overall time taken to complete a project than other options.

5. Petri-Nets

Traditionally a modeling technique in mathematics, petri-nets are also useful for modeling business processes. Petri-nets classify or color-code complex workflow steps, users, and routes in different colors.

What Do I Need in a Process Modeling Software?

Most   BPM Suites   include business process modeling tools in them. However, some have the modeler as a separate application.

The modeler is one of the most important elements in a BPMS , and you should spend a lot of time learning it before committing to buy a suite.

Great business modeling tools should:

  • Be easy to learn for the business departments
  • Be simple for IT teams to communicate with other departments
  • Be inexpensive and industry compliant
  • Have an integrated workflow editor tool with graphic interface
  • Be able to simulate workflow before implementing

Learn more about process modelers .

Check out why these   6 BPM Software   are at the top of the competition!

The Challenge:

RENU Contracting and Restoration grappled with unreliable manual processes, difficulty managing complex tasks, and inefficient tracking of process issues. They needed a solution to transform their operations, increase productivity, and ensure accountability.

The Solution:

Michael Casamento, Director of Process and Procedure at RENU, discovered Kissflow during a web search. Impressed by its features, ease of use, and value for money, he implemented it. RENU began building workflows for check requests and merchandise returns. The success of these implementations led to the automation of other operations, such as claims processing, debit memo processing, and maintenance requests.

The Outcome:

Kissflow has become essential for managing many of RENU's critical processes. The company has experienced enhanced productivity, time-saving in process creation, increased accountability, minimal development time, and improved end-to-end trackability of processes. Michael praises Kissflow for its well-designed user interface and responsiveness to community input. Integrations with other apps via Zapier have further improved operations. Now, RENU looks forward to building an on/off-boarding process using Kissflow.

Utilizing a platform like Kissflow for business process modeling can be a game-changer for businesses. It allows organizations to visualize, analyze, and optimize their workflows in a user-friendly interface. 

This not only enhances productivity but also fosters improved collaboration and operational excellence. With its comprehensive and intuitive tools, Kissflow empowers CIOs and other business leaders to seamlessly align IT initiatives with broader business objectives, paving the way for strategic success in the ever-evolving landscape of technology and business.

You may also like:

  • BPM Definition [A complete BPM Guide]
  • What is BPMS? How Can It Help Your Organization?
  • Business Process Management Software
  • 10 Steps to a Successful Business Process Documentation
  • BPM Systems – The Best one MUST (will) have these 10 features
  • How To Make Simple & Effective Business Process.

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Denis Oakley & Co

Denis Oakley & Co

I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN

September 7, 2021 By Denis Oakley

Why Do Entrepreneurs Need Business Models?

This post is an extract of my forthcoming book on business model innovation . The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world .

Entrepreneurs need a business model because they are either

  • Doing new stuff
  • Doing stuff that is new to them

If you keep it all in your head, your thoughts are often not clear. There are always big chunks of your business that you don’t think about in enough detail. This is due to human psychology and the big package of cognitive biases that get thrown in free when we are born.

When we write long-form, it can be a mess and highly unstructured. I remember one client, a bitcoin entrepreneur, who gave me over 20,000 words in about five documents explaining what he wanted to do. It covered about 50% of what he needed to do to deliver on the value proposition, and we summarized it in less than a thousand.

Entreprenuers and Business Models

Entrepreneurs need business models because they help to challenge their assumptions.

We are all subject to confirmation bias. We see the things that confirm our own beliefs, and we ignore inconvenient evidence. Theranos in 2016 had clearly been in trouble for some time. It was only then, though, that the bad news became powerful enough to break through the dream unicorn story.

Business models thus let you challenge on a systematic basis. By making it clear that your value proposition is P and your key customer segment is Q you can ask the question “What evidence is there that P solves Q’s problem?”

In many cases, entrepreneurs make a mistake and assume that if they create a value proposition P, then there will be a customer segment Q that will need it. It may be R, S or T, or Nul. There are many ways that we can test for these.

The simplest is:

  • What if X is true. Here you vary some input or environmental conditions to see if the assumptions hold out.
  • Do Nothing. Here you say what would happen if we did nothing here r we didn’t have that resource. It is a subset of the above, and it helps parse the model down to what is critical.

