Monday, March 26, 2018

Understanding Your Business Through a Business Model

When a business operates more than 3 to 5 years, business owners have less and less grasps of what the business is about. 

There's a feeling that it has a life of its own. 

Most of the time entrepreneurs have this nagging feeling that the business is running them rather than the other way around.

The concept of what makes the business tick becomes murky every "fiscal year". 

There seem to be something simmering underneath that you can't put your finger on. 

Of course you do know what your product or service about. 

You probably memorized all the figures in the balance sheet but you have this uncertainty in the back of your mind about what really drives the numbers in that income and cash flow statements.

Its amazing how this uncertainty strikes you because you know you got the products and services figured out. 

You know you have this so and so number of employees and who is the best among them. 

You know the competition or at least you try to know them.

Suddenly there are costs that keep rising and you can't figure out what's driving them or what is causing the sudden drop in sales from a store front that use to generate the most revenue.

You realized that marketing efforts are no longer pushing the revenue like it used to and you are getting less and less inquiries about products and services every quarter.

You feel you need to look at every nook and cranny of your business but the sheer amount of the information you need to digest is overwhelming.

You wish that there was a simpler way to look at the current state of your business before it gets out of hand and run you over.

You hope that someone can come up with a tool to help you see your business in a more logical manner, breaking it up into understandable components like a building or a Lego set.

Actually there is a tool. The tool you need is a business model.

A business model is a narrative or visual representation of what your business is about.

It is a description of how the business is structured, how it creates value, how this value is acquired by customers, how this relationship with customers create revenue and how to manage this revenue to make profit.

According to the book "Business Model Generation" by Alexander Osterwalder and Yves Pigneur, "A business model describes the rationale of how an organization creates, delivers, and captures value."

I used to teach kids business modelling when I taught Business Studies to elementary and high school kids in an international school.

It was a challenge teaching kids business models because there was no textbook on business for kids available commercially.

Attention span of most students at those ages aren't really suited for discussing market niche, share value and the balance sheet.

A business model generation tool was introduced by Alexander Osterwalder which showed the nine (9) building blocks of a business model covering four (4) main areas of a business: customers, offer, infrastructure, and financial viability.

The nine (9) building blocks are: Customer Segments, Value Proposition, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships and Cost Structure.

Dr. Alexander Osterwalder is an author, speaker, and adviser on the topic of business model innovation who together with Dr. Yves Pigneur developed tools for designing innovative business models.

Dr. Osterwalder and Dr. Pigneur came up with a way to visually represent a business model through a table that look more like a painter's canvas.

They later called it the Business Model Canvas for obvious reasons.

The canvas paints a picture of a business using the nine building blocks. 

The Business Model Canvas works best when printed (mine is a printed tarpaulin 4 x 5 feet in size) on a large surface as a presentation device for groups of people who can work together to draw and discuss the business model elements using Post-its ® or meta cards with double-sided adhesives.

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