Academia.edu no longer supports Internet Explorer.
To browse Academia.edu and the wider internet faster and more securely, please take a few seconds to upgrade your browser .
Enter the email address you signed up with and we'll email you a reset link.
- We're Hiring!
- Help Center
How to Design a Winning Business Model
Slides based on a Harvard Business Review document with same title. The slide contains summary of the document, with a sample of Business Model of Ryan Air with its virtuous cycle model.
Related Papers
Jan Schmiedgen
We live in a hyper-competitive world, where whole industries either shift towards services or become obsolete due to new market entrants, technologies or even social practices. A world, where permanent interactions with customers, fast time-to-market, and the ability to innovate »right« (e.g. the right thing or value) are the key to corporate success. On that score the business sphere isn't getting tired of emphasizing the need for strategic innovation (which means »creating superior customer value«, business model innovations or even the disruption and creation of new markets). This paper uncovers some of the often overlooked links of design (design thinking, design- driven innovation and service design) to strategic innovation through the lens of »customer value«. It will do so by ... 1) Disenchanting the big corporate rhetoric on above claims by showing that prevailing and too one-sided understandings of strategy and innovation, rather reinforce than escape old industry paradigms. 2) Examining designs still undervalued contributions to strategy-making by approaching business challenges with a user/value-centric and radical service logic. 3) Showing that every dimension of strategic innovation culminates in the concept of perceived user value and meaning, which gets reviewed in detail (dimensions, forms, proper- ties), especially with regards to constructing value propositions. 4) Arguing that the current service design and business model innovation discourses cannot be negotiated separately, as they may be good methodological complements. So when speaking about the innovation of value for the customer, the paper argues, the above stated and seemingly separated fields intersect. Therefore their most apparent systemic connections and the facilitation of value creation by design are outlined and discussed.
Wolfgang Grassl
Terminological confusion about social entrepreneurship derives largely from the fact that social enterprises are structurally hybrids in several dimensions. Hybridity is their essential characteristic, and it fulfills an indispensable role. An approach is developed that does not rest on dichotomous distinctions by sectors or profit orientation. On the basis of a reconstruction of the essential components of entrepreneurship, a generic structure of social entrepreneurship is proposed which in turn is founded upon an enterprise ontology. It emphasizes the entrepreneurial nature of such ventures in the sense of real causation. Through various combinations between the components (among which are mission, target population, and markets), types of business models can be distinguished. At an emergent functional level, these design configurations allow for a typological distinction between various types of strategy. The proposed design framework allows for a categorization of social entrerprises and thus for explaining organizational pluralism while being founded on real distinctions in the social world rather than merely conceptual abstraction.
Macrolink Institute: Business Management and Strategy
Francisco Cannock
Abstract This study explores the influence of Novatel's leadership style on the development of the firm's business model. The purpose of this research is to explain the role of this leadership type in the process of creating a business model that both constantly adapts to fit the needs of an ever-changing industry in a highly technological world, and aims to generate innovation and sustainability. In order to analyze this phenomenon, the researcher utilized qualitative methodologies to identify the patterns and themes to be studied. Data interpretation, and its implications, was obtained by using data triangulation and contrasting it with an in-depth review of the literature. Data analysis shows that Novatel's leadership style has both a positive impact within the firm's work dynamic, and suggests a meaningful relationship between the company's leadership style and the formation of a chameleon business model. This business model actively counteracts a fast-paced environment with an ever evolving business strategy. This study is significant because it links the firm's type of leadership to the development of a particular business model and demonstrates how this influences firm performance. Keywords: Leadership, Business model, ICT industry
Frank De Langen
In 1999 the global non-profit sector had a turnover of over $1 trillion with 19 million fully paid employees. It was the equivalent of the eighth largest economy (Sustainability 2003). Despite this, it was poorly understood. In 2008 Lambell, Ramia, Nyland and Michelotti concluded that non-governmental organisations (NGO) are still relatively absent from the mainstream scholarly management and broader business studies literature. On the other hand, business models and business model canvas is a subject that has been discussed and much researched since the publication of Osterwalder’s dissertation in 2004. The importance of the NGO sector and a desire to better understand their business models was the inspiration for this research - the creation of a tool useful for NGOs, academics and practitioners. Hence, the main objective is the development of a specialized business model canvas for NGOs. The central research question of this study is defined as ‘how is a NGO business model canvas structured?’ A business model canvas for NGOs was conceptualised utilising Osterwalder and Pigneur’s (2010) third party funded model as the foundation. The building blocks and definitions were initially based on literature review sources (business, social business and NGO management literature). Following interview responses and analysis of annual reports of NGOs both the building blocks and definitions were adapted to align better to NGO terminology. These are presented below. This conceptual business model canvas for NGOs was tested through interviews with four NGO experts and leaders of two Foundations and five International NGOs (INGO) using the case study method. This testing led to the development of two separate business model canvases. The canvas for Foundations is a slight adaption from Osterwalder and Pigneur’s third party funding business model (2010). The other canvas is applicable for INGOs with multiple streams of income. This is made up of two sections, one for programmatic and the other for fundraising/ marketing and financing activities. This division is the result of a desire to maintain clarity and hence the usability of the business model canvas as a tool for communications, visualization of business models and analysis. The interviewees confirmed the practical relevance and utility of the business model canvas. In addition, it has academic relevance due to the business model canvas’s specific usage for NGOs. This provides a basis for further research, such as, comparative analysis and historical analysis of NGO business models and so forth.
Fabio Neves da Rocha
This paper presents a case study on a recent venture in the enterprise system market in Brazil, reporting on the company from its discovery phase through its development into a successful consulting company. The objective of the study is to identify the company’s business model and determine how this model relates to business performance. The paper contributes to the literature on business models by providing foundational information that both contributes to practitioners’ understanding of technology-based benefit generation and opens an avenue for further research on business models in the software industry.
Lara Valdivieso Cegarra
MARIA MORENO
Jörg Becker
Journal Article
Mike Geppert , Florian Becker-Ritterspach
In recent years, the notion of business models has gained momentum in management research. Scholars have discussed several barriers to changing business models in established firms. However, the national institutions of market economies have not yet been discussed as barriers, even though they can constrain the latitude of action of a firm's management. Based on interviews and a longitudinal content analysis, we analyse the extent to which full service carriers in two countries (British Airways in the UK and Deutsche Lufthansa in Germany) have adopted elements of a low cost model over time. Furthermore, we investigate how this process has been influenced by the differences in each national institutional context. We particularly focus on the role of the rights of employee representatives in changes in business models. Our results show that British Airways has moved its business model more in the direction of low cost carriers than Deutsche Lufthansa, although the business model of the former airline still differs significantly from that of a typical low cost carrier. We identify national institutions that potentially strengthen the position of employee representatives as a factor that can influence, and also act as a barrier to, business model change.
Sergio Luis Seloti Jr
8th Iberoamerican Academy Conference, São Paulo, Brasil
Loading Preview
Sorry, preview is currently unavailable. You can download the paper by clicking the button above.
RELATED PAPERS
Strategic Entrepreneurship Journal
Oleksiy Osiyevskyy , Jim Dewald
European Management Journal
Robyn Davidson , Susan Lambert
Maximus Chubasco
Sungwook Min
Posthuman Management: Creating Effective Organizations in an Age of Social Robotics, Ubiquitous AI, Human Augmentation, and Virtual Worlds (Second Edition)
Matthew Gladden
marisol jimenez
Innovative Geschäftsmodelle
Stephan Reinhold
Airlines define their business models: a content analysis
FERHAN KUYUCAK SENGUR , Yusuf Sengur
Kaushi Ariyasinghe
Journal of Business Strategy
Laurent Scaringella
Antonio Latora
International Journal of Business Research and Management
Patrizia Di Tullio , Diego Valentinetti
Hoàng Đinh Duy
RAC - Revista de Administração Contemporânea
Dimária Silva e Meirelles
Feri Machmudi
Sara Moqaddamerad
European Business Review
Lasse Torkkeli
Technovation
Paolo Landoni
Journal of Cleaner Production
Carlo Bagnoli
Nicolai Foss
Sustainability
Mihaela HERCIU
28th Bled eConference
Harry Bouwman
South African Journal of Industrial Engineering
gerard ungerer
Measuring Business Excellence
Roberto Linzalone
Samuel De Benedicto
Marko Perić
Vanessa Warnier
Katri Valkokari
Jean-François Rougès
Remmy Mayanja
Journal of Business Models
Carl-Johan Petri
Gazdaság és Társadalom
Štefan Slávik
Digital Transformation – Meeting the challenges
Jonna Järveläinen
Joan Enric Ricart
Dr.Pankaj Madan
Jose Pla-Barber
RELATED TOPICS
- We're Hiring!
- Help Center
- Find new research papers in:
- Health Sciences
- Earth Sciences
- Cognitive Science
- Mathematics
- Computer Science
- Academia ©2023
- SUGGESTED TOPICS
- The Magazine
- Most Popular
- Newsletters
- Managing Yourself
- Managing Teams
- Work-life Balance
- The Big Idea
- Data & Visuals
- Reading Lists
- Case Selections
- HBR Learning
- Topic Feeds
- Account Settings
- Email Preferences
How to Design a Winning Business Model
- Ramon Casadesus-Masanell
- Joan E. Ricart
Smart companies’ business models generate cycles that, over time, make them operate more effectively.
Reprint: R1101G
Most executives believe that competing through business models is critical for success, but few have come to grips with how best to do so. One common mistake, the authors’ studies show, is enterprises’ unwavering focus on creating innovative models and evaluating their efficacy in standalone fashion—just as engineers test new technologies or products. However, the success or failure of a company’s business model depends largely on how it interacts with those of the other players in the industry. (Almost any business model will perform brilliantly if a company is lucky enough to be the only one in a market.) Because companies build them without thinking about the competition, companies routinely deploy doomed business models.
