What’s your business model?

Business Model Innovation is en vogue. Looking at the dedicated websites and publications, both academic and practical, one quickly realises that most authors focus on developing frameworks for describing business models. My hypothesis is that as businesses get more complex, the need for relatively simple models to describe them increases. Which might explain both, managers’ and consultants’ interest in the topic.

These frameworks all try to break a business down to a manageable number of building blocks. Some can do with 4 such blocks (e.g. Johnson) others have 9 (e.g. Osterwalder) or 10 (e.g. de Mey and de Ridder).

Basically the business model describes how the pieces of your business fit together. It explains how value is created and delivered to the costumer at an appropriate cost and how the company generates revenues from doing so.

No matter what framework you prefer (and at the end of the day they are all variations of the same thing, i.e. a business), I think that the building blocks can be put into 3 categories:

• Who‘s your customer?
• What are you offering your customer?
• How are you doing this?

Let’s have a closer look into each of these questions and try to identify the core elements of each category and how you can describe your business along the 3 dimensions.

Who’s your customer?

Who are your customers and what are their needs? A relatively simple question one might think. A core element is this category are the different segments, regions, etc. you serve. Typical choices include mass market, niche markets, any kind of segmentation e.g. high-end, middle or low end. Or you can be diversified and serve unrelated segments. Who are your buyers?

What are you offering?

What’s your value proposition? What are you offering your customers in terms of products, services, solutions and experiences? How do you bundle the products and services? What’s your core offering? What kind of supporting products, services and solutions are you offering along the core? Which of your value propositions address which customer segments and which specific needs? How convenient and easy to use are your products and services?

How are you doing this?

How refers as much to how do organise yourself to produce your value proposition, as to how do you reach the customer.

How do you organise yourself? What are the key activities, resources (tangible and intangible, brand, people, technology, information,…), core competencies, assets? Are you doing everything yourself or do you rely on a network of partners? Who are your main partners?

How do you reach the customer? Which channels are you using? What stages of the buyer experience do you address with these channels? What’s the relationship you have? What’s your image and reputation?

How you answer these questions also defines your cost base and revenue streams, thus your margins and ultimately the profit your business will make (what Johnson calls “the profit formula”).

I suggest you start by explaining your business along these dimensions. In the coming weeks I’ll post some ideas on how to reinvent your business along these 3 dimensions. So stay tuned…

Tagged as: Business Model Innovation, Strategic Innovation