A Practical Guide to Business Modeling
Business Model Canvas — the WHAT, the HOW & the WHY
The Business Model Canvas represents a valuable framework which is used by many small and big organizations all over the globe. With its flexible yet simple application, it has helped many companies to improve existing businesses, create new ones, and develop better strategies for the future.
When we work with clients, whether it is building up on and developing existing ideas, or completely innovating a business model, the canvas is one of the most used tools here at LHBS. Interestingly enough, despite most managers being aware of the canvas and with the vast amount of information about business modeling online — many organizations still struggle and encounter difficulties in applying the Business Model Canvas to their company.
In order to give a simpler framework to the process, I wanted to explain the most important aspects about the what, the how and the why of business modeling. If you are more ‘the visual type’ of person, you can also click through the Slideshare presentation, giving you a brief overview of all essentials.
THE WHAT
A business model is a holistic and systematic approach to define, create and analyse a business or idea.
In general, there are several ways of defining your business. However, the Business Model Canvas offers one of the most holistic approaches that creates a system out of the most essential aspects of your business and shows the interdependency and relevance of each building block. A business model helps you to answer the most important questions about your business (e.g. Who is the customer? What is the value? How does it make money? Who and what does it need for realization? etc.)
In general, there are different forms and frameworks for business models. I personally find the Business Model Canvas by Alexander Osterwalder, the most useful one. Its simple design empowers businesses and entrepreneurs to create, visualize and test business ideas without being too complex.
It consists of 9 building blocks, divided into 2 sides. On the right side, you can find all important aspects related to the customer, displaying the value offered to the target group. Whereas on the left-side the back-end is being defined, showing all efforts how to reach the customer and deliver the value. Both sides mirror and complement each other to create an interconnected system out of all building blocks.
THE HOW
In general, a business model assists throughout the entire phase — from the very early stage of idea generation, up to the last part including the execution and roll out.
- Define: helps to define & assess the current business model or idea
- Discover: helps you to identify ‘white spaces’ for growth & innovation opportunities
- Develop: helps you to generate valuable, new ideas & business models
- Deliver: helps you to test developed ideas & business models
Being such a versatile tool, the business model can be used on various levels of your organization — from an overall industry model to a single company, as well business units or even single products or services.
Most often entrepreneurs use the canvas to develop an entirely new business or to create a new product/service within the existing business model.
However, a business model is also a management tool that serves as a valuable tactical layer and intermediary between the overall strategy and the hands-on business process. With the help of the business model, the highly aggregated and often abstract information of a strategy can be translated into a more tactical level. It also works vice-versa, converting the operational information of the business level to a useful basis for strategic guidelines. Furthermore, it can assist the organization in decision making and managing change, planning as well as implementation.
With so many usage advantages, it is easy to see why the business model is an easy yet highly appreciated tool that gives a systematic overview of the most important aspects of the business or an idea. It has a huge value when it comes to communicating an idea or the core of a business to stakeholders. Additionally, it has proven to be especially helpful not only to transform key elements of the business, but also to invent completely new ways of doing business.
THE WHY
Business Model has various valuable uses cases, here are the ones that I found most interesting.
A business model helps you to define your idea and align all stakeholders.
The Business Model Canvas is an easy tool to define the key parameters of your business idea. Once it is filled out, it represents a practical way to communicate most important information to your stakeholders and also serves well to align the goals with your team members.
Since all the core aspects of a business can be seen on one page, it also helps people to see the big picture of a business idea — which is a crucial basis for jumpstarting the innovation process and further development.
A Business Model helps you to create the right ideas.
My experience working with business modeling has shown me that many people use a business plan to describe their potential idea. Although a business plan is a great tool to understand the details of an idea it unfortunately, limits the general overview, without giving the reader the key business aspects — which leads to the idea being judged upon these single or isolated aspects. The bigger picture, and more importantly, the connection between all the core aspects, seems to be lacking.
“It’s said that no business plan survives its first contact with customers. As soon as it’s out there, the first thing you want to do is burn it, and you feel like you wasted all this time.” Osterwalder
In my opinion, the strongest advantage of the business model is that it allows to put the business idea into a holistic system that is interconnected, at the same time showing the interdependencies between the core parameters at one view. The right side represents the customer side and how to sustain the value & customer (value caption) and the left side shows how the value is created (value creation) with all the efficiency & logic behind.
All of this allows the business ideas to be rapidly tested and examined by checking if all of the boxes work in harmony and support each other.
A Business Model helps you to innovate.
In a highly fluctuant and constantly evolving world CEO’s see innovation as the most important aspect for their business in order to survive and grow in a complex environment.
Interestingly enough, the approach towards innovation has certainly evolved over the last decades. Increasingly, organizations realized that the huge potential of innovation goes beyond merely improving and adapting new features and functions of products. Innovation is considered by far more powerful when developing and disrupting the system around the product (the production, the promotion, the provided service, the finances etc.).
As the Global IBM CEO Study revealed, ‘business model innovators’ outperform traditional innovators (product, service, market, operations innovations) by showing a 5 times higher growth.
Abusiness model helps you to define & assess the current business model in order to identify ‘white spaces’ for growth and innovation opportunities. By using the Business Model Canvas as an idea template, new ideas can be easily tested and alternative business models rapidly prototyped. So, go ahead and create exciting new products and business models — just do not forget to team up and check the ideas with your target audience and stakeholders before the roll out.
This article was first published at: http://www.lhbs.com/news/2015/11/17/a-practical-guide-to-business-modelling and co-created with Stefan Erschwendner.