Moreover, many companies ignore the dynamic elements of business models and fail to realize that they can design business models to generate winner-take-all effects similar to the network externalities that high-tech companies such as Microsoft, eBay, and Facebook often create. A good business model creates virtuous cycles that, over time, result in competitive advantage.
Smart companies know how to strengthen their virtuous cycles, undermine those of rivals, and even use them to turn competitors’ strengths into weaknesses.
The Idea in Brief
There has never been as much interest in business models as there is today; seven out of 10 companies are trying to create innovative business models, and 98% are modifying existing ones, according to a recent survey.
However, most companies still create and evaluate business models in isolation, without considering the implications of how they will interact with rivals’ business models. This narrow view dooms many to failure.
Moreover, companies often don’t realize that business models can be designed so that they generate virtuous cycles—similar to the powerful effects high-tech firms such as Facebook, eBay, and Microsoft enjoy. These cycles, when aligned with company goals, reinforce competitive advantage.
By making the right choices, companies can strengthen their business models’ virtuous cycles, weaken those of rivals, and even use the cycles to turn competitors into complementary players.
This is neither strategy nor tactics; it’s using business models to gain competitive advantage. Indeed, companies fare poorly partly because they don’t recognize the differences between strategy, tactics, and business models.
Strategy has been the primary building block of competitiveness over the past three decades, but in the future, the quest for sustainable advantage may well begin with the business model. While the convergence of information and communication technologies in the 1990s resulted in a short-lived fascination with business models, forces such as deregulation, technological change, globalization, and sustainability have rekindled interest in the concept today. Since 2006, the IBM Institute for Business Value’s biannual Global CEO Study has reported that senior executives across industries regard developing innovative business models as a major priority. A 2009 follow-up study reveals that seven out of 10 companies are engaging in business-model innovation, and an incredible 98% are modifying their business models to some extent. Business model innovation is undoubtedly here to stay.
That isn’t surprising. The pressure to crack open markets in developing countries, particularly those at the middle and bottom of the pyramid, is driving a surge in business-model innovation. The economic slowdown in the developed world is forcing companies to modify their business models or create new ones. In addition, the rise of new technology-based and low-cost rivals is threatening incumbents, reshaping industries, and redistributing profits. Indeed, the ways by which companies create and capture value through their business models is undergoing a radical transformation worldwide.
Yet most enterprises haven’t fully come to grips with how to compete through business models. Our studies over the past seven years show that much of the problem lies in companies’ unwavering focus on creating innovative models and evaluating their efficacy in isolation—just as engineers test new technologies or products. However, the success or failure of a company’s business model depends largely on how it interacts with models of other players in the industry. (Almost any business model will perform brilliantly if a company is lucky enough to be the only one in a market.) Because companies build them without thinking about the competition, they routinely deploy doomed business models.
Business Model
A business model comprises choices and consequences.
Our research also shows that when enterprises compete using business models that differ from one another, the outcomes are difficult to predict. One business model may appear superior to others when analyzed in isolation but create less value than the others when interactions are considered. Or rivals may end up becoming partners in value creation. Appraising models in a stand-alone fashion leads to faulty assessments of their strengths and weaknesses and bad decision making. This is a big reason why so many new business models fail.
Moreover, the propensity to ignore the dynamic elements of business models results in many companies failing to use them to their full potential. Few executives realize that they can design business models to generate winner-take-all effects that resemble the network externalities that high-tech companies such as Microsoft, eBay, and Facebook have created. Whereas network effects are an exogenous feature of technologies, winner-take-all effects can be triggered by companies if they make the right choices in developing their business models. Good business models create virtuous cycles that, over time, result in competitive advantage. Smart companies know how to strengthen their virtuous cycles, weaken those of rivals, and even use their virtuous cycles to turn competitors’ strengths into weaknesses.
“Isn’t that strategy?” we’re often asked. It isn’t—and unless managers learn to understand the distinct realms of business models, strategy, and tactics, while taking into account how they interact, they will never find the most effective ways to compete.
What Is a Business Model, Really?
Everyone agrees that executives must know how business models work if their organizations are to thrive, yet there continues to be little agreement on an operating definition. Management writer Joan Magretta defined a business model as “the story that explains how an enterprise works,” harking back to Peter Drucker, who described it as the answer to the questions: Who is your customer, what does the customer value, and how do you deliver value at an appropriate cost?
Other experts define a business model by specifying the main characteristics of a good one. For example, Harvard Business School’s Clay Christensen suggests that a business model should consist of four elements: a customer value proposition, a profit formula, key resources, and key processes. Such descriptions undoubtedly help executives evaluate business models, but they impose preconceptions about what they should look like and may constrain the development of radically different ones.
Our studies suggest that one component of a business model must be the choices that executives make about how the organization should operate—choices such as compensation practices, procurement contracts, location of facilities, extent of vertical integration, sales and marketing initiatives, and so on. Managerial choices, of course, have consequences. For instance, pricing (a choice) affects sales volume, which, in turn, shapes the company’s scale economies and bargaining power (both consequences). These consequences influence the company’s logic of value creation and value capture, so they too must have a place in the definition. In its simplest conceptualization, therefore, a business model consists of a set of managerial choices and the consequences of those choices.
Companies make three types of choices when creating business models. Policy choices determine the actions an organization takes across all its operations (such as using nonunion workers, locating plants in rural areas, or encouraging employees to fly coach class). Asset choices pertain to the tangible resources a company deploys (manufacturing facilities or satellite communication systems, for instance). And governance choices refer to how a company arranges decision-making rights over the other two (should we own or lease machinery?). Seemingly innocuous differences in the governance of policies and assets influence their effectiveness a great deal.
Consequences can be either flexible or rigid. A flexible consequence is one that responds quickly when the underlying choice changes. For example, choosing to increase prices will immediately result in lower volumes. By contrast, a company’s culture of frugality—built over time through policies that oblige employees to fly economy class, share hotel rooms, and work out of Spartan offices—is unlikely to disappear immediately even when those choices change, making it a rigid consequence. These distinctions are important because they affect competitiveness. Unlike flexible consequences, rigid ones are difficult to imitate because companies need time to build them.
Take, for instance, Ryanair, which switched in the early 1990s from a traditional business model to a low-cost one. The Irish airline eliminated all frills, cut costs, and slashed prices to unheard-of levels. The choices the company made included offering low fares, flying out of only secondary airports, catering to only one class of passenger, charging for all additional services, serving no meals, making only short-haul flights, and utilizing a standardized fleet of Boeing 737s. It also chose to use a nonunionized workforce, offer high-powered incentives to employees, operate out of a lean headquarters, and so on. The consequences of those choices were high volumes, low variable and fixed costs, a reputation for reasonable fares, and an aggressive management team, to name a few. (See “Ryanair’s Business Model Then and Now.”) The result is a business model that enables Ryanair to offer a decent level of service at a low cost without radically lowering customers’ willingness to pay for its tickets.
Ryanair’s Business Model Then and Now
This depiction of Ryanair’s business model in the 1980s highlights the airline’s major choices at the time: offering excellent service and operating with a standardized fleet. The airline was forced to redesign its business model in the face of stiff competition.
Ryanair’s current business model rests on the key choices of offering customers low fares and providing nothing free. The rigid consequences include a reputation for fair fares and low fixed costs. Ryanair’s choices are aligned with its goals, generate cycles that reinforce the business model, and are robust given that it has been operating as a low-cost airline for 20 years.
Click here for a larger image of the graphic.
How Business Models Generate Virtuous Cycles
Not all business models work equally well, of course. Good ones share certain characteristics: They align with the company’s goals, are self-reinforcing, and are robust. (See the sidebar “Three Characteristics of a Good Business Model.”) Above all, successful business models generate virtuous cycles, or feedback loops, that are self-reinforcing. This is the most powerful and neglected aspect of business models.
Three Characteristics of a Good Business Model
How can you tell if a business model will be effective? A good one will meet three criteria.
1. Is it aligned with company goals?
The choices made while designing a business model should deliver consequences that enable an organization to achieve its goals. This may seem obvious until you consider a counterexample. In the 1970s, Xerox set up Xerox PARC, which spawned technological innovations such as laser printing, Ethernet, the graphical user interface, and very large scale integration for semiconductors. However, Xerox PARC was notoriously unable to spawn new businesses or capture value from its innovations for the parent due to a distressing lack of alignment with Xerox’s goals.
2. Is it self-reinforcing?
The choices that executives make while creating a business model should complement one another; there must be internal consistency. If, ceteris paribus, a low-cost airline were to decide to provide a level of comfort comparable to that offered by a full-fare carrier such as British Airways, the change would require reducing the number of seats on each plane and offering food and coffee. These choices would undermine the airline’s low-cost structure and wreck its profits. When there’s a lack of reinforcement, it’s possible to refine the business model by abandoning some choices and making new ones.
3. Is it robust?
A good business model should be able to sustain its effectiveness over time by fending off four threats, identified by Pankaj Ghemawat. They are imitation (can competitors replicate your business model?); holdup (can customers, suppliers, or other players capture the value you create by flexing their bargaining power?); slack (organizational complacency); and substitution (can new products decrease the value customers perceive in your products or services?). Although the period of effectiveness may be shorter nowadays than it once was, robustness is still a critical parameter.
Our studies show that the competitive advantage of high-tech companies such as Apple, Microsoft, and Intel stems largely from their accumulated assets—an installed base of iPods, Xboxes, or PCs, for instance. The leaders gathered those assets not by buying them but by making smart choices about pricing, royalties, product range, and so on. In other words, they’re consequences of business model choices. Any enterprise can make choices that allow it to build assets or resources—be they project management skills, production experience, reputation, asset utilization, trust, or bargaining power—that make a difference in its sector.
