What does business model design mean?
You may hear the term business model and wonder what it is and how does it differ from a business plan?
Similarly, you may also hear business model design or design thinking without realizing how crucial they are to anybody thinking of buying or starting a business.
Business models are usually associated with large corporations, but this article explains every business can and should use them.
Many big organizations have embraced business model design over the last ten years, and we believe it is of tremendous value to new business owners.
Business model definition and use
A business model is an overview of how your business intends to create, deliver and capture value.
In plain English, why your customer will buy from you and how you will profit.
A business model design tool can help you to evaluate one or more business ideas quickly with minimal cost.
Learning how to design a business model is a vital skill if you are thinking of buying a business, a franchise or starting a business.
Why you should not write your business plan first
For years business owners were told to write a detailed business plan to work out if their business would be successful.
Most people still do this.
While a business plan is an essential part of managing a business, it is not necessarily the best tool to describe and evaluate your business concept.
Business plans are best to forecast and manage a business that is well defined.
Writing business plans can be very time-consuming, especially if you want to compare several business ideas and their prospect of success.
Business Model Generation
In 2010, a book called Business Model Generation by Alexander Osterwalder and Yves Pigneur described a new approach.
The book introduced a standardized method to compare businesses by looking at their business model.
We recommend using a business model design tool before business planning.
By using a business model design tool, such as a business model canvas, it is possible to compare and evaluate various business ideas quickly with minimal cost.
Here’s a You Tube video of how the business model canvas works.
Why you need to design your business first
Complicated things get designed, so they work correctly. After all, we would never dream of building a house without having a design to follow.
Businesses are complicated things too, yet in the majority of cases, they are not designed but are allowed to evolve haphazardly. Isn’t this odd?
This is especially risky for people who have never owned a business before because they often focus on the wrong things and miss some critical things.
For any business to be successful, several critical functions and elements must work in harmony.
Critical business functions must happen for successful business management.
Other vital elements, for example, are to do with:
- how well a product or service matches the needs of customers (called the Value Proposition)
- the way suppliers and partners, participate in the enterprise
- identifying the critical business activities and resources required
- the channels through which you reach and service customers
- how much money will be generated and collected to cover costs
Many of the latter group can be designed and tuned to make the business a success.
A tool such as the business model canvas captures the details on a single page template.
Multiple business concepts are, therefore, more easily compared because of the consistent one-page format.
A business plan only needs to be written for the chosen business model.
What does Value Proposition mean?
The simplest definition of your Value Proposition is the reason why your customers buy from you?
To put this a different way, what value does the customer get from you.
Your aim is to create a strong Value Proposition that will attract customers.
A clearly defined Value Proposition is at the centre of a business model design.
What is the difference between a Value Proposition and a Unique Selling Proposition?
Your USP may be a valuable part of your Value Proposition.
A USP is a Unique Selling Proposition (or Unique Selling Point) that makes your product or service unique from your competitors.
The benefits of a USP are to make it harder for any competitors to attract your customers away and it can increase your profitability.
Why is business model design so powerful?
Traditionally, companies came up with a product or service and then marketed it to potential customers in the hope they would buy it. This way is slow, costly, and risky, as all the time and costs are wasted should customers not buy.
A reason for business failure is that the business idea is a poor one. Not every business idea is worthy as the product or service doesn’t give customers what they want or value.
Another reason might be that the idea was good but poorly implemented.
Unfortunately, some people start businesses or buy businesses without adequately evaluating their idea. Their business survival becomes more like a lottery where they rely on luck to succeed.
Investing your hard-earned money, borrowings, emotional effort, and time, based upon a lottery of hope, is not smart. It is also will probably bring a higher risk of failure and higher stress.
Good business design thinking will help avoid this trap.
How does business model design work?
Business model design is a more efficient approach that designs a business around making products or services that “fit” what a customer segment wants.
There are some excellent business model design tools to help you study customer segments and work out how well a Value Proposition fits their needs. When you confirm a “fit,” you can then shape your business to deliver the Value Proposition more effectively.
The business processes to deliver the product or service get organized in the most efficient manner possible. All of this design is with a minimal outlay of time or money!
This business design thinking will help you to clarify the marketing message and other new opportunities. It will also indicate which ideas are not efficient or attractive.
“Using business design thinking is a fast and efficient way to develop clear strategies and focus.”
This approach works well for new businesses, franchises and reviewing existing ones that need revitalizing.
Business model design is for every size and type of business
Whether businesses are small or large, professional services, health care providers, service companies, creative agencies, manufacturers or technology companies, business model design works.
Businesses might outwardly appear different yet; internally, they all have to perform some vital functions. The business model is how these functions are arranged and executed around the “value proposition.”
Selecting the best business model will make your organization efficient as it expands.
Two competitors in the same industry can have radically different success, depending upon their business model design.
Business design thinking is a vital step in strategy development and is an excellent place to start before building a full business plan.
Business Models make communication easy
When you are starting a new business or revitalizing an existing business, it is often hard to get a concise way of describing your ideas and how they might work.
A business model canvas can make this much easier as all the key points are on a single page.
Do I still need a business plan if I have a business model canvas?
We always recommend that you develop and work to a business plan. The business model design and canvas will help you identify the overview of your business concept and the business plan will help you implement it.
Evaluating a business idea
Evaluating a business is an essential skill for a business owner to develop. Using business model design is a crucial part of the evaluation process to avoid wasting time and money.
Other articles and information that might help you:
Evaluating a business idea- 3 step process.
Business Readiness Test
Reverse Goal Setting to think bigger.
Critical Business Functions – Podcast Episode
In summary, a business is a complicated thing so spend some time designing it.
Brendan Barrow Co-Host
The Should I Own A Business Podcast -remember , Listen Before You Leap!