11.2 Designing the Business Model
3 min read•june 25, 2024
Business models are the backbone of entrepreneurship, outlining how companies create and deliver value. They serve as blueprints for operations, helping entrepreneurs understand core business elements and make informed decisions about resource allocation and strategy.
The is a visual tool with nine key components, including , value propositions, and . It provides a comprehensive framework for designing and analyzing business models, enabling entrepreneurs to identify opportunities and risks in their ventures.
Business Model Design
Purpose of business models
Top images from around the web for Purpose of business models
Innovative Entrepreneurship Models in the Management System of Enterprise Competitiveness View original
Is this image relevant?
Business Model - Business Strategy - Business Level Stratety - Business Model Chart - What is a ... View original
Is this image relevant?
Entrepreneurship Learning Based on Business Model Canvas Creates Competitive Advantage View original
Is this image relevant?
Innovative Entrepreneurship Models in the Management System of Enterprise Competitiveness View original
Is this image relevant?
Business Model - Business Strategy - Business Level Stratety - Business Model Chart - What is a ... View original
Is this image relevant?
1 of 3
Top images from around the web for Purpose of business models
Innovative Entrepreneurship Models in the Management System of Enterprise Competitiveness View original
Is this image relevant?
Business Model - Business Strategy - Business Level Stratety - Business Model Chart - What is a ... View original
Is this image relevant?
Entrepreneurship Learning Based on Business Model Canvas Creates Competitive Advantage View original
Is this image relevant?
Innovative Entrepreneurship Models in the Management System of Enterprise Competitiveness View original
Is this image relevant?
Business Model - Business Strategy - Business Level Stratety - Business Model Chart - What is a ... View original
Is this image relevant?
1 of 3
- Describes how a company creates, delivers, and captures value
- Outlines key components and their interactions to generate revenue and profits
- Serves as a blueprint for operations and strategy
- Helps entrepreneurs and managers understand and communicate core business elements
- Facilitates decision-making and resource allocation by providing clear structure
- Enables identification of opportunities, risks, and areas for improvement
- Allows for testing and validation of business assumptions
Components of business model canvas
- Visual tool consisting of nine building blocks:
- Customer Segments: Specific groups of people or organizations the company serves (millennials, small businesses)
- Value Propositions: Products, services, or benefits that create customer value (convenience, cost savings)
- : Means of reaching and communicating with customers (website, retail stores)
- : Types of relationships established with customers (personal assistance, self-service)
- Revenue Streams: Ways the company generates income from value propositions (subscription fees, product sales)
- : Most important assets required for the business model (intellectual property, human resources)
- : Crucial actions the company must perform to operate successfully (software development, marketing)
- : Network of suppliers and partners that support the business model (manufacturers, distributors)
- Includes consideration of the entire to optimize operations and reduce costs
- : Costs incurred to operate the business model (salaries, rent)
Lean canvas vs traditional planning
- :
- Focuses on customer-centric and iterative approach
- Emphasizes validating assumptions through experimentation and feedback
- Encourages rapid prototyping and pivoting based on market insights
- Suitable for startups and businesses in uncertain environments (tech startups)
- Helps identify product- through continuous customer feedback and iteration
- Traditional business planning:
- Involves creating comprehensive and detailed business plan document
- Relies heavily on market research, financial projections, and long-term strategic planning
- Assumes more stable and predictable business environment
- Better suited for established companies or those seeking external funding (manufacturing firms)
Elements of social business canvas
- Adapted version of business model canvas incorporating social impact and sustainability
- Unique elements:
- : Positive impact the company aims to create for and society (poverty alleviation, environmental conservation)
- : Key performance indicators to measure and track social impact (number of people served, carbon footprint reduction)
- Beneficiaries: Individuals or communities that benefit from the social (low-income families, endangered species)
- : How the company allocates profits or surplus to further its social mission (reinvestment in community projects, donations to charities)
- : Decision-making processes and structures ensuring alignment with social purpose (stakeholder representation on board, transparent reporting)
Strategic Considerations in Business Model Design
- : Identifying and leveraging unique strengths that set the company apart from competitors
- : Understanding the network of organizations, suppliers, distributors, and customers that interact with the business
- : Developing new products or services that create new markets or significantly alter existing ones
Key Terms to Review (29)
Beneficiaries: Beneficiaries are the individuals or entities that derive benefits or value from a particular business model or strategy. They are the primary recipients or stakeholders who experience the positive outcomes generated by an organization's offerings or activities.
Business Ecosystem: A business ecosystem is a network of interconnected organizations and individuals that work together to create and deliver value to customers. It involves a dynamic and collaborative environment where various entities, such as companies, suppliers, customers, and even competitors, interact and co-evolve to achieve mutual benefits and shared goals.
Business Model Canvas: The Business Model Canvas is a strategic management and entrepreneurial tool that allows you to describe, design, challenge, and pivot your business model. It is a visual chart with elements describing a firm's or product's value proposition, infrastructure, customers, and finances, which helps enterprises align their activities by illustrating potential trade-offs.
Channels: Channels refer to the various ways a business connects with and delivers value to its customers. They encompass the touchpoints and methods through which a company communicates, sells, and provides its products or services to the target market.
Competitive Advantage: Competitive advantage refers to the unique capabilities, resources, or strategies that allow a business to outperform its competitors and offer superior value to customers. It is the foundation upon which a company can establish and maintain a strong market position, increase profitability, and achieve long-term success.
