The Business Model as the Foundation for the Future of your Business

In an effort to achieve a definition for what a business model is, adjusted for the digital age, some researchers from Brunel University, from London, wrote in 2008 the following definition:

“The business model is an abstract representation of an organization, be it conceptual, textual, and/or graphical, of all core interrelated architectural, co-operational, and financial arrangements designed and developed by an organization, as well as all core products and/or services the organization offers based on these arrangements that are needed to achieve its strategic goals and objectives.”

More recently, Alexander Osterwalder, entrepreneur, consultant, and Swiss author, and Yves Pigneur, a computer science researcher and Belgian university professor, got 470 managerial experts together from 45 countries, created a body of work of what a business model is, which is setting a trend in this area. Within this body of work, they defined a business model as:

“The rational description of how an organization creates, dispatches and captures value.”

In reality, both definitions don’t vary very much from each other. The novelty, interesting, and practicality of the newer definition, is the way in which Osterwalder and Pigneur helped us visualize and ensemble our own business model. This is called the Business Model Canvas. They describe the concept as “simple, relevant, and intuitively understandable” and it certainly is.

The Business Model Canvas is composed of 9 fundamental blocks, which by fitting them together, complete a canvas that allows you to visualize, in a single image, your business model to “create, dispatch, and capture value” and the resources and alliances you need to achieve it. These 9 blocks are:

Market Segment: What segment of the market are you serving?	The value proposition to your customer: what problems are you offering to solve, or what needs are you addressing?
Channels: What channels are you going to use to reach your clients?	Relationship with your clients: What ways or media are you using to feed the relationship with your clients? What level of attention are you giving them?
Sources of Income: What are the fundamental sources of income identified once you’ve delivered your products?	Key Resources: what physical, financial, intellectual, and human resource will you need to meet your business’ mission?
Key Activities: What are the fundamental activities that your business must do in order to meet your vision?	Key Alliances: Who are the key people with whom you should work to access key resources and achieve economies of scale and/or of scope?
Cost Structure: Which are the most relevant cost elements and how you should handle them to maintain efficiency within your business?

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Throughout these 9 blocks, the authors propose to assemble them on the canvas, as shown below:

The canvas works like a puzzle, in which each piece fits with the others to form an overall picture. The canvas has two very clear sides:

• The Right Side: in which our focus will be the value creation, both for our clients and for shareholders, and as each party captures that value

• The Left Side: where the blocks that generate cost are located, where our focus should be how to achieve the highest possible efficiency

You can start the Business Model Canvas working any of the 9 components; the important is to start. The starting point we would suggest is on the value creation side. Start with the Customer Segment and the Value Proposition. There will be iterations between these two definitions, and the Value Proposition will depend in the capacities and competitive advantages of your own business, but also in the needs or problems that you’re planning on addressing with it, which will vary with the market segments you plan on serving. Even though it might sound complicated, in reality it becomes much simpler when you work as a team with your associates or with those that accompany you in this initiative. It’s important to define these two blocks, since all others will be derived from them, during your work sessions or brainstorms that you have with your associates.

The ideal environment to achieve this work is in a room over a wall or blackboard, using sticky notes, to facilitate the flow of ideas and concepts throughout any brainstorming session.

The result of applying such a technique is of immense value in order to complete the elements, and then form, a good Business Plan.