What is a Business Model?

What is a Business Model?


By David Willden

What is a Business Model? A business model should be a critical component of your strategic thinking and strategic planning.   A business model describes how your organization creates and delivers real value to your customers.

There are four key areas that should be addressed in describing your business model:    customers, employees, operations and financials.

Customer

  • For whom are you providing real value?
  • What customer problem are you solving?
  • What products and services are you providing that best serve their needs?

Employees

  • How are you helping your employees to provide real value to your customers?
  • How are you helping your employees to grow and to reach their fullest potential?
  • How are you employees a key part of your planning and improvement efforts?
  • How are you providing a great environment for your employees to work in?

Operations

  • What are your customer value add (core) processes?
  • How are you optimizing these processes to provide the greatest value possible to your customers?
  • What are your support processes?
  • How are you ensuring that your support processes provide extraordinary value to your core process?
  • If the support processes are not key to providing value to your customers, what are doing?

Financials

  • How are you growing your revenue by providing real value?
  • How are  you optimizing your cost structures?


The Scarcity vs. Abundance Mentality Angle

The 7 Habits of Highly Effective People

Stephen R. Covey discusses two different mindsets or mentalities that individuals and businesses can have.   One is the “Scarcity Mentality.”     Quoting Stephen:

  • Most people are deeply scripted in what I can the Scarcity Mentality.  They see life as having only so much, as though there were only one pie out there.  And if someone were to get a big piece of the pie, it would mean less for everybody else.
  • The Scarcity Mentality is the zero-sum paradigm of life.  People with a Scarcity mentality have a very difficult time sharing recognition and credit, power or profit – even with those who help in the production.  They also have very hard time being genuinely happy for the success of other people.”

The other mentality is the “Abundance Mentality.”  Quoting Stephen again:

  • The Abundance Mentality, on the other hand, flows out of a deep inner sense of personal worth and security.  It is the paradigm that there is plenty out there and enough to spare for everybody.  It results in sharing of prestige, of recognition, of profits, of decision making.  I opens possibilities, options, alternatives and creativity.

The 7 Habits of Highly Effective People

Competitive Risks and Advantage Angle

Competitive Advantage: Creating and Sustaining Superior Performance

There are many executives and strategist that emphasize developing competitive barriers.    For instance,  Michael Porter stresses that businesses look systematically at competitive risks or threats,  set up barriers,  and find and leverage advantages.  The threats include new competitors, new substitute products or services,   competitors having access to cheaper supplies, buyers demanding lower costs or more features, etc.  What is a Business Model?


Michael Porter Five Forces Model

Michael Porter Five Forces Model Michael Porter Five Forces Model By Michael Porter provided the five forces model that identifies the most powerful driving forces within industries.


David Teece, in his article Business Models, Business Strategy and Innovation,  writes:

  • Having a differentiated (and hard-to-imitate) – but at the same time effective and efficient – architecture for an enterprise’s business model is important to the establishment of competitive advantage.  The various elements need to be co-specialized to each other, and work together well as a system.  Both Dell Inc., and Wal-Mart have demonstrated the value associated with their business models.  Dell and Walmart’s business models were different, superior, and required supporting processes that were hard for competitors to replicate.

David indicates that barriers to imitating a business model include:

  • Implementing a business model may require systems, processes and assets that are hard to replicate.
  •  There may be a level opacity that makes it difficult for outsiders to understand in sufficient detail how a business model is implemented, or which of its elements in fact constitute the course of customer acceptability.
  • Even if it is transparently obvious how to replicate a pioneer’s business model, incumbents in the industry may be reluctant to do so if it involves cannibalizing existing sales and profits or upsetting other important business relationships
  • Every new product development effort should be coupled with the development of a business model which defines its ‘go to market’ and ‘capturing value’ strategies?

What is a Business Model?

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What is a Business Model?