Business Model Diagram – The term business model has gained incredible popularity in the last decade as one of the most important ways to approach business innovation and business strategy.
If you’re like most people, you probably define a business model as a company’s plan to make money. And you’re not the only one. Probably 80 to 90% of people think so. This article will show you that the business model is not just that. It is much more.
Business Model Diagram
The term is still new and still raises many doubts about its definition and how it works. In fact, a good business model is deeper and deeper than how a company charges its customers. It involves identifying customer groups, delivery channels, key partners, among other things. It’s more than just establishing how a company makes money. It’s about explaining how it can create and deliver value to users.
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Part of the business model includes activities related to production: design, equipment, raw materials, manufacturing (backstage). But there is a second part that involves other important activities when selling products: finding your audience, closing sales, distributing products, providing services (steps). This is known as the two sides of the Business Model.
The area facing the customers is the stage and the area behind the curtains is the backstage area. Most of the time, we only see the strategies of what “seems” to us, but there is so much creativity happening that we don’t see.
Check out our excellent guide on the sides of business models and 6 mental models explained to help you interpret and strategize business models:
The essence of a business model is that it defines how a business company delivers value to customers, persuades customers to pay for value, and turns that payment into profit: it therefore reflects management theory about what customers want, how they want it. , and how a business can organize itself to best meet those needs, get paid for doing so, and make a profit.
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Any business, therefore, depends on a well-planned and thought-out business model, which includes all these elements, so that this company is placed on a strong foundation. So let’s start with the basics.
There are three key elements within a business model: creating value, delivering value, and capturing value. This shows that the business model is not about money. It revolves around value.
This definition of Business Model was created by Swiss Consultant Alexander Osterwalder from his PhD thesis, called The Business Model Ontology, in which he researched different definitions of business models to create one. It was this document that later gave birth to the popular Business Model Canvas tool.
To better understand how the business model works let’s look at an example. If we look at the media industry in the 20th century, how did the three main elements of the business model work? What value would the information industry, or information company, create? They would have journalists to write articles and produce newspapers. How could they provide this value? They would have paper makers who would go around delivering newspapers around the suburbs. And how could they capture value? They would have companies that would advertise, put ads in these newspapers
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Now, what about the 21st century? What does industry news look like today? It’s the same three pillars, creating, delivering, and capturing value. But it is done in a different way. therefore, instead of having journalists create value today, we create value, we the people who use platforms like Google and Facebook. We are the ones who create the content. It is presented on these social platforms, such as Google, Facebook, Twitter, Instagram, or Youtube. These are all platforms that present the content we create. And is the value of the delivered content being captured? It is captured through advertisements, Google Ads, Facebook Ads, YouTube Ads. So, the process is still the same, but obviously it has been updated and reinvented in different ways to suit the technology of the 21st century.
Again, if we look at the example of a grocery store from the 20th century, they would create value by collecting all products and products from farmers, from butchers to one location. They would provide value by allowing people to come into the area and buy whatever they wanted in the quantity they needed. And they would capture that value in the cash book.
Today, in the 21st century, again, it is still the same process, but it is done in a different way. So companies like HelloFresh and Deliveroo are revolutionizing the way we get groceries and the way we eat. So, for example, HelloFresh, how they create value by creating recipes, and they deliver those recipes to you so you don’t have to go to a physical store or location. How do they capture that value? You sign up online for a monthly fee on their website with your credit card.
So again, the process is still the same, creating, generating, and capturing value, but we can innovate how it’s done. That’s how business model innovation works. So again, to really emphasize, it’s all about the bond. It’s not about money, it’s about values.
Diagram Of A Business Plan Stock Photo, Picture And Royalty Free Image. Image 5514047
Check out our best guide to business models in the 20th vs. 21st century and 13 business models from different industries and how they’ve evolved over time:
A business model is a high-level plan for how your company sells and operates. In practice, it includes the basic elements of every business, such as value proposition, processes, target audience, offerings, strategies, organizational structure, operational and political processes.
The goal is to identify the product and/or service to be sold, as well as the public to which it will be offered, while looking at the costs involved in the entire production and marketing process, in order to achieve the set goals. According to management guru Peter Drucker, “a business model should answer who your customer is, what value you can create/add to the customer and how you can do it at reasonable costs”.
In general, in addition to giving direction to the business, the business model is also used to attract investors, hire talent, and motivate the team. A business model is an important tool in today’s corporate world.
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Many think that a business model is the same thing as an income model. A revenue model describes how a company makes money through its various revenue streams and is not a business model. The revenue model is part of the business model, but not the whole thing. There’s a lot more to the business model and that’s what we’ll cover next.
Check out our best guide to revenue models with 21 models explained to help you choose the best revenue model for your company:
When it comes to business development, the following equation is very important: Value Created > Value Captured > Cost of Delivery.
We have to create more value than we capture and we have to capture more value than the cost of delivering that value. A business model will only be sustainable if this equation holds true.
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What’s interesting is that when we look at business model innovation, we can innovate in each of these aspects.
The business model has elements related to marketing/sales (create value), operations (deliver value), and finance (capture value). Although the Business Model conceptually has three components, the business model canvas, which is the most popular business modeling tool, has a more detailed approach based on 9 building blocks.
To better understand each of these restrictions you can click on the links above to read in more detail.
Business model development can best be achieved using a business model canvas. There is a special order to develop a business model using canvas.
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The order considers that the business model must first meet the business need. Does the customer want it? Can we create this? Second, you must reach the business potential. Can we implement this? Can we provide this? And finally, you need to prove the economic viability of the business. Can we make a profit?
This is already part of the validation process, which is the second part of the business model development process. You need to assume that every part of your business model is a concept that needs to be proven. The only way to prove your business model is by testing your ideas. A more detailed approach to the business model testing cycle can be seen below.
Only after trying every single strategy for every single building can you have the best chance of a successful business model.
Check out our best guide on business testing using different tools and techniques to test your business model hypothesis and support its development.
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The best way to put into practice the business model development process is by gathering people of different expertise in a visual workshop. Business model development involves the use of visual tools, such as a business model canvas, which acts as a common language between participants.
New business models emerge or change based on technological change
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