The consequences enable further choices, and so on. This process generates virtuous cycles that continuously strengthen the business model, creating a dynamic that’s similar to that of network effects. As the cycles spin, stocks of the company’s key assets (or resources) grow, enhancing the enterprise’s competitive advantage. Smart companies design business models to trigger virtuous cycles that, over time, expand both value creation and capture.
For example, Ryanair’s business model creates several virtuous cycles that maximize its profits through increasingly low costs and prices. (See the exhibit “Ryanair’s Key Virtuous Cycles.”) All of the cycles result in reduced costs, which allow for lower prices that grow sales and ultimately lead to increased profits. Its competitive advantage keeps growing as long as the virtuous cycles generated by its business model spin. Just as a fast-moving body is hard to stop because of kinetic energy, it’s tough to halt well-functioning virtuous cycles.
Ryanair’s Key Virtuous Cycles
Cycle 1: Low fares >> High volumes >> Greater bargaining power with suppliers >> Lower fixed costs >> Even lower fares
Cycle 2: Low fares >> High volumes >> High aircraft utilization >> Low fixed cost per passenger >> Even lower fares
Cycle 3: Low fares >> Expectations of low-quality service >> No meals offered >> Low variable costs >> Even lower fares
However, they don’t go on forever. They usually reach a limit and trigger counterbalancing cycles, or they slow down because of their interactions with other business models. In fact, when interrupted, the synergies work in the opposite direction and erode competitive advantage. For example, one of Ryanair’s cycles could become vicious if its employees unionized and demanded higher wages, and the airline could no longer offer the lowest fares. It would then lose volume, and aircraft utilization would fall. Since Ryanair’s investment in its fleet assumes a very high rate of utilization, this change would have a magnified effect on profitability.
It’s easy to see that virtuous cycles can be created by a low-cost, no-frills player, but a differentiator may also create virtuous cycles. Take the case of Irizar, a Spanish manufacturer of bodies for luxury motor coaches, which posted large losses after a series of ill-conceived moves in the 1980s. Irizar’s leadership changed twice in 1990 and morale hit an all-time low, prompting the new head of the company’s steering team, Koldo Saratxaga, to make major changes. He transformed the organization’s business model by making choices that yielded three rigid consequences: employees’ tremendous sense of ownership, feelings of accomplishment, and trust. The choices included eliminating hierarchy, decentralizing decision making, focusing on teams to get work done, and having workers own the assets. (See the exhibit “Irizar’s Novel Business Model.”)
Irizar’s Novel Business Model
When Irizar—a Spanish cooperative that manufactures luxury motor coach bodies—created a radically different business model, it made several innovative choices.
Shared Ownership
- Workers own assets and contribute financially to join Irizar
- Teams set their own goals and choose leaders
- No bosses, only coordinators
- Flat hierarchy, with only three levels
- No overtime pay
- Decentralized decision making
- Shared information and transparency about performance
- No walls inside plants or offices; no assigned parking spaces
- Tenure after three years of probation; no evaluation or firings thereafter
- No clocking in and out
- Only one product for all markets
- Most repetitive tasks outsourced
Accomplishment
- Relatively high product prices
- Pay scale ratio of just 3:1
- Some profit (or loss) sharing every year
These choices have led to innovation, high quality, and excellent service, generating high sales volume as well as customer loyalty.
Irizar’s main objective, as a cooperative, is to increase the number of well-paying jobs in the Basque Country, so the company developed a business model that generates a great deal of customer value. Its key virtuous cycle connects customers’ willingness to pay with relatively low cost, generating high profits that feed innovation, service, and high quality. In fact, quality is the cornerstone of Irizar’s culture. Focusing on customer loyalty and an empowered workforce, the company enjoyed a 23.9% compound annual growth rate over the 14 years that Saratxaga was CEO. Producing 4,000 coaches in 2010 and generating revenues of about €400 million, Irizar is an example of a radically different business model that generates virtuous cycles.
Competing with Business Models
It’s easy to infuse virtuousness in cycles when there are no competitors, but few business models operate in vacuums—at least, not for long. To compete with rivals that have similar business models, companies must quickly build rigid consequences so that they can create and capture more value than rivals do. It’s a different story when enterprises compete against dissimilar business models; the results are often unpredictable, and it’s tough to know which business model will perform well.
Take, for instance, the battle between two of Finland’s dominant retailers: S Group, a consumers’ cooperative, and Kesko, which uses entrepreneur-retailers to own and operate its stores. We’ve tracked the firms for over a decade, and Kesko’s business model appears to be superior: The incentives it offers franchisees should result in rapid growth and high profits. However, it turns out that the S Group’s business model hurts Kesko more than Kesko’s affects the S Group. Since customers own the S Group, the retailer often reduces prices and increases customer bonuses, which allows it to gain market share from Kesko. That forces Kesko to lower its prices and its profits fall, demotivating its entrepreneur-retailers. As a result, Kesko underperforms the S Group. Over time, the S Group’s opaque corporate governance system allows slack to creep into the system, and it is forced to hike prices. This allows Kesko to also increase prices and improve profitability, drive its entrepreneur-retailers, and win back more customers through its superior shopping experience. That sparks another cycle of rivalry.
Companies can compete through business models in three ways: They can strengthen their own virtuous cycles, block or destroy the cycles of rivals, or build complementarities with rivals’ cycles, which results in substitutes mutating into complements.
Strengthen your virtuous cycle.
Companies can modify their business models to generate new virtuous cycles that enable them to compete more effectively with rivals. These cycles often have consequences that strengthen cycles elsewhere in the business model. Until recently, Boeing and Airbus competed using essentially the same virtuous cycles. Airbus matched Boeing’s offerings in every segment, the exception being the very large commercial transport segment where Boeing had launched the 747 in 1969. Given the lumpiness of demand for aircraft, their big-ticket nature, and cyclicality, price competition has been intense.
How Airbus Bolstered Its Business Model
Companies can often strengthen their business models to take on competitors more effectively. Airbus’s business model initially fell short because Boeing could reinvest profits from its 747, which enjoyed a monopoly in the very large commercial transport segment. In 2007, Airbus launched the 380 to compete in that segment—strengthening its virtuous cycle relative to Boeing’s.
Historically, Boeing held the upper hand because its 747 enjoyed a monopoly, and it could reinvest those profits to strengthen its position in other segments. Analysts estimate that the 747 contributed 70 cents to every dollar of Boeing’s profits by the early 1990s. Since R&D investment is the most important driver of customers’ willingness to pay, Airbus was at a disadvantage. It stayed afloat by obtaining low-interest loans from European governments. Without the subsidies, Airbus’s cycle would have become vicious.
With the subsidies likely to dry up, Airbus modified its business model by developing a very large commercial transport, the 380. To dissuade Airbus, Boeing announced a stretch version of the 747. However, that aircraft would cut into the 747’s profits, so it seems unlikely that Boeing will ever launch it. Not only does the 380 help maintain the virtuousness of Airbus’s cycle in small and midsize planes, but also it helps decelerate the virtuousness of Boeing’s cycle. The increase in rivalry suggests that the 747 will become less of a money-spinner for Boeing. That’s why it is trying to strengthen its position in midsize aircraft, where competition is likely to become even tougher when sales of the 380 take off, by developing the 787.
Weaken competitors’ cycles.
Some companies get ahead by using the rigid consequences of their choices to weaken new entrants’ virtuous cycles. Whether a new technology disrupts an industry or not depends not only on the intrinsic benefits of that technology but also on interactions with other players. Consider, for instance, the battle between Microsoft and Linux, which feeds its virtuous cycle by being free of charge and allowing users to contribute code improvements. Unlike Airbus, Microsoft has focused on weakening its competitor’s virtuous cycle. It uses its relationship with OEMs to have Windows preinstalled on PCs and laptops so that it can prevent Linux from growing its customer base. It discourages people from taking advantage of Linux’s free operating system and applications by spreading fear, uncertainty, and doubt about the products.
In the future, Microsoft could raise Windows’ value by learning more from users and offering special prices to increase sales in the education sector, or decrease Linux’s value by undercutting purchases by strategic buyers and preventing Windows applications from running on Linux. Linux’s value creation potential may theoretically be greater than that of Windows, but its installed base will never eclipse that of Microsoft as long as the software giant succeeds in disrupting its key virtuous cycles.
Turn competitors into complements.
Rivals with different business models can also become partners in value creation. In 1999, Betfair, an online betting exchange, took on British bookmakers such as Ladbrokes and William Hill by enabling people to anonymously place bets against one another. Unlike traditional bookmakers who only offer odds, Betfair is a two-sided internet-based platform that allows customers to both place bets and offer odds to others. One-sided and two-sided businesses have different virtuous cycles: While bookmakers create value by managing risk and capture it through the odds they offer, betting exchanges themselves bear no risk. They create value by matching the two sides of the market and capture it by taking a cut of the net winnings.
Over the past decade, Ladbrokes’ and William Hill’s gross winnings have declined, so Betfair has hurt them, but not as much as expected. Because Betfair has improved odds in general, gamblers lose less money. They then place more wagers, and when bookies pay out, bettors gamble again, feeding a virtuous cycle. This has expanded the British gambling market by a larger proportion than just the improvement of odds might suggest. The better odds Betfair offers also help traditional bookmakers gauge market sentiment more accurately and hedge their exposures at a lower cost. When a new business model creates complementarities between competitors, it is less likely that incumbents will respond aggressively. The initial reaction from bookmakers to Betfair was hostile, but they have become more accommodating of its presence ever since.
Business Models vs. Strategy vs. Tactics
No three concepts are of as much use to managers or as misunderstood as strategy, business models, and tactics. Many use the terms synonymously, which can lead to poor decision making.
To be sure, the three are interrelated. Whereas business models refer to the logic of the company—how it operates and creates and captures value for stakeholders in a competitive marketplace—strategy is the plan to create a unique and valuable position involving a distinctive set of activities. That definition implies that the enterprise has made a choice about how it wishes to compete in the marketplace. The system of choices and consequences is a reflection of the strategy, but it isn’t the strategy; it’s the business model. Strategy refers to the contingent plan about which business model to use. The key word is contingent; strategies contain provisions against a range of contingencies (such as competitors’ moves or environmental shocks), whether or not they take place. While every organization has a business model, not every organization has a strategy—a plan of action for contingencies that may arise.
