Do You Know Your Employer’s Business Model?

If you are a passionate software developer who is motivated by more than just writing code, then you should consider learning about your employer’s business model and business models in general, so that you can play a significant role in making technical and business decisions.

I am just realising how lacking an understanding of business models has prevented me from making better day-to-day decisions and held back my workplace innovations.

But as I’m learning from the Business Model Generation book, I’m seeing so many ways I can increase my contribution on the products and projects I find myself involved in. This feels like a breakthrough in my career that will empower me to become a more effective problem solver, developer, and leader. 

In this post I will explain why, after I first share the definition of a business model.

What Actually is a Business Model?

If you asked me a month ago I’d have probably revealed subconscious assumptions or guesses along the lines of: “It describes how a business will make money showing sources of revenue and expenditure”. I’d have so little confidence in that being entirely accurate, though, that I’d caveat it with something like: “although I don’t really know”.

But now I do know, and I feel empowered by the knowledge I’ve gained from the jargon-free, visually-rich Business Model Generation. I understand a business model to be comprised of the following components which the book details:

Customer Segments
The different types of customers you serve, such as niche markets or mass markets.

Value Propositions
What you are offering that provides your customers with value. For example enabling them to book holidays easier with a modern website.

Delivery Channels
How you deliver value to your customers. In software this is often through a website or an app.

Customer Relationships
How a business interacts with its customers, impacting customer retention and acquisition. For example, personal assistance or self-service.

Revenue Streams
How a company makes money from each customer segment.

Key Resources
A company’s assets that help it to make money — including people, technology, or intellectual property.

Key Activities
The most important actions carried out by the business that help it to add value and make money. For example, software development.

Key Partnerships
Partners or suppliers who are essential to making the business model work. For a software consultancy, a partner may be essential for web design.

Cost Structure
What significant costs must your company pay in order for its business model to work? Software licensing, commission, or salaries could all be possibilities for a software company.

Business Model Canvas

From the same book I’ve also learned about the Business Model Canvas — a way to visually represent business models. It appears to be incredibly useful, and could be a simple way for employers to help employees understand their business model.

I’d highly recommend reading the book to learn more, but I’ve shown an example business model canvas below:

A Business Model Canvas. Source: Wikipedia

Types of Business Model

Many common business models are in use across different industries. Two common business models in software development are the loss-leading freemium model, and the multi-sided platform, where a software system brings together buyers and sellers, like eBay.

I believe that knowing about the different types of business model and the components they are made up of can allow you to make better day-to-day decisions and bring innovations to your company.

Aligning Day-to-Day Decisions with the Company’s Business Model

Every day as a software developer I play a significant role in making decisions that can have business-level impacts, including: how much effort to invest in a feature, how to deliver features, and what metrics to measure. 

By simply understanding the company’s business model, and having an awareness of business models in general, I have further insights that guide me into making better technical decisions. For example, one activity I carry out is helping b2b (business-to-business) clients create dashboards and reports to understand the needs and behaviours of their customers (or potential customers).

As I work with clients we spend a lot of time going through their daily processes, reviewing their products and working out what can be measured to help improve the product and evolve their business. Whilst I work hard on understanding how the business makes money, and how they make customers happy, now I can focus on the other aspects of a business model — such as key resources or customer relationships, and explore additional options for measuring those.

I’m sure there will be many other development decisions that I make that will now be informed by a business model.

Enhanced Requirements Collaboration

I can also see potential improvements in my ability to understand the requirements of business stakeholders. Often I have to find the real motivations of what they are looking for, because their requirements are often based on how they think technology works, or assumptions based on existing systems they’ve worked with.

Conceptual tools like Impact Mapping and Event Storming are already proving helpful for improved requirements collaboration, but I also feel that understanding the business models involved will help developers and business people to increase the richness and accuracy of requirements documents.

When I am given requirements that conflict with a business model, I can immediately begin discussion with the relevant person and query their motives and explain how the technical solution does not quite align with the business model, rather than just wastefully building exactly what they’ve asked for.

One possible scenario in which I think having a proper understanding of a company’s business model can improve requirements collaboration is by understanding a business’s key partners. I may be able to suggest additional integrations with those partners through APIs, data sharing, or person-to-person technical knowledge sharing. The kind of things that are obvious to technical people, but not so obvious to business people.

Innovating and Producing New Business Models for My Company and Myself

Modern businesses are becoming more creative and innovative, where every employee is responsible for producing innovation. It seems logical that by sharing the company’s business model with all employees, the entire organisation will be more empowered to help the company innovate.

Developers, testers, and operations are especially useful in providing technically-based sources of innovation. We are the ones attending meetups and trying out the latest technologies. If we understand the business model, we can suggest new value propositions, delivery channels, or introduce new partnerships through our own personal networking and discovery of new technologies and services.

If we are aware of the business models, and empowered by our employers, we are far more likely to do this in my opinion.

Understanding business models is also very useful if you ever decide to try and start your own business. I can already look back on past personal projects and see how useful this knowledge would have been.

Again, Business Model Generation provides lots of revealing and useful advice for evolving and innovating business models. I highly recommend finding the time to read it.