Every business is based on a business model. You can debate whether the model is well defined or undefined or whether it is realistic or crazy but every business has a business model. This model sets the high level direction for how the business functions and interacts with its stakeholders and, consequently, the business model determines the level of success that the business will achieve.
I was recently assisting a non-profit organization with some business related issues and uncovered that they had not spent any time defining their business model. They definitely had a model, or more accurately, they had a number of models all mashed together. To say that they were not operating very efficiently or effectively is an understatement. What they failed to realize is that their mashed up business model was a lid on their success.
As business owners and leaders it is critical for us to understand all components of our business model and how each component of the model interacts with and impacts the other components and the organization’s stakeholders.
I have found the Business Canvas from Alexander Osterwalder‘s book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers to be an excellent way to work through and define a business model. I have outlined the main components below;
- Value Proposition – what is it that your organization provides that customers are willing to pay for
- Key Resources – are the assets needed to create and deliver the aspects of the business model. There are
- Human resources
- Physical resources
- Intellectual resources
- Financial resources
- Key Activities – are the most important things an organization does to make its business model work
- Key Partners – who or what organizations assist the organization in delivering on its business model
- Costs – these are the expenses incurred acquiring Key Resources, performing Key Activities and working with Key Partners while delivering on the Value Proposition
- Customer Segments – these are customer groupings. This may be by industry, paying versus non-paying, geographical, internet versus physical, etc.
- Customer Channels – how your organization communicates and delivers value. This may be in person, video conference, telephone, internet based, sales associates, on site or in store, etc.
- Customer Relationships – how are the relationships with the customer base defined (personal, automated, self serve, single services, subscription, etc.)
- Revenue – this is the money you receive from your Customers for delivering on your Value Proposition
I am still working with the non-profit mentioned above to complete their Business Canvas. This process has been quite revealing for everyone involved and has helped us understand the business model components that are solid, those that need some help and those that need complete replacement. Equipped with this knowledge, the leadership is able to identify the “lids to its success” and build a strategic plan to grow and to increase the positive impact they are making.
Is your business model fully defined? Do you understand all aspects of your business model? Are there things in your business that are holding you back and limiting your success? What business model tweaks can you make that will remove these roadblocks and allow you to see greater levels of success?
Make sure you take the output from your Business Canvas exercise and include it in your SWOT based business strategic plan that I blogged about a few weeks ago!
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