Consider Ryanair. The airline was on the brink of bankruptcy in the 1990s, and the strategy it chose to reinvent itself was to become the Southwest Airlines of Europe. The new logic of the organization—its way of creating and capturing value for stakeholders—was Ryanair’s new business model.
Changing strategic choices can be expensive, but enterprises still have a range of options to compete that are comparatively easy and inexpensive to deploy. These are tactics—the residual choices open to a company by virtue of the business model that it employs. Business models determine the tactics available to compete in the marketplace. For instance, Metro, the world’s largest newspaper, has created an ad-sponsored business model that dictates that the product must be free. That precludes Metro from using price as a tactic.
Think of a business model as if it were an automobile. Different car designs function differently—conventional engines operate quite differently from hybrids, and standard transmissions from automatics—and create different value for drivers. The way the automobile is built places constraints on what the driver can do; it determines which tactics the driver can use. A low-powered compact would create more value for the driver who wants to maneuver through the narrow streets of Barcelona’s Gothic Quarter than would a large SUV, in which the task would be impossible. Imagine that the driver could modify the features of the car: shape, power, fuel consumption, seats. Such modifications would not be tactical; they would constitute strategies because they would entail changing the machine (the “business model”) itself. In sum, strategy is designing and building the car, the business model is the car, and tactics are how you drive the car.
Strategy focuses on building competitive advantage by defending a unique position or exploiting a valuable and idiosyncratic set of resources. Those positions and resources are created by virtuous cycles, so executives should develop business models that activate those cycles. That’s tough, especially because of their interactions with those of other players such as competitors, complementors, customers, and suppliers that are all fighting to create and capture value too. That’s the essence of competitiveness—and developing strategy, tactics, or innovative business models has never been easy.
- RC Ramon Casadesus-Masanell is a professor at Harvard Business School and the author, with Joan E. Ricart, of “How to Design a Winning Business Model” (HBR January–February 2011).
- JR Joan E. Ricart ( [email protected] ) is the Carl Schroder Professor of Strategic Management and Economics at IESE Business School in Barcelona.
Partner Center
Does your business need funding? Find your best loan options with Fundera by NerdWallet.
You’re our first priority. Every time.
We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.
So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .
Business Models: Types, Examples and How to Design One
Randa Kriss
Writer | Small business, business banking, business loans
Randa Kriss is a small-business writer who joined NerdWallet in 2020. She previously worked as a writer at Fundera, covering a wide variety of small-business topics including banking and loan products. Her work has been featured by The Washington Post, The Associated Press and Nasdaq, among others. Randa earned a bachelor's degree in English and Spanish at Iona College. Email: <a href="mailto:[email protected]">[email protected]</a>.
Rosalie Murphy
Rosalie Murphy covers small business topics for NerdWallet. Previously, she led editorial strategy for a local news startup and covered business at The Desert Sun. She holds a journalism degree from the University of Southern California.
Assigning Editor | student loans, student loan repayment plans, and education financing
Ryan Lane is an editor on the small-business team and a NerdWallet authority on student loans. He spent more than a decade as a writer and editor for student loan guarantor American Student Assistance and was a managing editor for publisher Cell Press. Ryan’s work has been featured by The Associated Press, USA Today and MarketWatch, and he previously co-authored the U.S. News & World Report Student Loan Ranger blog. Email: <a href="mailto:[email protected]”">[email protected]</a>.
Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .
What is a business model?
- What product or service a company will sell.
- How it intends to market that product or service.
- What kind of expenses the company will face.
- How the company expects to turn a profit.
Get the funding you need
Compare the details of multiple financing offers to get your business funded faster.
Types of business models and examples
1. retailer model, 2. manufacturer model, 3. fee-for-service model, 4. subscription model, 5. bundling model, 6. product-as-a-service model, 7. leasing model, 8. franchise model, 9. distribution model, 10. freemium model, 11. advertising or affiliate marketing model, 12. razor blades model, how to design a business model.
- How will you make money? Outline one or several revenue streams, which are the different ways your company plans to generate earnings.
- What are your key metrics? Having a profitable business is great, but it usually doesn’t happen right away. You’ll want to identify other ways your company will measure its success, like how much it costs to acquire a customer or how many repeat customers you'll have.
- Who’s your target customer? Your product or service should solve a specific problem for a specific group of consumers. Your business model should consider how big your potential customer base is.
- How will your product or service benefit those customers? Your business model should have a clear value proposition, which is what makes it uniquely attractive to customers. Ideally, your value proposition should be specialized enough that competitors can’t easily copy it.
- What expenses will you have? Make a list of the fixed and variable expenses your business requires to function, and then figure out what prices you need to charge so your revenue will exceed those costs. Keep in mind the costs associated with the physical, financial, and intellectual assets of your company.
- The best business checking accounts .
- The best business credit cards .
- The best accounting software .
Best Small-Business Loans of 2023
How to Apply for and Get a Business Loan in 5 Steps
Small-Business Grants: Where to Find Free Money
Dive even deeper in small business, compare small business loans, best startup business loan options for entrepreneurs.
The 9-Step Business Model Canvas Explained (2023 Update)
Written by Raquel Alberdi
Business | entrepreneurship, 0 comments(s).
Blog » The 9-Step Business Model Canvas Explained (2023 Update)
“A major mistake made by many start-ups around the world is focusing on the technology, the software, the product, and the design, but neglecting to ever figure out the business . And by “business” we simply mean how the company makes money by acquiring and serving its customers”.
-Reid Hoffman
After meeting with hundreds of entrepreneurs and business owners over the years I believe the LinkedIn co-founder and Blitzscaling author Reid Hoffman’s got it spot on.
People tend to focus on specific parts of their business, such as which software packages are being used, which is the cheapest supplier, how to optimize internal processes…?
They get so bogged down in the details of the day-to-day running that they lose the overall vision of their business.
Without this vision they are unable to scale, they make marginal profits, miss opportunities, struggle to innovate, and end up running “just another” business.
Another handy metaphor in understanding this common mistake is the soldier in the trenches .
Every meter of ground gained comes at a heavy cost, mistakes are made, and progress is hard-fought and slow…a day-to-day experience for 99% of entrepreneurs and businessmen.
But when you do have that 360 vision you see the entire battlefield. Decisions are much clearer, fewer mistakes are made, and progress is fast and methodical.
Fortunately, a business model framework exists that gives you both vision and clarity .
The Business Model Canvas provides entrepreneurs, business owners, and strategists with a tool to analyze, structure, and evolve a business while always keeping the bigger picture front of mind.
So let’s take a closer look at how it works.
Table of Content
What is the Business Model Canvas?
Customer segments, value propositions, customer relationships, revenue streams, key resources, key activities, key partners, customer segments, value proposition, strategyzer, business model canvas tool, would you like to learn more about business models.
Created by Swiss entrepreneur and Strategyzer co-founder, Alexander Osterwalder, the Business Model Canvas is a visual representation of the 9 key building blocks that form the foundations of every successful business. It’s a blueprint to help entrepreneurs invent, design, and build models with a more systematic approach.
Why is it so popular within the business community?
Its simplicity. The business model canvas allows us to carry out a high-level analysis without drilling down and getting lost in the details. You just draw out the 9 building blocks on a blank canvas, fill them in as each concept relates to your business, and hang it somewhere everybody can see.
It’s a visual overview of your entire business on a single canvas.
While the Business Model Canvas is an extremely fluid concept and hyper-specific to individual companies, each canvas is still broken down into these 9 key building blocks:
When laid out on the canvas the model will look something like this:
While you’ve probably come across each of the 9 building blocks before, the attractiveness of the Business Model Canvas is that it confines them to a single page , not a traditional 42-page document.
This makes it a lot easier to digest, as well as assess existing business models or map out new ideas.
How do I fill out the Business Model Canvas?
To start your Business Model Canvas you will need to breakdown and analyze each of the 9 building blocks.
A good way to approach this is to gather the heads from marketing, sales, operations, finance, and manufacturing (if product-based) and pencil-in a morning where you can all meet together.
Then, after drawing a mock canvas onto a whiteboard, proceed to dissect and discuss each of the 9 building blocks as they relate to your business. You can use sticky notes to better organize your thoughts around the canvas.
If you are an entrepreneur or new business owner working alone and don’t have a team to bounce your ideas off, not to worry. You can still carry out your analysis before sharing it with a like-minded entrepreneurial community or forum, like those found on ThePowerMBA , to get useful, insightful feedback.
Whichever way you decide to approach it, I recommend you complete each block in the following order:
- Cost structure
For continuity, I’m going to use the fashion retail giant Zara when analyzing each of the 9 key building blocks.
If you’d like to skip to another case study similar to your own business, navigate to the table of contents at the top of the page and select one of the other business model canvas examples.
The first block of the Business Canvas Model is about understanding who is the most important customer(s) you’re delivering value to. Or, in other words, who are they? What do they do? And why would they buy your product or service?
Not a single company exists without its clients, making customer segments the best block to start with while drawing out your business model canvas.
A great exercise to define your customer segments is to brainstorm and create your company’s buyer persona (s) .
Buyer personas are fictional depictions of an ideal or hypothetical client. Typically when brainstorming a buyer persona you’d want to define certain characteristics (age, demographic, gender, income, industry, pain points, goals, etc.)
However, remember at this stage we want a snapshot of our customer segment. There’s no need to jump into great detail just yet.
In the case of Zara, there are three distinct customer segments to whom they offer different products.
The products created for each of these customer segments (clothing, shoes, and accessories) are not trans-consumable. That is to say, a woman’s dress is highly unlikely to be worn by a 7-year-old child.
