Ladies and Gentlemen, What's Your Business Model? Part #1

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by: Sigurd Rinde

About to start a new venture? Of course you are.

Be prepared to answer this: "What’s your Business Model?"

Then find out that this widely used term is very seldom precisely defined, leaving popular (and perhaps faulty) descriptions to thrive. Confusing to say the least.

Here’s an academic definition from KMLab (found here at Harvard Business School, note they say "seldom precisely defined" too):

"…a Business model is a description of how your company intends to create value in the marketplace. It includes that unique combination of products, services, image, and distribution that your company carries forward. It also includes the underlying organization of people, and the operational infrastructure that they use to accomplish their work."

Allow me to simplify:

"How to use the resources to deliver a value to your customer and keep some of the value yourself."

But the popular take, as expressed by some ‘practical-advice-web-sites’, is what comes first to mind:

"Value proposition, Market segment, Value chain structure, Revenue generation and margins, Position in value network, Competitive strategy." here.

"Simply put, a business model describes how a business positions itself within the value chain of its industry and how it intends to sustain itself, that is to generate revenue." here.

There we go, the popular and simplified definitions: Distribution, value chain, sales model, market segment etc. The stuff that is visible to the user, the outside world. The end-of-process add-ons to the product itself.

Just like the tail fins and gleaming hubcaps of a 1957 Cadillac. Cake decoration.

What about all that happens before the service or product reaches distribution? What about the process and the resources that creates the product? What about the process structure proper?
That’s the real stuff. That’s where a good chunk of the margin might be made. That’s where the real value for the customer is made. All in all, what earnings are made of.

Let’s give that approach a try – in the next post, #2.