So, challenging an entrepreneur’s assumptions is a super powerful part of the business tool. The biggest benefit of this is that it cuts away a lot of the fat. What is critical for success? What do we need to do? And what do I focus my very limited time and resources on?

In the words of Tim Ferriss, it is the “difference between being busy and being effective.”

Using business models like this has the wonderful effect of making your pitches more powerful. Many entrepreneurs when they start pitching launch into a stream of consciousness talk that quickly loses their listener.

A basic pitch strategy that is an improvement on this is to say

I solve problem X for Group Y by doing Z and making money by K

That gets the message across in fifteen to thirty seconds. Then they ask you more. That is perfect because the whole aim of a pitch is to capture interest. If they have control of the questions, there are plenty of rabbit holes that they can take you down. So, the next stage is to use the structure of a business model to structure the next two to five minutes.

Using the structure of the business model canvas, it goes something like this.

We offer this value proposition to this group of customers . We reach them using this channel , and we interact with them like this. To deliver value to our customers, we do these activities and need these resources . To do all this efficiently, we have a range of partners . Our costs are driven by spending in these categories, and we cover these costs and make a profit by generating revenue from this.

Uber’s Business Model

We offer fast and convenient urban transport to middle-class city dwellers . They book our cars using a smartphone app with no human interaction . To do this we need an IT system that allows customers to be instantly matched with drivers and which ensures that supply and demand are kept in balance. This is all powered by powerful city-by-city marketing, driver recruitment and retention, and product development teams . Our partners are the drivers who ‘freelance’ for us on a part-time basis providing us with their time and their cars. Most of our costs are incurred in paying the drivers for their time and in marketing to gain market share and local dominance/quasi-monopolies. We make money from the fees that customers pay for the journeys they take.

This provides a powerful framework for pitches and allows investors, clients, and staff to quickly grasp what you are about.

Business models are also exceptionally good at allowing business ideas or concepts to be challenged. When a business model is laid out simply, and clearly it can be understood. This allows co-founders and mentors to ask detailed questions about each aspect. How and why does this work?

Business Model as a Challenge

Flipping that on the head, a business model can be used to challenge existing ways of working. Heading back to the example of Uber. Before ride-sharing, there were several taxi companies in most cities. There was a big problem in finding a taxi at the right place, time and price. So the Uber founders mapped out the business models of different taxi companies and then started looking at how they could be challenged.

Alternatively, when you need to pivot, it’s a clear and powerful way of saying “This is what we were doing. This is what we are going to do. This is why”. That can create a compelling narrative for both staff and investors.

If You Want to Read More

I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with

Subscribe to the New Book Chapters

As I write each new section you can have them sent to your email. The plan is to write something 2 – 3 times a week. It is easy to unsubscribe, but I hope you won’t as the goal is to delight and entertain as well as educate and train you through this business model innovation journey.

  • The Ultimate Guide to Creating Powerful Business Models
  • The Uber Business Model Canvas
  • I Need Change!
  • What Problems does a Business Model Canvas Solve?
  • Competitor’s Business Models Weaknesses

About Denis Oakley

Explorer | Trail Runner | Mountain Lover

'Big' companies are civilisation. I stay in the wilderness guiding entrepreneurs and startups on their journey to becoming 'Big'.

Then I head back to the frontier

Strategy | Marketing | Operations

Ready to start?

Why Do Entrepreneurs Need Business Models?

I help entrepreneurs transform their industries through wiser choices

Outcome : More Traction, Bigger Rounds, Better Products

Method : Problems, Customers, Business Models, Strategy

why do we need a business model

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Key Benefits of Business Process Modeling

In April, I (David, 26*) joined edorasware, representing a business sector I’m experienced in that I believe will offer new challenges with a new team and different culture, which I expect will end up being a very enriching experience for me.

When I arrived, I received a really warm welcome and quickly adapted to the new environment. So far, I am proud to be part of a team where quality assurance really matters and every idea is taken into account, allowing me to truly have the possibility to make an impact.

I’m confident that the increasing talent pool and great potential of its main products — edoras one and, in particular, the latest addition, Flowable — are key factors that can position edorasware as one of the most innovative companies in Business Process Modeling (BPM) for years to come.

For me, as an industrial engineer with a background in business processes improvement and a passion for coding at the same time, it is incredibly rewarding to work as a developer in the overlapping area between business and IT, which deals with automating work and simplifying things by using IT, providing business solutions to different sectors. Here is where Business Process Modeling is of great relevance, and that is why, in this post, I will describe some key benefits of this practice and then present my experience at edorasware with regard to these advantages.