Once we know exactly who it is we are targeting, it’s time to look at what we as a company have to offer.
The second phase is about figuring out your company’s value propositions , and importantly, your UVP (unique value proposition). The “what” that makes customers turn to you, over your competitors? Which of their problems are you best at solving?
Each value proposition consists of a bundle of products or services that fulfill the needs of a buyer persona from your customer segment. It’s the intersection between what your company offers, and the reason or impulse customers have for purchasing.
Some popular questions to ask while determining your UVP are:
- Which specific customer pain point are you trying to solve?
- What job are you helping customers get done?
- How does your UVP eliminate customer pain points?
- What products or services do you provide that answer this specific pain point?
So let’s try and apply this to Zara. Why do people choose to purchase from them, over their competitors?
Zara’s principal value propositions are fairly clear. They offer various ranges of stylish men’s, women’s, and children’s clothing and accessories at an affordable price.
But there’s more to it than that.
If we dive a little deeper we see Zara’s value propositions are more complex, which are behind the success of the brand:
Fast fashion
Zara adds new clothes and designs to its collections every 2-3 weeks, both in its stores and online. It keeps the brand updated, fresh, and modern while maintaining its all-important medium price point
Great eCommerce experience
Once you enter Zara’s online store you’re presented with a clean, easy-to-navigate, and high-end feel. The customer segments are visible on the left navigation bar with a search tab to further aid customers with their online experience.
Localized stores
You can find a store in nearly all major retail locations (shopping malls, retail outlets, airports, etc.) meaning accessibility is not an issue for the majority of consumers.
Flagship stores
Zara demonstrates its aesthetic evolution to customers through its flagship stores. The recent opening of their Hudson Yards , New York City flagship is a great example of this. Customers shop around its vivid, minimalist layout offering them an experience aligned with the brand’s deeper, eco-friendly values.
Zara Hudson Yards, New York
The next step is to ask yourself how you are reaching your customers, and through which channels ?
This includes both the channels that customers want to communicate with you as well as how they’ll receive your products or services.
Is it going to be a physical channel? (store, field sales representatives, etc.) Or is it a digital channel? (mobile, web, cloud, etc.).
Zara has 3 primary channels in which they communicate and deliver products to its customers:
- Direct sales through their stores
- Online (both app and website)
- Social media
Customers can go to a traditional “bricks and mortar” store to browse, model, and purchase different items of clothing at one of their retail stores.
Alternatively, they can shop online or through their mobile application and have the product delivered straight to their door or nearest store. The choice is completely up to them!
So that covers Zara’s commercial channels, but what about how they communicate with customers?
While they do communicate through their mobile app, their predominant channel is social media.
What’s more, they’re really, really good at it.
For example, did you know that Zara invests less than 0.3% of its sales revenue into advertising?
This is only possible due to an A-rated social media presence . Customer queries are not only dealt with quickly, but recommended re-works are sent back to HQ, forwarded onto in-house designers who then apply the feedback to future collections.
This customer-first approach through fluid communication channels has saved them thousands of dollars in marketing, strengthened their brand, and created a loyal customer base.
You should only step away from this building block once you’ve decided how each of your customer segments want to be reached.
Once you have acquired customers, you will need to think about how you can build , nurture, and grow those relationships.
Now, this can be automated and transactional like large eCommerce brands Amazon or Alibaba. Or, it could be at the complete opposite end of the scale and require a more personal relationship you’d typically have with a bank or your local bike shop.
Zara’s relationship with its customers is threefold, and lies somewhere in the middle of transactional and personal:
- Salesperson at store
- Brand through social media
- Sentimental attachment to a product
Yes, you have the initial transactional touchpoint at the store or online, something relatively impersonal and for many the only interaction they’ll have with the brand.
However, customers (especially in the fashion industry) are encouraged to continue to interact with a brand through social media platforms.
As we mentioned before when discussing channels, Zara has a very effective communication system in place. Not only can people instantly get in touch with the brand, but also engage with new posts, images, and collections uploaded to social media.
This personal approach to customer relationship building can, in some cases, lead to the natural growth of brand ambassadors and communities .
An attachment can also develop between customers and particular garments or accessories from one of their collections. The sentimental attachment to these products also creates another potential form of brand loyalty.
Now that you’ve described how you are going to create real value for your customers, it’s time to look at how you plan to capture that value.
What are your revenue streams? Is it going to be a transactional, direct sales strategy ? Are you going to consider a freemium mode l, where you give a portion of your product or service away for free with the idea of converting later on down the line?
If you’re a SaaS company such as SalesForce or Strava , then it’s likely that a licensing or subscription revenue model will be more appropriate.
At Zara, it’s extremely simple. They make their money by selling clothes and accessories either at a store or online.
As you can see, we’ve filled in the entire right-hand side of our business model canvas. We touched upon:
- Value propositions
- Revenue streams
- Distribution channels
Now it’s time to move over to the left side of the business canvas model and look at what we need, internally , to deliver our value propositions.
To start with, let’s take a look at key resources.
The key resources are all things you need to have, or the assets required to create that value for customers.
This could be anything from intellectual property (patents, trademarks, copyrights, etc.) to physical holdings (factories, offices, delivery vans, etc.) right down to finances (the initial cash flow perhaps needed to start your brand).
Another key resource every company needs to consider is its human capital . Are you going to need highly specialized software engineers? Or field-based sales teams?
They are relatively capital-heavy resources that need to be factored into your business model.
In the case of Zara, they are going to need a number of key resources if they hope to deliver their propositions:
- Stock management
- A large, interconnected network of physical stores
- A strong brand
- Logistics and supply chain infrastructure
Stock is vital for both online and offline customers.
If they are unable to supply their range of products and meet customer demands, satisfaction levels fall and they have a serious problem on their hands.
A large distribution network of brick and mortar stores combined with a strong brand name help mitigate these factors, as well as reinforce any ongoing marketing activities and communication efforts.
Finally, an efficient logistics process within Zara is critical, especially when you consider the complexities involved with such a large-scale operation.
They will require the necessary technology to analyze data on inventory, storage, materials, production, and packaging, with the staff to execute each of these stages and manage the delivery of the final products.
The next step is to define the key activities – the areas you need to be good at to create value for your customers.
To mix it up a little let’s take a look at a slightly different business in Uber .
Their key activities can be broken down into:
- Web and mobile app development
- Driver recruitment
- Marketing: customer acquisition
- Customer service activities : drivers’ ratings, incidents, etc.
They need a fast, clean UX for their customers using the app, drivers to carry out their service, and the ability to both market the product and deal with any customer queries.
Zara’s key activities will differ to those of Uber. Some of the things they need to consider would be:
- Manufacturing
- Retail process (point of sale and 3rd party management)
- Distribution channel / logistics
Design is a key activity as Zara’s value proposition is to provide stylish garments at an affordable price. Their collections need to be constantly updated to follow the latest fashion trends at the time.
To produce their collections Zara will also require manufacturing capabilities. Now Zara doesn’t own their own factories (we will get to that in the Key Partners section) but they still need to be involved in the garment manufacturing process.
Everything from fabric selection to pattern making, to detailing and dyeing affects the outcome of the final product which of course they have to then go on and sell.
The effective management of the retail and distribution channels (online, offline, shipping, and communication with providers) is also key. A breakdown in either of these activities, such as a poor relationship with an important provider will have serious consequences for the business.
Most modern business models now require brands to build out and work with various key partners to fully leverage their business model.
This includes partnerships such as joint ventures and non-equity strategic alliances as well as typical relationships with buyers, suppliers, and producers.
A great example of a strategic partnership would be between ThePowerMBA and Forbes . In exchange for exposure of our brand to the magazine’s global audience, we provide expertise and content on high-level business education programs.
As we touched upon when discussing key activities , Zara requires strategic partnerships with many different providers if they are to design and produce their collections.
Another key partner is their major holding company, Inditex .
Inditex has several subsidiaries including Massimo Dutti , Pull & Bear , and Oysho . Being a subsidiary of Inditex means they share a consolidated balance sheet, stakeholders, management and control, and various legal responsibilities.
While as a subsidiary Zara is afforded certain freedoms when it comes to design, delivery, and the general running of the company, the overall strategy will need to be aligned with Inditex and its other subsidiaries.
The final step of the Business Model Canvas is to ask yourself, how much is it going to cost to run this model?
This includes some of the more obvious needs such as manufacturing costs, physical space, rent, payroll, but also areas such as marketing activities.
If you are unsure of exactly what to include in your cost structure take a look at a Profit and Loss statement ( P&L ) from a competitor or company in a similar industry to yours. You’ll find many items overlap such as research and development ( R&D ), cost of goods sold, admin expenses, operating costs, etc.
Once that’s done you should prioritize your key activities and resources and find out if they are fixed or variable costs .
As Zara is such a large, corporate business they are going to have both fixed costs (rent, payroll, point of sales personnel) and variables, such as costs associated with the fluctuating sale of goods, purchase of materials and, manufacturing costs.
Once you’ve completed these 9 steps, your Business Canvas Model should look something like this:
Business Model Canvas Examples
Hopefully, you were able to get a good feel for the effectiveness of the business model canvas with our run-through of Zara.
However, if you found it difficult to follow due to the stark difference between your industries, I’m going to quickly go through 3 more companies to demonstrate the tool’s flexibility:
- Netflix (Media service/production)
- Vintae (Vineyard)
Even if these business model canvas examples don’t align exactly with your industry, I honestly believe that studying different models gives you a competitive advantage in your professional career regardless.
If you’re currently employed by a company, you’ll better understand how your specific role helps the company achieve some of its “long-term” goals.
Alternatively, if you are a business owner yourself (or perhaps thinking of starting your own business) you’ll have a better understanding of your business and where potential opportunities lay.
I’m sure you’re familiar with our next business model canvas example candidate, Netflix .
