A business model represents how your business operates.
Even if it’s not documented, every business has a business model that can be defined by answering the following key questions:
- Who’s your target customer?
- What customer problem or challenge do you solve?
- What value do you deliver?
- How will you reach, acquire, and keep customers?
- How will you define and differentiate your offering?
- Who will you partner with?
- What channels will you use?
- How will you generate revenue?
- What’s your cost structure?
- What’s your profit margin?
Business model innovation is where you revise your business model as part of a business planning process to increase your competitiveness.
This type of innovation can disrupt the very structure that is currently paying your bills. This suggests that finding the right time to change your business model is important to consider. Some timing indicators include:
- Evidence of declining metrics in sales and profit margins
- Indications of over served customers
- Inability to keep pace with changes in an industry
- Base industry technology being used in outside industry products
- Opportunities to serve new customers from current product/service portfolio
To help the process of designing or revising your business model, Alex Osterwalder and Yves Pigneur have developed the Business Model Canvas
, a one page template to systematically understand, design, and implement a new business model - or analyse and renovate an old one. Along the way, you'll understand at a much deeper level about your customers, distribution channels, partners, revenue streams, costs, and your core value proposition.