Business Process Modeling is a combination of various process-related steps — such as process mapping, process discovery, process simulation, process analysis, and process improvement — aimed at improving business performance by optimizing the efficiency of connecting activities in the provision of a product or service.

BPM has emerged during the last few decades and has replaced previous organizational efficiency practices, such as the Time and Motion Study (TMS) and Total Quality Management (TQM).

Following are some of the key advantages BPM allows you to achieve.

1. Align operations with business strategy

Implementing a business strategy or new business model requires changes in the operations and in how people perform their work.

Business process modeling facilitates this by helping managers and executives ensure that business processes are consistent, and enable business execution toward achieving the overall strategy and goals of the organization.

2. Improve process communication

Having a very clear idea of what should be done, how it is supposed to be done, and what the exact role of every team member entails, represents key factors that lead businesses and teams to success.

Business process modeling enables the documentation and communication of an organization’s business processes. It provides a common, unified language and methodology for communicating processes, information and guidelines about the processes; it minimizes the loss of business process knowledge (for example, as a result of a loss of staff); jumpstarts the organizational process documentation initiative; and, allows for rapid knowledge transfer with thoroughly documented processes.

3. Increase control and consistency

Successful companies and organizations also attach high importance to well-designed business processes and rules to ensure that they are consistently applied the same way every single time.

Business Process Modeling makes this possible, as it provides the formalization of existing processes that may not be well-documented, eliminates guesswork, and ensures that these documented processes follow the company guidelines and legal regulations.

4. Improve operational efficiencies

The process simulation and analysis steps of BPM provide understanding of the process flows and helps managers determine if there is room for further optimization, improving the process cycle time, enabling better resource utilization, and allowing modeling of the process before actually implementing it, thus minimizing disruptions.

5. Gain competitive advantage

All the benefits mentioned above lead to a significant competitive advantage for an organization that has invested the time and effort to document, simulate, constantly refine, and improve its business processes.

A business that has aligned its operations with its strategy, is agile, has control over its processes, runs efficiently, and has a well-trained staff, is likely to be performing at its best.

At edorasware, I have the opportunity to learn from many colleagues who are experienced developers or business analysts through a collaboration platform used to create, organize, and discuss work. This is actually a very useful documentation practice that provides employees with coding guidelines (for example, how to deal with error logging) — information on how to set up a programming environment or how to create a branch from a master project within others — avoiding loss of knowledge and increasing consistency.

Business analysts and requirements engineers are responsible for gathering and negotiating the requirements of the client: splitting this whole package into dif-ferent tasks that would then be performed by the developers, who are responsible for developing, testing, and documenting the tasks performed, following a documented task lifecycle. Afterwards, the work is evaluated by all team members to assure code quality and consistency. While business process modeling relates to many aspects of management (business, organization, profit, change, projects, and so on), its detailed technical nature and process-emphasis links it closely with quality management and the analytical approaches and responsibilities arising in the improvement of quality.

As a team, we also put heavy emphasis on effective communication by implementing team-focused approaches such as Scrum, which provides a framework for continual feedback and exposure to make sure that quality is as high as possible, improving progress visibility and increasing project control.

Put simply, business process modeling aims to improve business performance by optimizing the efficiency of connecting activities in the provision of a product or service.

*About the author:

Name: David Santiago

Education: Industrial Engineering, Universidade de Vigo (Spain)

Start at edorasware ag: 18/04/2017

Title: Full stack developer

Projects: eDiscovery (Finance)

AdobeStock_276700411, Sergey Nivens

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  • The top GenAI performers have the biggest lead across five main capabilities: a clear link to business performance, modern technology infrastructure, strong data capabilities, leadership support, and a grounding in responsible AI.
  • Companies at the earliest stage of adoption should start with a few priority projects, leverage outside partners and turnkey systems, and tailor their technology governance to keep early GenAI projects on track.
  • Those with GenAI pilots underway should reprioritize the project portfolio based on potential value, assess core technology and data requirements in the context of GenAI, and upskill their people to thrive with the technology.

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Generative AI

/ slideshow, what genai’s top performers do differently.