The global media company offers an online streaming service of various movies, documentaries, and TV programs produced in-house or licensed 3rd-party content. Their success sparked a revolution in the online media world with the likes of Amazon, Apple, Disney, HBO, and Hulu all rushing to launch their own online video streaming platforms.
Netflix started life as an online DVD rental company, basically a web version of the more popular (at least at that time) “bricks and mortar” Blockbuster.
Co-founder Reed Hastings predicted as far back as 1999 that the future of media was in online streaming, saying “postage rates were going to keep going up and the internet was going to get twice as fast at half the price every 18 months.”
It wouldn’t be until 2007 that Hasting’s prediction would become true when Netflix, as we now know it, was born.
So let’s take a current look at their business model canvas:
As you probably know, there are very few people out there who haven’t subscribed, watched, or at least heard of Netflix. There is content for everybody: wildlife documentaries, sci-fi movies, rom coms, action-thrillers, you name it – it’s there.
That’s why their customer segment can be classified as a “ mass market ” as the base is just so diverse.
All people require is a computer, TV, internet, and/or smartphone and they’re good to go. For most developed markets, that covers just about everybody.
Whether on the train to work, sitting in the car (if you’re not driving!), or relaxing at home in front of the TV, you can consume their online, on-demand video streaming service.
They also have a huge library of content for consumers to choose from, ensuring that people keep coming back, as well as increasing their mass-market appeal.
They also produce high-quality, original content to differentiate themselves from their competitors.
Most people access Netflix either through their website or mobile/TV App . Another popular channel that you may have picked up on is their affiliate partners .
You’ve perhaps signed up for a mobile, TV, and internet package where the provider offers Netflix as an extra to sweeten the deal, so to speak.
That would be an example of an affiliate partnership between Netflix and mobile service providers.
I doubt many consumers have had direct contact with Netflix unless it’s to resolve a subscription issue or general query. It’s very much a self-automated service – you download the app, select the program you wish to watch, and hit play.
Very simple, very effective.
Again, this doesn’t need much embellishment. Netflix generates money from the different tiers and packages put together in their subscription services.
This varies depending on the region to account for local markets, but on the whole, it’s sold at a low price point.
Originally, Netflix’s Key Resources would have been their unrivaled DVD collection combined with a cost-effective mail-order system.
Nowadays it’s undoubtedly the rights to stream online video content. Netflix has brokered deals with some of the biggest production studios worldwide.
Combined with their huge library of in-house productions , it’s more than enough to encourage customers to renew their subscriptions.
To help sustain interest in their product, Netflix understands they need to serve-up relevant content for each sub-sector of their mass audience. Therefore their machine learning algorithm selects content for consumers based on streaming habits (what they watched, at what time, etc,.) to personalize the customer experience.
This explains why over 80% of all content streamed on Netflix was cherry-picked by this algorithm, making it a Key Resource for their business model.
Also, Netflix accounts for a whopping 12.6% of global bandwidth usage . The literal capacity to stream their services must be met meaning bandwidth must also be included here.
Content procurement is arguably their biggest Key Activity. They need to find people to produce and deliver their original content, including actors, studios, writers, etc. as well as secure the licensing and streaming rights from 3rd party producers such as Sony, Warner Bros, and Disney.
Finally, they need a fast, easy-to-use application to host their online streaming service. This needs to be available for both TV and mobile devices if they are to deliver their “on-demand” value proposition.
K ey Partners
Seeing as Netflix’s entire business model is largely based around streaming 3rd party content, key partnerships need to be built with production studios . No content, no Netflix!
Also, as we touched upon earlier Netflix is one of the largest consumers of bandwidth worldwide. If the speed and delivery of their streaming service are to be continued then deals will also need to be made with internet service providers (ISPs).
Netflix’s biggest expenditures come from both their in-house content procurement and 3rd party licensing agreements . The high-quality standard of video streamed on Netflix is only possible due to the speed and performance of its online platform and application , which has additional costs of staff, software, etc.
To show you just how flexible the business model canvas can be, I wanted to throw in a slightly leftfield example. Vintae is a Spanish wine producer who, after a detailed analysis of the business model canvas, was able to innovate and disrupt one of the world’s most competitive industries.
As some of you may know, the wine industry is extremely competitive. It’s also steeped in history and tradition , making it very challenging for newcomers to grab market share, let alone think about year-on-year growth and revenue.
However, CEO “Richi” Arambarri looked at the traditional “ bodega ” business model and saw a chink in its armor.
A “small” innovation in the business canvas model helped them to become one of the region’s most important winery groups, with over 10 installations and a presence across all regional denominations (Rioja, Priorat, Rias Baixas, etc.) with year on year growth of 30% – practically unheard of in such a competitive industry.
So how did Vintae analyze the business model canvas to find a niche in their market?
To answer that question, we must first look at the traditional winery business model .
As you can see, the wine industry has historically been patrimonial. Vineyards and estates are passed down through generations with the winery responsible for all phases of production, clarification, and distribution.
The traditional winery business canvas model suggests you must be the owner of the winery/vineyard where the wine is “manufactured”, meaning physical assets are a key resource of the business model.
So, if you wanted to start producing a Rioja, for example, you’d have to set up your vineyard in the region.
This is monumentally expensive as you need to:
- Purchase the land
- Plant a vineyard
- Absorb set-up and installation costs
- Deal with maintenance costs
It’s here where Vintae saw their opportunity.
What if we move vineyard ownership across the business model canvas from key resources to key partners ?
By leasing the equipment and space of large wineries (of which there was plenty), they could still produce their wine but reduce the cost and exposure associated with land purchase, crushing equipment, huge storage tanks, vineyard maintenance, and their bottling line.
This enabled them to focus on their sales, marketing, and distribution channels to create a better brand experience for their customers.
Also, it afforded them more flexibility when creating new wines as they were no longer confined to the limitations of grapes grown on their vineyard.
The lightness of this new business model eliminates maintenance overheads, channels energy into personalizing the customer experience, and allows for unprecedented levels of growth in one of the world’s most competitive industries.
Business Model Canvas Software
Although I did mention starting with a large whiteboard, sticky notes, and a pack of colorful sharpies there are several options in which you can digitize the business canvas model production process.
While I still believe the aforementioned process is extremely valuable (it gets your entire team’s input in a single hour-long session) you may decide it more viable for each member of management to pool their ideas digitally before sharing with the rest of the group.
If that’s the case, then take a look at some of the following software tools for creating your business model canvas.
Created by the founders of the business model canvas Alex Osterwalder and Yves Pigneur , Strategyzer offers a range of business model canvas templates for you to get started with.
If you opt for the paid model (there is a 30-day free trial period) they offer a series of various classes that teach you how to build and test different value propositions and business models.
A real-time built-in cost estimator analyzes the financial viability of some of your business ideas, identifying alternative areas you may wish to explore with your model.
All-in-all, it’s a great resource to play around with and test some of your business ideas, with the option to dive into further detail if you see fit.
Canvanizer is a free, easy-to-use web tool that allows you to share links between team members who are brainstorming ideas for a business model canvas, but working remotely.
Like Strategyzer, there are several business model canvas templates provided to help you get started with your analysis. The strength of this platform is its accessibility. Much like a Google Doc., several people can brainstorm on the same canvas simultaneously with changes being synchronized automatically.
A ThePowerMBA alumni, impressed by the simplicity and effectiveness of the tool, went ahead and created the free application Business Model Canvas Tool .
It’s an incredibly intuitive, and easy-to-use tool that allows you to create templates simply by clicking the + button in each building block.
Each business model canvas created can be downloaded and shared as a pdf. with the rest of the team.
If, after going through our 9-step guide on how to use the Business Model Canvas you’d like to learn more about different business model analysis tools , take a look at our alternative MBA business program .
As you’ll see, the course gives students a 360-degree view of business and management practices – such as engines of growth, segmentation and targeting, and value propositions.
I highly recommend you go check it out.
Regardless, I’d love to hear what you thought about this guide. Was it helpful? Would you like to see additional business cases analyzed from your industry?
Let us know in the comments below.
FREE CLASSES
What’s it like to take one of our programs.
The best thing is to try it yourself with these classes that are totally FREE! Sign up and experience being part of the business school that has challenged the traditional educational model.
How much do you know about business?
Tools, concepts, business methodologies… Find out with this test! (it won’t take you more than 3 minutes)
You may also like
Voice Marketing: The Future of Advertising
Mar 3, 2023 | Marketing
Marketing has had to adapt over the years to meet the needs of users and an example of this is what’s happening with...
Advanced SEO techniques you can’t miss
Mar 1, 2023 | Marketing
Do you want to get the most out of digital marketing and have constant traffic coming to your website? It's time to...
Content marketing to make your business grow exponentially
Feb 27, 2023 | Marketing
Nowadays, it’s almost impossible to think of a company that doesn’t apply content marketing in digital networks and...
Submit a Comment Cancel reply
Your email address will not be published. Required fields are marked *
Save my name, email, and website in this browser for the next time I comment.
Submit Comment
How To Design A Winning Business Model
Uploaded by, document information, description:, original title, available formats, share this document, share or embed document, sharing options.
- Share on Facebook, opens a new window Facebook
- Share on Twitter, opens a new window Twitter
- Share on LinkedIn, opens a new window LinkedIn
- Share with Email, opens mail client Email
- Copy Link Copy Link
Did you find this document useful?
Is this content inappropriate, original title:.
Reward Your Curiosity
- Share on Facebook, opens a new window
- Share on Twitter, opens a new window
- Share on LinkedIn, opens a new window
- Share with Email, opens mail client
Business Model Templates: 12 Free Templates PDF, Word, Excel and PPT
These free business model templates are an ideal way to shape your business ideas and create a business plan.
For instance, if you’re a startup you can use the Lean Canvas template and value proposition to create a product or service that is supported by a strong business model .
