Content of this unit
What is a business model?
A business model describes the rationale of how companies create, deliver and capture value. It is not a strategy, but an instrument that provides insight into how a company does business.
A business model shows assumptions about customers, revenues, costs, competitors and user needs, and shows what is used as business logic.
Before you create a business plan and financial forecast, you need to understand your business model.
A generally accepted way to structure a business model has been developed by Osterwalder and colleagues who have identified nine building blocks that describe how a company creates value: Business Model Canvas. By filling in its nine building blocks, essential components of the business model are defined and the feasibility and completeness can be determined ( Osterwalder, Pigneur, & Tucci. 2005 ). The business model Canvas is a great tool for developing new or documenting existing business models. It is a visual chart with elements describing your business model and assists you in aligning your activities by illustrating potential trade-offs.
Together these elements provide a pretty coherent view of a business’ key drivers:
• Customer Segments: Who are the customers? What do they think? See? Feel? Do?
• Value Propositions: What’s compelling about the proposition? Why do customers buy, use?
• Channels: How are these propositions promoted, sold and delivered? Why? Is it working?
• Customer Relationships: How do you interact with the customer through their ‘journey’?
• Revenue Streams: How does the business earn revenue from the value propositions?
• Key Activities: What uniquely strategic things does the business do to deliver its proposition?
• Key Resources: What unique strategic assets must the business have to compete?
• Key Partnerships: What can the company not do so it can focus on its Key Activities?
• Cost Structure: What are the business’ major cost drivers? How are they linked to revenue?