2 November 2019 | Business model is different from business plan. Business model addresses four questions:
- Who is your target customer?
- What do you offer to the customer?
- How do you create the value preposition?
- How do you generate revenue? Why is your business profitable?
Who: The Customer – Who are our target customers? Customers, who pay you, are always at the very heart of every business model.
What: The Value Proposition – what do we offer to customers? This defines your offerings (products and services) and describes how you cater for target customers’ needs.
How: The Value Chain – How do we produce our offerings? In order to put your value proposition into effect you need to carry through various processes and activities in conjunction with related resources and capabilities and their coordination along the company’s value chain make up the next dimension of business model design.
Why: The Profit Mechanism – Why does it generate profit? This dimension, which includes aspects such as cost structures and revenue-generating mechanisms, clarifies what it is that makes a business mode financially viable. It provides an answer to the central question that every company needs to ask: how do we produce value for our shareholders and stakeholders? Or simpler: why does the business model work commercially?
Defining business model innovation includes four steps:
- Initiation: analyze your current business model (re-answer the four questions)
- Ideation: confront current business model with 55 patterns of business model innovation and develop new models
- Integration: check the consistency of the business model. No need to invent new business model. Better to adapt the existing 55 patterns into your business.
- Implementation: build-test-learn
Patterns of Business Model
- Razor & Blade: The basic product is cheap, or given away free. The consumables that are needed to use or operate the basic product, on the other hand, are expensive and sold at high margins. Example: Nespresso, Amazon Kinlde, Apple Ipod
- Freemium: The basic version of an offering is given away for free in the hope of eventually persuading the customers to pay for the premium version. Example: Skype, LinkedIn, DropBox
- Peer to Peer: This model is based on a cooperation that specializes in mediating between individuals belonging to an homogeneous group. It is often abbreviated as P2P. Example: eBay, Airbnb, RelayRides
- Self-Service: A part of the value creation is delivered to the customer in exchange for a lower price of the service or product. This is particularly suited for process steps that add relatively low perceived value for the customer, but cause high costs. Example: McDonald’s, Ikea
- Subscription: The customer pays a regular fee, typically on a monthly or an annual basis, in order to gain access to a product or service. Example: Salesforce, Netflix