Cost Structure: Cost Structure refers to the various costs associated with operating a business, including fixed, variable, and semi-variable expenses. It is a crucial component of a business model, as it directly impacts profitability and the overall financial viability of an organization.
Customer Relationships: Customer Relationships refer to the connections and interactions a business establishes with its customers to acquire, retain, and grow its customer base. These relationships are a crucial component of a successful business model, as they directly impact a company's ability to deliver value and generate revenue.
Customer Segments: Customer Segments refers to the distinct groups of people or organizations a business aims to serve and reach with its products or services. It involves identifying and understanding the unique needs, behaviors, and characteristics of different customer groups to tailor the business offering accordingly.
Differentiation: Differentiation is the process of distinguishing a product or service from others in the market to make it more appealing to a target customer. It involves identifying and emphasizing the unique features, benefits, or characteristics that set a product or service apart from the competition, allowing it to stand out and capture the attention of the desired market segment.
Disruptive Innovation: Disruptive innovation refers to an innovation that creates a new market and value network, ultimately disrupting an existing market and displacing established market-leading firms, products, and alliances. It is a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up, eventually displacing established competitors.
Freemium: Freemium is a business model that offers a basic product or service for free, while charging a premium for advanced or additional features. The term is a portmanteau of the words 'free' and 'premium', reflecting this dual approach to pricing and product offerings.
Governance: Governance refers to the system of rules, practices, and processes by which an organization or entity is directed, controlled, and held accountable. It encompasses the decision-making structures, policies, and procedures that guide the management and operations of a business or venture.
Impact Metrics: Impact Metrics are quantifiable measures used to assess the effectiveness and influence of a business model or strategy. They provide a way to evaluate the real-world impact and outcomes generated by an organization's operations, products, or services.
Key Activities: Key Activities are the most important actions a company must take to operate its business model effectively. They are the essential tasks and processes that a business must perform to deliver value to its customers and ensure the success of its overall strategy.
Key Partnerships: Key Partnerships refer to the network of suppliers, vendors, and strategic alliances that a business establishes to optimize its business model, reduce risks, and acquire resources. These partnerships are crucial for a company to effectively deliver its value proposition and maintain a competitive advantage.
Key Resources: Key Resources are the essential assets, infrastructure, and capabilities that a business requires to create and deliver value to its customers. These resources are critical for the successful operation and implementation of a company's business model.
Lean Canvas: The Lean Canvas is a one-page business model template that helps entrepreneurs quickly identify and test the key components of their business idea. It is a streamlined version of the traditional business plan, focused on the essential elements needed to launch and validate a new venture.
Lean Model Canvas: The Lean Model Canvas is a simplified version of the traditional Business Model Canvas, focused on identifying the core elements of a business idea in a concise and efficient manner. It is a tool used in the context of designing and validating business models, particularly for startups and entrepreneurial ventures.
Market Fit: Market fit refers to the degree to which a product or service satisfies a strong market demand. It is a crucial concept in entrepreneurship, as it determines the likelihood of a business succeeding by ensuring that the offering aligns with the needs and preferences of the target customers.
Monetization: Monetization refers to the process of generating revenue or profit from a product, service, or platform. It involves identifying and implementing strategies to convert the value created by a business into financial gains.
Pivot: Pivoting refers to the act of making a strategic change or adjustment to a business model, product, or approach in response to new information, changing market conditions, or the identification of a better opportunity. It is a crucial concept in entrepreneurship that allows entrepreneurs to adapt and evolve their ventures to achieve greater success.
Platform: A platform refers to a foundational technology or infrastructure that enables the development and delivery of complementary products, services, or applications. It serves as a common base upon which other technologies, processes, or user experiences can be built, allowing for the creation of an ecosystem of interconnected components.
Revenue Streams: Revenue Streams refer to the various ways a business generates income or earns money from its products and services. They are the lifeblood of any successful enterprise, representing the different sources of revenue that contribute to the overall financial viability of the organization.
Scalability: Scalability refers to the ability of a business, system, or process to handle increasing demands or workloads without significant degradation in performance or quality. It is a crucial consideration for entrepreneurs as they seek to build sustainable and high-growth ventures.
Social Value Proposition: The Social Value Proposition is the unique set of benefits a business offers to address the needs and challenges of a specific social or environmental issue. It outlines how the company's products, services, or initiatives create positive impact and value for the target community or cause.
Subscription-based: Subscription-based refers to a business model where customers pay a recurring fee, often monthly or annually, to access a product or service. This model provides a steady stream of revenue for the business and allows customers to enjoy continuous access and updates to the offering.
Surplus Distribution: Surplus Distribution refers to the allocation and dispersal of any excess or additional resources, revenue, or profits generated by a business beyond its operational and financial requirements. It is a critical consideration in the design of a business model, as it determines how a company will manage and utilize its surplus funds or assets.
Value Chain: The value chain is a model that describes the series of activities a company performs to deliver a valuable product or service to the market. It encompasses the full range of activities required to bring a product or service from conception to delivery, including design, production, marketing, and distribution.
Value Proposition: A value proposition is a clear, concise statement that outlines the unique benefits a product or service offers to its target customers. It communicates the core value and reason why customers should choose a particular offering over alternatives. The value proposition is a critical element in entrepreneurial opportunity identification, business model design, and effective marketing and pitching strategies.