I’ve created these business model templates to make it easy for you to play around with your ideas, shape them, share them and include them in any business plan.
For each template you have four formats to choose from:
- Free Business Model template : PDF, MS Excel, MS Word and PowerPoint.
- Free Value Proposition template : PDF, MS Excel, MS Word and PowerPoint.
- Free Lean Canvas template : PDF, MS Excel, MS Word and PowerPoint.
- Bonus Free Persona template : PDF, MS Excel, MS Word and PowerPoint.
Most businesses make assumptions about their customer and often rely on legacy data.
The persona canvas and value proposition are the perfect business design tool to change that. Using the jobs to be done framework you can dig into what ‘jobs’ customer are trying to achieve and the problems they face.
These business templates will also help you to design a powerful business model .
First of all, I’ve designed the business model templates in PowerPoint to have a master template. As a result, you can create as many variations as you want , and then evaluate them.
Second, the business model templates have been designed to be easy to edit and print .
This makes it easy to document your ideas, print them and then refine them e.g. create a storyboard approach and watch your ideas evolve.
Think of it as a journey in which you evolve and iterate how you design your business until you find the best one.
startup business plan Templates
Start with an open mind. Use these tools to rethink and reimagine your business. Let go of previous ways of thinking and try new models. A good place to start is by taking a look at business model patterns and deciding if adopting any would give you an edge in your market.
A unique business model can transform profits and deliver a competitive advantage.
Customers have more choice now than ever before. So try to create products/services and business models that truly are unique.
Try to stand out from the pack and solve customer problems.
Start with the customer and then build outwards. Once you’re confident you can address an unmet need or problem, build outwards to create a business model that is efficient, effective and lean.
Then, once you’re you have your business model you can get stuck into developing your business plan.
Free Business Model Templates To Download
These business model templates are free to download and you can use them immediately.
If you’re running a workshop the business model pdf template is ideal for printing and pinning to a wall – see sizes below.
However, you can also simply document the results of a workshop using the free Word or PowerPoint templates.
Either way, these business model templates can be adapted to suit a variety of individuals and teams.
If you’re not already familiar with how to use the business model canvas , I strongly suggest you follow the link and brush up on the main principles.
Business Model Template Word Doc
Download this easy to use business model template created as Microsoft Word docx file. Simply click on the image to the right to download the file.
Business Model Template Excel
Download this business model template created as an Excel file (xlsx). Simply click on the image to the right to download the file.
Tip you can easily create different versions by clicking on the tab, right-click and click copy.
Business Model Template PowerPoint
Out of the business model templates, the PowerPoint in my experience is probably the most versatile.
Download this business model template created as a PowerPoint file. Simply click on the image to the right to download the file.
Business Model Template Pdf
Download this business model PDF template. The file is width 3508 px x height 2480 px (300 dpi).
Simply click on the image to the right to download the file. If you want to edit the file and change things then use Abobe Acrobat .
Free Value Proposition Templates To Download
The value proposition was developed as a second book by Yves Piigneur and Alexander Osterwalder. The most important part of the business model is the value proposition.
Creating a unique value proposition is one of the hardest parts of creating a strong business model .
It involves considerable amounts of time, lots of care, iterations and tests. However, a strong value proposition will quickly bring in more revenue and profits than a weak one .
It is the foundation for how customers connect with your brand and business.
If you’re not familiar then read the article on how to use the value proposition canvas .
Value Proposition Template Word Doc
Download value proposition template as a Microsoft Word Docx file. Simply click on the image or the button below to download the file.
Value Proposition Template Excel
Download this value proposition template as an Excel Xlsx file. Click either on the image or the button to get your copy.
Value Proposition Template PowerPoint
Download this value proposition PPT template as a PowerPoint file. It is designed to have a Master template that allows you to create multiple versions of your value proposition.
Value Proposition Template Pdf
Download this value proposition template created as a high-quality PDF file. Click on the image to the right or the button below to download. This is an ideal size for workshops.
Free Lean Canvas Templates To Download
The Lean Canvas Model was designed by Ash Muarya as an alternative to the business model canvas.
The business model canvas is more suited to established businesses that have established resources, customers and revenue.
On the other hand, the Lean Canvas template is designed to help startups who are at the beginning of the innovation process and shaping their idea into a competitive business model .
The Lean Canvas is a startup business plan template that will help entrepreneurs or intrapreneurs plan their new venture.
Lean Canvas Template Word Doc
Download this easy to use lean canvas template created as Microsoft Word docx file. Simply click on the image to the right to download the file.
Lean Canvas Template Excel
Download this lean canvas model template created as an Excel xlsx file. Simply click on the image to the right to download the file.
Lean Canvas Template PowerPoint
Lean canvas template pdf.
Download this lean canvas model template created as an Excel xlsx file. Simply click on the image to the right to download the file. If you want to edit the file and change things then use Abobe Acrobat .
Bonus Persona Canvas Templates
At the root of all great businesses is a culture and focus on customers.
In today’s hyper-competitive world understanding different customers segments is crucial to your marketing communications and sales process.
More importantly, understanding your customers provides the backbone for creating new products and services.
The Persona Canvas is a powerful tool then to help you develop a shared mental model of your different customers. A common mistake is to treat all businesses the same.
Learn how to use the Personal Canvas and accelerate how you drive innovation, improve sales and develop a competitive advantage.
Persona Canvas Template Word Doc
Download this easy to use Persona Canvas template in Microsoft Word Docx file. Simply click on the image or button to download the file.
Persona Canvas Template Excel
Download this Persona Canvas template created as an Excel xlsx file. Simply click on the image to the right to download the file.
Persona Canvas Template PowerPoint
Download this Persona Canvas template as a PPT file. Simply click on the image or the button below.
Personal Canvas Template Pdf
Download this free Persona Canvas template as a PDF file. If you need to edit the file and change things then use Abobe Acrobat .
Tips On Using These Business Plan Templates
An idiot with a plan can beat a genius without a plan. Warren Buffet
Create a powerful business plan and it will convince others to either invest in you or become part of your business.
A tight business plan will separate you from the pack and deliver a competitive advantage.
How To Use These Business Model Templates
A business model innovation has a higher potential to deliver an innovation advantage than having a unique product or service. Products and services are easy to copy whereas a business model is embedded in the DNA of the business and the way it works.
Here are a few tips when you plan your business using these business model templates.
- Jot down your ideas – all your ideas without evaluating them first.
- Group them – group ideas into themes.
- Evaluate each group – evaluate each group and discard duplicates or ones that are similar. At this stage, you don’t want to limit the possibilities too early.
- Gather your data – pool all the data you have currently on your ideal customer and identify any gaps in data that are important.
- Invest time/money (dependent on budget) in trying to bridge the data gaps – use online reports, surveys, observations – a mix of data.
- Value proposition canvas – start with the value proposition template to get into the detail of the jobs, gains and pains of your customer.
- Move to the business model or lean startup canvas – use your ideas to create the business model.
- Check your business model vs competitors – what can you do differently better than competitors.
- Create a strategy – a business plan is not a strategy. A strategy evaluates your capabilities and ideas vs the market and trends.
- Research the trends and use supporting data to clarify if you have a strong or weak strategy.
Need help? Join the Facebook group and either myself or other members of the community can help.
Related Posts
In this post, you will learn about the Uber business model. I'll cover how Uber…
The Spotify business model is based on their digital platform which connects artists with fans…
The freemium business model was born out of a blog post created by venture capitalist…
Innovation is happening faster than ever, keep up with new ideas, tools and technologies.
101+ PRO TOOLS
DISCOVER THE TOOLS
PROS USE TO
ENTER EMAIL AND GET IT STRAIGHT AWAY
- More Networks
- How to Create a Website
- How to Make a Wordpress Website
- How to Start a Blog
- How Much Does a Website Cost?
- Best Website Builders
- Squarespace
- Best Web Hosting
- Wordpress Hosting
- Shared Hosting
- Dedicated Web Hosting
- Managed Hosting
- How Do I Switch Web Hosting?
- Compare Hosts
- Best E-commerce Platforms
- How to Sell on Amazon
- Shopify Tips
- BigCommerce
- WooCommerce
- A Complete Guide to Online Marketing
- Marketing Tools
- Email Marketing Platforms
- CRM Software
- Create Your Own Email Address with Gmail
- How to Set Up a VPN
- Best VPN Services
- Password Managers
- Password Generators
- How to Prepare a P&L
- HR Software
- Accounting Software
- Payroll Software
- Software & Service Reviews
- Who is Hosting This?
- What's Your IP Address
- Hosting Speed Test
- HTML Cheat Sheet
- / How To Start Your Online Business
20 Business Model Examples (And How To Pick The Right One)
By: Dale Cudmore Digital Marketing and Sales Expert
If you’ve heard the term “business model,” but don’t know exactly what it means, you’re not alone .
It’s used all the time by business analysts, and even they disagree on the exact definition of a business model.
But you know a business model is important.
And it is. Your model sets your business on the path to success or failure , so you need to get it right.
- How Does This Article Serve You?
This is a practical guide to:
- What a business model is
- Why it’s important
- How to create one.
It doesn’t require any previous experience or knowledge and will leave you with everything you need to know to pick the right business model for your next venture or reevaluate your current model.
- What is a Business Model?
As mentioned, there’s no single definition of a “business model,” so let’s look at the most common interpretations .
Long ago, the concept of a business model was simple – how will your business make money .
It wasn’t until the 1990s or so where people started realizing that your business model can make or break your company.
So it evolved from that basic definition.
While he didn’t specifically mention business models, Peter F. Drucker’s theory of business is often cited as the start of a shift. Instead of just focusing on monetization, he proposed that businesses should also consider customers, goals, and strategy.
Verifying Your Business Model
A modern business model should at the very least answer Drucker’s famous five questions :
- What is your mission?
- Who is your customer?
- What does your customer value?
- What results do you seek?
- What is your plan?
Still, that’s a bit open-ended.
