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INTRODUCTION TO BUSINESS MODEL

When considering the future of your business, whether it’s your overall strategy or some new product and/or service, you must first take some time to really understand your business inside and out. The Business Model Canvas provides a simple way to map the way your business – or any business – creates, delivers, and captures value.

UNDERSTAND YOUR BUSINESS MODEL

Understanding just how you add value to your customers’ lives is crucial. This serves as the basis for any discussion about your business.

Who are your customers and what problems do you solve for them? How do you deliver that value to them?

One of the best ways to structure this information is by using the Business Model Canvas. Since the publication of Business Model Generation, it’s been found that the Business Model Canvas serves as a perfect platform on which to hold better, more strategic conversations built on a common understanding and with a common language.

For more background, read: Business Model Generation by Alexander Osterwalder and Yves Pigneur

DON’T ASSUME YOUR TEAM UNDERSTANDS YOUR COMPANY’S BUSINESS MODEL.

UNDERSTAND YOUR BUSINESS MODELS

If you work for a large organization, you might find varying value propositions and business models. Take a hospital, for example. An academic hospital consists of three separate business models at the highest level: 1) patient care; 2) education; and 3) research. Each of these business models has very different customers, value propositions, and revenue streams.

UNDERSTAND COMPETING BUSINESS MODELS

You can learn a lot from your competition. Choose some competitors and map their business models. Armed with this information, you’ll have deep insight into what customers want and what they are willing to pay for. You’ll have a clearer picture of just how customers’ needs are met across the entire industry, not just in your company. And you’ll uncover vital information about how other businesses, maybe even very successful businesses, have created their own spaces in the market.

UNDERSTAND BUSINESS MODELS IN AN INDUSTRY

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Before entering into an industry with a new/startup idea, it’s vital to have an understanding of the most common business models being used to exchange value with your potential customers. If, for example, you plan to play in the climate space, specifically in solar energy, you’ll want to understand how leading companies, like SunEdison, do business (and add value). Jigar Shah learned by studying the industry that customers were not willing to pay for solar panels, but were looking for ways to decrease their electricity bills. He started selling energy contracts instead of solar panels. He designed what he named the Power Purchase Agreement (PPA) Business Model. This business model changed the status quo, allowing companies to purchase solar energy services under long-term, predictably priced contracts while avoiding the significant capital costs of ownership and operation of solar panels. The ­SunEdison business model is recognized as one of the catalysts that helped turn solar into a multibillion-dollar business worldwide.

EVALUATE YOUR BUSINESS MODEL

Any business constantly seeks to improve its understanding of the customer segments it focuses on (or wants to focus on). Following on page 117 are seven of the most popular (and useful) questions Osterwalder has compiled to assess your business model.

MOST COMPANIES DON’T KNOW THEIR CUSTOMERS; THEY JUST KNOW THEIR TRANSACTIONS.

SO MANY BUSINESS MODELS

In 2010 we wanted to design a new strategy, focused more on our patients. So where to start? We realized we had many different departments operating in the same hospital but in a different way.

They had different customers, different partners, and different value propositions. We realized we actually had a lot of different business models, so we started from the bottom up. We had to learn from each and every department in order to understand what their models looked like and how they were showing up in the hospital’s business model.

Understanding their business model helped them to get a better insight in their own business and also in understanding the others.

(See page 117 How Maastricht University Medical Center created their portfolio of Business Models.)

Frits van Merode
Member, Executive Board
Maastricht University Medical Center