By  Amanda Luther ,  Romain de Laubier ,  Nicolas de Bellefonds ,  Tauseef Charanya ,  Suraj Shah ,  Kevin Ifiora , and  Patrick Forth

Key Takeaways

Roughly a year after its launch, generative AI (GenAI) is already helping some companies create value in startling new ways. GenAI is different from earlier tech advances—more accessible to frontline employees, with a wider range of applications. A select tier of companies is capitalizing on these differences and leading the way in scaling the technology across their entire organization. As a result, they are not just experimenting with GenAI but using it to unlock efficiency gains, improve the customer experience, and boost revenue. For an organization with $20 billion in revenue, we estimate that GenAI can lead to gains of $500 million to $1 billion in profit, with nearly a third of those gains coming in the first 18 months.

Yet most companies—roughly 90% in our analysis—are further behind in their use of GenAI. These organizations often don’t know how to get started, they don’t know which applications are most impactful for their sector, and they don’t know the specific steps to take to catch up. To that end, we recently surveyed more than 150 senior executives globally across 10 sectors to understand where organizations are succeeding with GenAI. We supplemented that with in-depth interviews and our experience with nearly 200 GenAI client projects across industries and geographies.

This comprehensive research enabled us to develop a set of prescriptive, data-driven steps for how lagging companies can accelerate their adoption of GenAI and start scaling projects across the enterprise. These are the early lessons from the leaders in GenAI—and a playbook for others to take action on immediately.

Segmenting the Landscape of GenAI Adoption

Our analysis shows that companies can be grouped into three categories, based on their level of GenAI adoption so far. (See Exhibit 1.)

why do we need a business model

The top 10% of companies are scaling at least one GenAI application across the enterprise. These companies are currently winning in their use of GenAI by moving out of the pilot stage and beginning to capture real value from the technology. Moreover, they’re on the path to reimagine entire functions—or the overall enterprise—through GenAI. Overall, this group is also far more likely to have a solid foundation in predictive AI, which focuses on analytical tasks. Yet they are not satisfied with their current status. As a group, they are four times more likely than the other companies to have increased their investment in digital and AI due to the emergence of GenAI.

Although some of these organizations are digital natives like Amazon and Google, a full two-thirds are incumbent companies in industries like energy, insurance, and biopharma. For example, a US energy company launched a GenAI-driven conversational platform to assist frontline technicians, increasing productivity by 7%. A biopharma company is reimagining its R&D function with GenAI and reducing drug discovery timelines by 25%.

Roughly 50% of companies are in the pilot stage. Companies in this group have begun their GenAI journey and are developing a few focused pilots to test the technology’s value. Most of these companies have had some success with earlier digital and AI initiatives; however, they are not yet scaling them across the organization.

About 40% of companies have taken no action. The third group of companies have yet to take significant action on GenAI. The majority are still grappling with earlier digital and AI initiatives and lack many of the foundational capabilities to succeed, such as modern tech infrastructure or reliable, accessible data. Leaders in these companies may not have a robust understanding of GenAI and thus don’t see the need to take more ambitious steps to implement it.

Why GenAI Is Already Reshaping Businesses

Technology has been advancing for decades, and many companies have worked to digitize their processes and functions. Yet GenAI is different. In our research, roughly two-thirds (65%) of senior executives say it has the greatest disruptive potential of any technology over the next five years. And one-third have already increased investments, despite the tight cost environment. Why are executives so bullish on GenAI?

  • It has a faster time to value compared with other software. Based on the three broad value plays— deploy, reshape, and reinvent —leading organizations can rapidly put GenAI solutions in place and start realizing benefits in as little as three months, especially by leveraging plug-and-play applications. In basic tasks, employee productivity can increase by 10% to 20%.
  • More ambitious applications can generate correspondingly larger benefits. Using GenAI to reshape functions or invent new business models can take longer—one to three years—but trigger a much bigger impact. For example, a consumer goods company is building a GenAI-powered conversational assistant to provide customers with personalized diagnostics, trend discovery, product recommendations, and virtual try-on services.
  • The most valuable GenAI applications are already apparent. More than 50% of executives point to marketing and sales, customer operations, R&D, and IT/software engineering as the biggest value pools for GenAI. At the same time, the technology offers many sector-specific applications as well. The slideshow below shows the most impactful GenAI applications across several industries.

why do we need a business model

  • The initial GenAI applications that companies deploy are usually geared toward increasing productivity or improving customer service, but GenAI also creates new revenue streams. Of a typical GenAI portfolio, about 60% of initiatives reduce costs and 40% increase revenue (including through applications that boost engagement and increase customer satisfaction). This also increases the strategic nature of GenAI: opening up a lead on competitors offers opportunities for sustainable advantages in cost, customer service, and value propositions.

