Image result for Your Business Model BasicsThis is going to be some heavy stuff here, so be prepared to take notes. That means print this article out and write all over it as you read it. This first part is going to seem a little obvious, and there is a lot of controversy about the difference between business models and business strategy. It’s almost a which comes first, the chicken or the egg type of question. (By the way, British scientists have answered that question. It’s the chicken. Look it up.)
Because Business Strategy and Business Models are so intertwined, it wasn’t until the go-go days of the DotCom bubble that the term took on it’s own meaning. The term was hardly heard before the web startups of the DotCom bubble began using the term to explain their operations to venture capitalists. During that time it became a catch phrase to explain all sorts of sins.
But, business models have been around since the beginning of business.
One good example is Xerox. When Xerox began leasing photocopiers in 1958 so that businesses could afford their new product, they introduced a major change in their business model and that change, along with their technical innovations, propelled them to a position of dominance in the copier industry.
Understanding business models gives us a way to understand how a business makes money. Many times this is the result of a newly developed technology. But, the technology is not nearly as important as the way it is implemented/ After all, Hero of Alexandria, invented the steam engine some 2,000 years ago.
But, it wasn’t until James Watt found a new way of implementing that technology and building a new business model that the technology became commercially viable, even though technological improvements by Thomas Savery, Dennis Papin and Thoma Newcomen.
Understanding the concept first will help you understand how your firm, or any firm, defines its competitive strategy, through the products and services you offer, how you charge for them and what they cost you to deliver. Understanding your business model and comparing your model to that of other firms gives you an understanding how you are different, and helps you identify each firms competitive advantage, or unique value proposition.
Want to understand your business model,
Of course you do. That’s why you’ve read this so far, isn’t it,
Understanding the business model answers a series of questions essential to any business – who are the customers, what do they value, how that value can be delivered to the customer at an appropriate cost and how the business deploys its assets. It includes a description of the key assets, both physical and intangible such as intellectual property, governance structure and management. It consists of both a narrative of how the business works and the numbers – how it makes a profit.
The concept came into vogue when the spreadsheet provided an easy way to test the financial implications of the narrative in a financial model which contained assumptions about costs, product demand, sales revenue and profit. The financial outcome of changes to the narrative, or assumptions about product demand, etc. can be tested in the spreadsheet model.
During the DotCom bubble, investors demanded that the entire business strategy, processes and outcomes be summarized and modeled in such a way that different scenarios could be tested. Once the narrative of the business model was reduced to a spreadsheet-based financial model that encapsulated and quantified all the important features of the proposed business, potential investors could ‘stress test’ the business assumptions ahead of their decision to invest.
This proliferation of business plans, spreadsheet analyses, and (with apologies to General Nathan Bedford Forrest) the rush to “git thar furstest with the mostest,” popularized the term to the point where it became studied and is finally being analyzed and understood.
To understand your own business model, you need to look at nine different “building blocks” of your practice.1) Target Market Segments – What niches or industry segments do you serve,2) Value Propositions – what problems do you solve for your clients,3) Channels – How do you communicate with or serve your clients, How do you make sales,4) Client Relationships – What is your relationship with each industry or client,5) Revenue Streams – What revenues do you derive from each solution you provide,6) Key Resources – What assets do you need to perform your services,7) Key Activities – What services do you offer,8) Key Partnerships – What do you outsource or acquire,9) Cost Structure – What does it cost you to provide your services,
Start by looking at each of these building blocks, one at a time, and when you’ve got a good understanding of what the different parts of the generic business model are, you’ll be able to take a look at your own business model as well as that of your competitors.
Once you’ve done that, you’ll see how an understanding of your business model can lead you into developing your own business strategy, and from there, into selecting the tactics you will use to implement your strategy.

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