Do I really need a business model?
Wherever you turn today business owners, leaders, social media channels, books, blogs and entrepreneurs talk about business models. It is a trendy term thrown around by so many and to such an extent that the power of a business model seems forgotten.
As a reminder, we ask and answer, four questions. What is a business model? What does a business model look like? Why are business models so popular today? Why every business, regardless of type, size, age, wealth or industry, needs at least one.
What is a business model?
In 1973 Douglas T. Ross, an accomplished computer scientist, wrote about scientifically modelling a business. Since then the business model has been tested, updated, and applied successfully many times by scientists, business owners and leaders globally.
The model, or graphic, conceptualises the core elements of a business regardless of type, size, age, wealth or industry. These elements detail how a business makes money, who the customers are and what channels are used to reach them, the unique value the business provides customers, who to form strategic relationships with, what key activities the business performs to deliver this value and collect revenue and how these elements are measured.
Most businesses have more than one model – such as a model each for innovation, change, technologies, strategic partnerships, acquisitions, etc. Professor for Technology Management at St Gallen University, Dr. Oliver Gassmann, in his book: The Business Model Navigator, written in 2014, lists 55 different types of business models! Some you may recognise as popular today: Freemium, the use of some of the service for free, upgrade for additional functionality. Subscriptions, a monthly fee is charged for a set period starting at an affordable price point with the option to increase or decrease over time. E-commerce, the sale of products/services online. Performance-based, a customer pays on results.
Put loosely, a business model is a science-based graphic for easily communicating the core elements of a business.
What does a business model look like?
Business models can either be explicit as written or drawn, or, implicit, unspoken or undocumented, yet no less powerful. Explicit business models can be different designs as seen in the four examples in figure 1 below.
| a) The template business model by Business Model Canvas | b) Tesla business model by Business Strategy Hub |
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| c) The creative Apple business model by Gary Fox | d) The Magic Triangle business model adapted from Dr. Oliver Gassmann |
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In general terms, a business model could be any design as long as it is a graphic that communicates simply the core business elements.
Why are business models so popular today?
Carl Sagan, famous scientist and author, said “you have to know the past to understand the present”.
Before 1999, large corporates had secretive research & development departments where scientists worked for years, decades even, to create the ‘next new thing’. Occasionally a ‘new thing’ would reach the local market, usually at a high price. For example, in the early years of Dyson vacuum cleaners the technology was secret and the vacuum cleaners expensive.
However, after 1999, the adoption of digital technologies for everyday use changed our world. In the new world teenagers, students, parents – anyone with an idea – started a new type of business with little or no capital using digital technologies. Google and Facebook are two well-known examples.
Government campaigns, such as Digital Britain, drove infrastructure, development, use and e-skill training of technologies to stimulate economies, reduce costs, improve efficiency, effectiveness and competitiveness.
Scientists, technology enthusiasts and self-taught programmers worked together openly and passionately on projects, often for free, combining scientific knowledge and skills to find low cost digital solutions to everyday problems. For example, consumers could share music for free through Napster rather than pay High Street prices for music.
Since 1999 consumers have had a continuous flow of new, exciting digital tools, devices, products and services from around the world, suitable for their individual lifestyle. Consumers can pick and choose who to spend their money with rather than remain local. The consumers’ buying expectations change continuously with every wave of new technology that occurs every 12 to 18 months.
Combined, these factors created today’s changeable business environment where the rate of change is rapid and continuous rather than slow and planned as in previous years. A dynamic business environment means traditional business cultures, management tools, techniques and methods are far less effective going forward. Additionally, most businesses do not have the necessary high level of technological knowledge, in house capabilities and skill to know what decision to make; so are uncertain about how to adapt successfully and remain competitive where competitors are global and unknown rather than visible in the local area.
We have all read about the many casualties unwilling or slow to adapt. Blockbusters for example, remained unchanged; whereas Netflix adapted. Seen a Blockbuster store recently? Thomas Cook, Focus DIY, JJB Sport, BHS, Staples, to name others on a very, very long list so far.
So today’s business owner and leader needs a strong tool that supports nimble, adaptable, yet informed, sound strategic decisions to drive the business forward – to not lag behind unknown competitors and to remain very attractive to customers.
The business model is a popular choice today because it has a solid science and academic foundation, is easy to understand, is continuously updated and has proven to provide business leaders and owners with what they need – a tool that supports fast decision-making about adapting dynamically to thrive in an uncertain changeable, highly competitive environment.
Why every business needs a business model
Every business strives to be attractive to customers because, at the risk of stating the obvious, without customers paying for services and products, there is no business. Here are three real-world examples of how a small business model change can have a profound effect on raising capital, improving competitive advantage and market positioning to keep the business focused, while positively affecting the future of a business.
Example 1
A change to the revenue stream, a business model element, from traditional hourly rates to monthly subscription plans could make services more attractive to customers. It could also be more attractive to a competitor’s customer base. Together the customers remain loyal, the customer segment increases and it reveals a competitive advantage while clearly demonstrating a position in the market compared to competitors.
Example 2
Often, where business changes are required, business owners pitch to investors for additional capital. Investors, technologically informed or not, are able to understand the business immediately when presented with a simple graphic business model that explains the business rather than a boring, heavy duty business plan. Greater understanding improves chances of attracting investment for future growth and change.
Example 3
Let’s say, as a simple example, a high-end tool manufacturer approaches Asda with an expensive tool kit available for resale in store. Asda buying staff turn the opportunity down as their core focus is for their customers to “save money, live better”. Precise, strong business model elements, such as the unique value proposition, can be powerful for keeping staff, management and investors (stakeholders) focused on the big picture and culture of the business; encouraging everyone to work towards a common goal. Thus influencing and informing day to day decisions and easing the people management function.
So, a business model can be used to quickly identify areas of change within the core business.
To sum up, a business model is a simple scientific graphic containing the core elements of a business regardless of type, size, age, wealth or industry. History has proven that a business model is a necessity today to continuously adapt to our current dynamic business environment where uncertainty, fast change and significant competition are constant. Finally, three real-world examples highlighted the dramatic positive impact of business model changes on the future of any business by making manageable changes to business model elements without destroying the established business.
Whether you are a sole-trader, start-up, established SME or global corporation, a simple, precise business model could mean the difference between your business thriving in our uncertain world or becoming a fond memory as a business that once was.
Originally posted 2020-10-07 15:37:28.
- Do I really need a business model? - August 24, 2023