The Key Capabilities Companies Need to Scale GenAI

Our analysis points to five specific capabilities that separate the top 10% of companies from the rest. These are the areas where leaders show the strongest performance and have the biggest gap over the competition. (See Exhibit 2.)

why do we need a business model

A clear link to business performance.

More than 70% of scaling companies explicitly tailor their GenAI projects to create value. That can be both financial value (increased revenue and reduced costs) or non-financial value (such as an enhanced customer experience). Scaling companies are over 20% more likely to perceive GenAI’s potential to drive top-line growth versus cost savings potential only. In contrast, fewer than one-quarter of bottom performers link GenAI projects to value. Further, scaling companies tend to focus on a small number of targeted applications that can create significant value when scaled, rather than a more fragmented, scattershot approach. These often combine the foundational capabilities of predictive AI, which is strong in traditional left-brain activities like analysis, with GenAI’s strengths in right-brain activities like content creation. (See Exhibit 3.) 

why do we need a business model

Modern technology infrastructure.

Leading companies are three times more likely to have a modern, modular IT infrastructure. This enables companies to develop new, GenAI-powered services on top of foundational AI models and to seamlessly work with outside developers. Compared to lagging companies, these top performers are also 1.5 times more likely to focus on building the GenAI stack internally over the coming three years, underscoring their desire to make the technology a core capability for the organization.

Strong data capabilities.

Top performers are twice as likely to have data pipelines and data management practices in place, helping them to source and store high-quality data (even from unstructured data sources). This is a critical element of GenAI, given that models are only as strong as the data on which they’re trained. As the head of data and analytics at a global media company said, “If training data is biased or lacks the diversity of our global audience, the outputs from GenAI tools will replicate those issues, which would impact our ability to serve our markets around the world.”

Critically, tech infrastructure and data capabilities are not formal, ironclad prerequisites to create value from GenAI. These attributes help, but some organizations find success even with less mature skills in these areas— though it may take them longer as they need to address the specific infrastructure and data capabilities in parallel.

Leadership support.

As with any change initiative, support from leadership is crucial. Scaling companies are three times more likely than no-action companies to have leaders who prioritize innovation and actively support GenAI across the company. These leaders usually have a deep understanding of the technology’s potential impact on their industry, and they are publicly committed to ensuring that the organization harnesses it in ways that generate value. As the head of data and analytics at a global media company said, “Visible support and commitment from our leadership team has been crucial, as it provided the freedom to experiment and deal with failures along the way.”

Guidelines and processes for responsible AI.

GenAI is a new and rapidly evolving technology, with implementation risks for organizations that do not understand it. But there are well-known ways to mitigate the risks, such as putting “humans in the loop,” using only factual data, and—critically—implementing responsible AI . Our research shows that leading companies are far more likely to have developed guardrails, guidelines, and policies to ensure that they follow the principles of responsible AI . In the findings, the share of scaling companies that are cautious about the potential misuse of GenAI and taking proactive measures to address these risks is 20 percentage points higher than the share of companies taking no action in this area.

As the head of data and analytics at a global media company said, “Sometimes we deal with highly sensitive personal identifiable information or content that is pre-release, so policies have to be very clear on what people can and cannot do with GenAI.”

Priorities for Lagging Companies to Close the Gap

It is imperative for companies that have been slow to embrace GenAI to take decisive action and ramp up their aspirations for the technology. Our research points to specific recommendations for both groups.

Priorities for “No Action” Companies

The 40% of companies that have yet to take action with GenAI should focus on leadership support, identify a small number of priority applications, work with outside partners, and tailor their approach to governance.

Turn leaders into informed advocates. More than half of the companies yet to take action on GenAI cite a lack of sufficient knowledge among leaders as a key barrier. Accordingly, leaders should educate themselves about the potential value from GenAI and push the organization to embrace the technology. As the GenAI product lead at a scaling company said, “Changing people’s working habits is tough. We use a top-down approach to drive adoption by setting targets for usage and measuring progress.”

