What is a Business Model
A business model describes how a product creates, delivers, and captures monetizable value from its customers
- You create value for customers by solving a problem they want solved.
- You deliver this value to customers through your solution which gets to them through specific channels (distribution).
- Finally, you capture some of this value back as revenue.
Scientists use models to simplify complex problems in order to better understand them and make predictions which they then validate through experiments.
Entrepreneurs do the same with business models.
All businesses, irrespective of type, have customers. Their behaviors are what we attempt to model and predict by placing them at the center of the model.
How Does a Business Model Work?
For a business model to work, you need to create more value (even perceived) for customers than you capture back (what you charge them). This is the essence of a good value proposition.
The difference between the value you capture back (revenue stream) and the cost of value delivery (cost structure) is profit.
You can't get to profit without revenue and you can't get to revenue without value creation. This is why you have to initially prioritize value creation above the other two business model activities.
Value creation requires you to address a real customer problem worth solving.
How do you capture your business model?
Traditionally, business plans have been used for this purpose. But business plans take too long to write, and no one even reads them.
When you're going really fast and under conditions of extreme uncertainty, as required for Continuous Innovation, you can’t afford to rely on static plans — you need dynamic models.
The Lean Canvas is one such dynamic model.
- What is a Lean Canvas?
- Business Model Archetypes
Best Business Modeling Books
- Running Lean by Ash Maurya
- Scaling Lean by Ash Maurya
- Business Model Generation by Alex Osterwalder
All Business Modeling Articles
This is a complete list of articles I have written on business models.
- How I Capture my Assumptions
- Why Lean Canvas versus Business Model Canvas?