Wherever you turn today business owners, leaders, social media channels, books, blogs, and entrepreneurs talk about business models. It is a trendy term thrown around by so many and to such an extent that the power of a business model seems forgotten.
As a reminder, we ask and answer, four questions. What is a business model? What does a business model look like? Why are business models so popular today? Why every business, regardless of type, size, age, wealth, or industry, needs at least one.
What is a business model?
In 1973 Douglas T. Ross, an accomplished computer scientist, wrote about scientifically modelling a business. Since then the business model has been tested, updated and applied successfully many times by scientists, business owners and leaders globally.
The model (or graphic) conceptualises the core elements of a business regardless of type, size, age, wealth or industry. These elements detail how a business makes money; who the customers are and what channels are used to reach them; the unique value the business provides to customers; who to form strategic relationships with; what key activities the business performs to deliver this value and collect revenue; and how these elements are measured.
Most businesses have more than one model, for example, a model each for innovation, change, technologies, strategic partnerships and acquisitions. Professor for Technology Management at St Gallen University, Dr. Oliver Gassmann, in one of his academic papers written in 2014, lists 55 different types of business models! Some you may recognise as popular today. Freemium – where some service(s) are free, upgrade for additional functionality. Subscriptions - a monthly fee is charged for a set period, starting at an affordable price point, with the option to increase or decrease over time. E-commerce - the sale of products/services online. Performance based - a customer pays on results.
What does a business model look like?
Business models can either be explicit as written or drawn or implicit, unspoken or undocumented, yet no less powerful. Explicit business models can look different as seen in the four examples below.
Figure 1 Four examples of how business models can look different.
The quick answer is the business model(s) informs the business strategy.
A business model is a scientific concept model turning the key elements in any business into a graphic model. Key elements present in any business are the target market, how you reach your target market, what value you are providing them unique to what’s on the market already (what problem you are solving), how the business will bring in revenue, the key activities of the business required to deliver the value, and the expenses. Combined, these elements drive strategic decision-making in the business. The decisions are turned into planned actions with expected outcomes and deadlines as a strategy. Business level strategies would be more focused on the delivery of the key elements of unique value, increasing reach and expansion of target segments.
If you like, you can learn more about business and technology management here.
If you are currently looking at adopting a popular business model, whether it be for a new business idea or innovating or updating an existing business, a strong strategy would be to familiarise yourself with today's popular business models. Then adopt one (if possible) that will be widely adopted over the next 5 years. That way you can get ahead of your competition. Here is some useful information and a resource to get you started:
A strong, precise business model(s) can be a powerful tool for innovation, competitive advantage, decision-making, and culture development. Business models (BM) can either be explicit, written/drawn out, or implicit, unspoken/ undocumented, yet no less powerful. A business model can be a graphic, template, or text heavy document in the form of a business plan. Often businesses have more than one business model (BM). For example, a business may have one BM for each of the following:
Building and developing strategic partnerships
There are over 50 types of BM’s that most businesses fall into (Gassmann et al, 2014). Some of the most common today are:
Freemium (18) - use some of the service for free, upgrade for additional functionality;
Subscription (48) - pay a monthly fee starting at an affordable price point with the option to increase or decrease over time;
E-commerce (13)- sell products/services online;
Performance based (38) - the client pays on results.
St Gallens Business Model Navigator (Gassmann et al, 2014)
A strong, precise business model(s) can be a powerful tool especially during COVID and beyond.
Business models (BM) can either be explicit, written/drawn out, or implicit, unspoken/ undocumented, yet no less powerful.
Often businesses have more than one business model (BM). For example, a business may have a BM for innovation, change, technologies, building and developing strategic partnerships, acquisitions that focus on buying up established competitors with key skills/products/services that complement the business.
There are also over 50 types of BM’s that most businesses fall into (Gassmann et al, 2014). For example, freemium, subscription, flat rate, e-commerce, retainer.
Business model(s) (BM) are powerful tools to any size contemporary business if applied skillfully. Here are a few examples:
So, a business model is a vital, powerful tool at any time for any size business at any stage of development. During COVID especially because a business needs to know what decisions can be made, within which boundaries, while retaining its core and lead over competitors so that they business continues to succeed during and beyond COVID.
A business plan, explicit or implicit, is the blueprint of your business. So it is different for each business. Below are some general questions to answer.
In my experience working with start-ups and existing businesses, I find the best place to start is to graphically represent the business as a business model. It is far easier for everyone to understand the business when viewed as a graphic, and to build on.
I like to use an adapted version of Gassman, Frankenberger, and Csik (2014) “magic triangle” framework (below) as it provides a simple, easy to understand graphic of the information needed to create a business plan and model with the focus on the view from your customer’s perspective of the value you provide.
Each corner of the triangle and the centre can be developed with more information as your research develops. The details can easily transfer into a business plan and an interesting pitch deck for those presentations to potential investors.
Simply fill in the four circles. Who is your target market, what value are you providing your target market, how will you provide it, at what cost, price, and mark-up (pricing model)?
Now build onto your initial answers for each circle providing much more detail as you progress. Detail comes from your knowledge of your business and experience. It also comes from thorough research and analysis. For example:
These are some of the questions to answer. Once answered add the information you accumulate to the different triangle circles. Show you know your business, market, and finances.
Now you can easily transfer the information from the graphic into a old format business plan with headings such as described by SmartAsset Top 10 Components of a Business Plan - SmartAsset