- If you were to attend a creative or digital conference, across any industry the mention of business models would at some point waft from tweets and discussions throughout seminars, panel discussions and networking breaks. These may include thoughts about how business models need to change, or what business models are disrupting industries.
However, if you were to ask a selection of folk 'What is a business model?’ they might suggest it is about pricing or the exploitation of IP or what a customer wants. The answer to the question is all of the above and more. The standard definition is a business model explains how a company creates, delivers, and captures value.
In this blog I want to lift the lid up on the term ‘business models' and look at what it really means.
According to a variety of sources including Business Model Generation the segments of a business model are the following:
Customer Segments - This is the different groups of people your content/product/service is for. You also need to think if your users and customers are different i.e creating content for broadcasters. You have both the broadcaster and the viewers.
Customer relationships – How to build a relationship with your customers - do you need different styles depending on who you are targeting? Does the interaction need face time or an automated process?
Value Proposition – A light bulb moment for me was starting to ask customers not what you need but what ’job’ are you trying to get done. This approach changes the thought process for both the customer and you and jointly moves you into an innovative space. What do your customers consider valuable? What will they pay for?
Revenue Streams – How are you generating an income? Are you being paid for a job? Or licencing your content? Do you have a residual income? Who is paying the users or customers?
Cost Structure - How much are you charging for the value you are delivering to your customers and users? What is your cost structure? How much are the materials etc to create your value and what is your pricing structure?
Channels - How are you distributing or delivering your content/product/service to your customers? What methods are you using to deliver the value you are offering?
Key Resources – What resources, people do you need to make your business model work effectively? This could be physical assets or skillset.
Key Activities –What activities do you need to do to build relationships, earn revenue, to achieve your business model?
Key Partnerships –What partnerships do you need to build and maintain your business model? This could be suppliers, distributors or a new collaboration to reach new markets or launch an innovative product.
There are many elements to make up a business model. Obviously, each section contains a greater depth and complexity than shown above but it is useful to look at an overview to map out and strategise your current activities, then see if any changes or tweaks can be made to improve the way you are doing business. If you are interested in seriously reviewing your business model check out our free worksheet which has questions based on each section above which can enable you to evaluate your business.
It is worth mentioning that although internal resources and activities are not as sexy as pricing and IP, they can still offer a lot of value. Changing the way you do things internally can impact on, cost, customer relationships and profit.
To conclude I would like to share with you one of my favourite quotes from Joan Magretta, former editor of the Harvard Business Review : ‘Business models are the stories that explain how enterprises work’. Taking that one stage further, just as in a story there tends to be characters, action, and motivation, in a business you have customers, users, their motivation and what the company needs to do to deliver. Customers, partners buy into your business story. This will be how you will differentiate from your competitors. So one thing you can ask your self is what is the story of your business?
For additional info here is a video guide by Tom Hulme, Business Design Director from Ideo.