Business Model Design

Now that we understand what a business model is (reference my previous/first blog post), now it is time to create your business model. As with most everything else, knowing the definition is usually not enough to develop a full-blown concept. However, what you should have grasped from my earlier blog post was that a business model should tell the story of how an organziation creates and distributes value. "Value" should not be defined by anyone within your organization, rather it should be how your main customers define it - an organziation exists to provide "something" that "someone" wants, and you should be able to articulate that reality well.

I call the diagram presented here the "business model canvas". Copy this and write over it, include your notes that speak to the titles and linkages, and you'll begin to see your business model unfold. Let's break this down ...

The Revenue Side

This side explains how your organization receives money/funding. First, and at the center of the model, is the Core Strategy. The strategy dictates what you do and why you do it. Resulting from how you utlize the resources at your disposal, your organization provides goods/services to an end consumer that purchases them. The Customer Interface explains how your organization engages with the customer, and how your customer accesses the goods/services to purchase. Since the story is about value, note how you should focus on the benefits as defined by the customer that your organization provides.

The Expenses Side

This part of the business story is what you spend money on, in order to provide value to your customers. As we are focusing on the value portion of the story, focus on those resources that provide customers with the value in goods/services - the strategic resources. These could be key people that help provide a specialized service offering, specialized equipment, perhaps a unique IT system. Defining this portion of the model could very well be the most challenging part. Spend time on considering what makes your organization unique, and capable to provide goods/services to your customers. Before we move on, let's talk about Configuration. This is the second portion of the strategy part: how do you take the strategic resources and create value for your customers? The way you do this is by configuring your resources in a way that produces your goods/services. Now, the Value Network, or your partners and/or suppliers. These are the other organizations that do what your organization does not (they might provide complimentary services, or provide you with low cost equipment rapidly), and enabling you to do what you do better. Since these partners do what you do not do, it is essential to define what your organization's boundaries are. By defining these, you focus your attention on the strategic operation of your organization, rather than diluting it by focusing on other items that do not provide the value your customers are looking for.

The last link I like to include is more of a question: can you turn your partners into customers as well? Rather, can you offer complimentary services (different from your main startegic offering) that enables the partners to becomes paying customers as well? Perhaps you can provide them with advertising space, or they can rent out a portion of your office space.

We've made it through the canvas! Hopefully now you are excited and motivated to begin articulating what your organization does, and share this in the next staff meeting. Or perhaps this will target your energy in expansion discussions. Knowing this will enable you articulate your offerign better, not only to your custoemrs, but to your staff - and arguably this is more important.