Start with a small number of priority applications. Companies do not need to start from scratch—the highest value applications by sector are already well-known. Organizations can choose several that are most applicable to their needs and apply a minimum-viable-product approach to developing them. An agile team can determine the data required, the means to access that data, and the people needed to develop, implement, and run the solution—all within months. “Once we defined a set of projects that were technically feasible, we assessed them against each other in terms of their value and impact on the business,” said the head of technology strategy and transformation at a global financial services company. “And we used that assessment to make the hard choices needed to prioritize.”

Leverage outside partners early on. Over 40% of no-action companies cite the absence of modern tech infrastructure as a key barrier. But revamping IT infrastructure takes time. Instead of waiting, companies can work with outside partners and rely on turnkey GenAI platforms, enabling them to get solutions into place quickly. As the head of data and analytics at a scaling global media company said, “You don’t need advanced tech infrastructure to carry out a pilot. We have an ecosystem of partners that we’ve screened carefully, and we work with them to quickly run pilots.”

Tailor governance to the needs of GenAI projects. At many organizations, the governance for major technology projects is weak, and without sufficient attention, initial GenAI pilots can quickly go off-track. Rather than trying to solve this, companies should create bespoke governance specifically for GenAI projects. Some companies are creating GenAI centers of excellence to spur rapid action and lead to greater impact—with appropriate governance built in. The right approach should enable fast decisions and interventions to maintain progress, while ensuring that the necessary functions (including risk and compliance, procurement, IT, and business owners) are involved as required. Over time, as companies gain momentum with GenAI, they can continue to refine their governance model to address a broader set of applications.

Priorities for “Piloting” Companies

Compared to “no action” companies, the 50% of companies in the pilot stage reprioritize their portfolio of projects already underway, re-evaluate tech infrastructure and data requirements, and adjust their people strategy.

Reprioritize applications. As awareness of GenAI grows, companies at this stage are often inundated with requests to deploy GenAI solutions across the organization, leading to fragmented, isolated efforts. To improve, companies need to assess their portfolio of projects and reprioritize them based on potential value. “It’s easy for people to fall in love with an initiative and not pay attention to the actual value being delivered,” said the digital and innovation lead at an energy company. “We were ruthless in looking at business cases to determine which initiatives to scale. If a pilot fell short, we deprioritized it or killed it outright.”

Re-evaluate technology and data requirements. Modernizing technology and data infrastructure is a long and challenging quest. But companies can be smarter about the process based on the lessons from early pilots. After several initiatives are done, it’s essential to re-evaluate the core technology and data aspects needed to support broader adoption of GenAI. For example, about 50% of piloting companies say that siloed data represents a key barrier at this stage. This process can ensure that GenAI requirements dovetail with the broader technology needs of the organization, and it helps leaders make decisions about which capabilities to build internally versus which to outsource to partners. 

For example, a multinational financial services company considered cloud solutions for some GenAI applications but ultimately brought that capability in-house. “The significant costs associated with GenAI factored into our decision,” said the head of technology strategy and transformation. “We use our on-premise processors to train GenAI models so we don’t feel the pinch of training costs on the cloud.”

Improve the people strategy to accelerate adoption. As GenAI gets embedded and data becomes democratized across the organization, companies need to adjust their people strategy to ensure that workers have the skills they need to thrive with the technology. Yet piloting companies are 20% less likely than scalers to have upskilled their workforce on GenAI. And executives believe that 44% of their workforce will need to be reskilled in the next three years due to the impact of GenAI on their current roles. In some cases, the right approach is to work with employees in developing new tools, which can generate buy-in and support.

As the digital and innovation head at a European oil and gas company told us, “We needed to appropriately engage employees at the front line in helping to develop one of our GenAI tools, because they could strongly resist adoption if they misunderstand the purpose of the technology and assume it would replace them.”

GenAI is becoming an integral part of business ecosystems and is already a strong source of value and competitive advantage. But only 10% companies have mastered how to scale GenAI to create value. GenAI is still a new, evolving technology, but each new release offers more value to corporations. The GenAI leaders have forged a path to early success. The risk for their competitors is to be left behind as the best players increase their advantage further by shortening their times to at-scale deployment and focusing more on reshaping and invention. The time is now for other companies to put these learnings into practice and begin reaping the benefits of this transformative new technology .

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