Finally, Alex Osterwalder developed a comprehensive system to define a business model .
His view of a business model was that a business model is a combination of assumptions and guesses.
The Business Model Canvas
He developed the Business Model Canvas, which we’ll be looking at in more detail later.
It divides a model into 9 main sections that provide an organized way to break down all the important assumptions you have about a business.
Video: Alex Osterwalder provides a brief overview of the Business Model Canvas
What’s the Difference Between Business Models and Business Strategy
They both seem similar at first but have different scopes .
Business Model
A business model covers how a business will operate , but a business strategy defines how that business will carve out a position in its market.
In other words, a business model gives you a set of limitations . It might tell you how much you’ll charge, and what customers you’ll target.
Business Strategy
However, your business strategy will focus on how you actually reach those customers and distinguish yourself from competitors.
You’ll see both terms used interchangeably (incorrectly), but it’s good to know the difference.
- Why Do Business Models Matter in the Modern Economy?
The right business model can catapult you to glory or collapse, and that’s not an exaggeration.
Business model innovation is arguably the biggest form of competition that exists in modern business.
Clay Christensen, a professor of business administration at Harvard sums it up well:
Most managers think the key to growth is developing new technologies and products. But often this is not so. To unlock the next wave of growth, companies must embed these innovations in disruptive new business models.
IBM’s Institute for Business Value conducted a study in 2009 and found that 70% of companies are actively engaging in business-model innovation.
They also found that 98% of businesses were continually modifying their model to some extent.
Core Values and Competitive Advantage
You’ve seen examples of this, perhaps without realizing it.
Consider taxis and Uber, which both have essentially the same core value to customers of providing flexible, on-call transportation.
Uber has a drastically different business model. When they started up, their business model was their main competitive advantage .
Fast forward to today, and Uber and other similar businesses have overtaken taxis .
- 3 Traits of a Good Business Model
Before we look at specific models you may want to consider using, let’s briefly go over the attributes of a solid business model .
1. They Match Up With Company Goals and Values
Your business model comes after you define what your company is trying to do.
Certain models will match up with your goals and values , and some won’t. If you start a diamond shop but try to implement a freemium model, there’s essentially no way you’ll succeed.
Pick a model that complements your mission and the way you want to accomplish it .
2. A Business Model Should be Robust
You don’t want to base your entire business off a model that might not be effective after a year or two.
Your business model needs to consider:
- Resources available – If your business model requires an upfront investment, but you have limited access to funding, you’re in trouble.
- Imitators – Can competitors easily copy or improve upon your business model?
- Consumer trends – Will customers still want your solution in the future? Can they substitute it for another?
Taking time to think of these when picking a business model may save you from a big mistake.
3. They Leave Opportunity for Innovation
You’re likely not going to get everything in your business model right the first time.
As Osterwalder noted, business models are based on assumptions. Things rarely go as planned.
If your business model depends heavily on all your assumptions being correct, it’s too rigid. Create a business model that you can re-evaluate and improve upon over time.
- The 20 Types of Business Models (with Examples)
Mark W. Johnson has a great book called How to Seize the White Space for Transformation .
In it, he covers 20 types of potential business models that you can choose from and their primary method of monetization.
I’ll summarize them here and provide examples of each, but if you’d like more detail, it’s a good book to pick up.
Affinity Club
An affinity club model is based on partnerships with other organizations. By buying or using your products, customers also get special access to other perks, giving them extra incentive.
Of course, you’ll need to provide an incentive to those partners to get them on board.
This is best used in competitive fields where products are all similar.
A great example of this is MBNA, who uses this model with their credit cards. Different cards come with different perks , so they can target a wide audience.
For example, one card is targeted towards football (soccer) fans. If you sign up for a Manchester United card, you get points that can be exchanged for their merchandise.
There are also monthly draws and other perks .
Automation-Enabled Services
This model relies on technological advancement and is tough to use unless you have a good deal of specific technical knowledge yourself.
The goal is to automate services that typically use human labor , so your operating costs are reduced.
For example, instead of going to a financial advisor, you can go to Betterment . It’s an automated online financial advisor that gives you a similar quality of advice as most financial advisors would.
Video: An overview of how Betterment uses technology to provide financial advice.
A broker connects buyers to sellers and gets a small fee for each transaction.
There are many examples of this:
- Kickstarter.
Any marketplace that allows others to sell on it, and focuses on bringing in customers for those sellers is using a brokerage model.
A bundling business model packages related products together to make a more convenient and enjoyable experience for customers.
A classic example of this is the fast-food value meal, but that can be replicated fairly easily.
A better example is the combination of iPod and iTunes. You can’t use an iPod without iTunes, so each new iPod customer results in a new iTunes user (and potential customer).
Bundling is very effective when a company is launching a new business and can leverage existing success as Apple has done.
Crowdsourcing
Don’t confuse a crowdsourcing business model with crowdsourcing funding from sites like Kickstarter.
A crowdsourcing business model relies on user-generated content . The business focuses on making contributions easy and providing an incentive for users to contribute (usually money or a charitable goal).
YouTube is one example of a crowdsourcing model, where users upload videos, and most hope to generate revenue from those videos.
Wikipedia is another great example, where all the content on the site has been created for free by willing users who want to spread knowledge.
Data-Into-Assets
The idea behind a data-into-assets is to obtain valuable data that can be sold to willing buyers.
This is one of the few that can run into real ethical dilemmas.
For example, this is the business model that Facebook uses. The site is free for users, but in return, Facebook collects massive amounts of data about users and uses that to generate revenue through advertisers.
The Dangers of Data
They are facing large privacy lawsuits that could set a precedent for other businesses.
It’s hard to know where to draw the line, as Google is another data-into-assets business that most have no big issues with. They scrape data from just about all sites and transform that into search results that users desire.
Then they sell ads to advertisers on the search results.
Digital Platforms
Since the beginning of the Internet, creating a digital platform has been a viable business model for some companies.
For example, OpenTable started in 1998, which is a site that provides an online restaurant-reservation service.
There are still opportunities to be innovative in an industry simply by providing a useful product online.
To use this, you can apply modern technology to outdated industries , or apply new technology to any industries ready for it.
We’re also seeing new digital platforms innovate upon old ones by leveraging new technology like machine learning and blockchain technology. These could almost be considered business models of their own.
Disintermediation
This mouthful simply means directly delivering a service or product instead of through a middleman.
Tesla is a great modern example of this. Instead of selling cars through a dealership, you buy online and skip the salesman. Not only is it more convenient, but it reduces costs for consumers .
Fractionalization
Fractionalization consists of letting customers buy a portion of a product or service.
A good example of this is a time-sharing condo. People buy part of the condo and can use it during a certain time of the year that they purchased it from.
It’s a great model when your target customers only want your product or service part of the time . They get the full benefits but don’t have to pay full price.
Freemium is a modern business model that is often used by software companies.
Because there’s very little overhead in serving data, businesses can choose to provide a portion of their service or product for free, but requiring payment for full access .
Spotify and Dropbox
Dropbox gives you a small amount of free cloud storage and asks you to upgrade to a paid plan if you need more space.
Spotify offers free music but has ads. If a user buys a paid plan, they get rid of the ads.
Freemium lets you reach a wider audience, and often get more referrals, which can lead to a steady stream of customers.
Leasing is nothing new and has been used by car dealerships for many years. It works best for expensive products.
When a customer often can’t afford to pay cash or only needs a product one time, you offer them use of the product for a rental fee .
A low-touch model takes a high-end offering and reduces the cost (and quality) of that product or service.
Competing on cost is a difficult business model to succeed with, but can work if you get enough customer volume.
Walmart is a great example of this, who sell lower-quality products than most competitors, but at a better price.
Negative Operating Cycle
This is a business model popularized by Amazon.
It’s especially popular with online retail businesses and allows businesses to sell products at a low-profit-margin (or even at cost), and still be highly profitable.
How Does It Work?
By maintaining a low inventory and getting payment upfront. Of course, you need a reliable and fast fulfillment process for this to work effectively.
The profits then come from the volume of sales that are attracted through low prices, or by utilizing the money sitting around before having to pay suppliers.
That money generates interest or can be used to fund long-term investments or research and development.
Pay-As-You-Go
This business model is exactly what it sounds like, customers pay as they use your service.
This can only be used in certain industries where customers regularly consume varying amounts.
For example, car2go lets you pay for car rentals by the minute, hour, or day.
Some web hosts , like Cloudways , let’s you pay only for the resources your websites actually use .
Razors and Blades
Razors and blades can be interpreted literally or symbolically.
This business model consists of bundling 2 products together that require each other. Then, you sell the main component (razor) at no profit or even a loss but recoup that because the complementary product has high margins (blades).
Another good example of this is the personal printer. They’re cheap to buy, but the ink is very expensive and high margin.
Reverse Razors and Blades
This is the same as above, but the two products are split.
You offer the “blades” at a very low cost in order to get people to buy the expensive and high margin “razor.”
One example of this is Amazon Kindle books, which are very cheap, and may tempt consumers into purchasing an expensive Kindle to read the books on.
Product-To-Service
There are many times that people want to use a product, without buying it. A product-to-service model lets people pay a service fee to have access to a product.
It’s similar to leasing and fractionalization .
A good example of this is Zipcar, which is a car-sharing company. Members pay a monthly or annual fee to have access to car reservations as needed.
Standardization
If you can take something that has a lot of variabilities and create a consistent, standardized product, you stand out from competitors.
Dominos did this with their “30 minutes or it’s free” offer for pizza delivery, which at the time was unheard of.
Subscription Club
A subscription club lets customers buy a product on a regular basis.
This is a popular model for software businesses that most SAAS (Software As A Service) platforms fall under.
Netflix and Dollar Shave Club also would be subscription clubs.
User Communities
Finally, some businesses create paid user communities that generate revenue from fees and possibly advertising.
The most famous example of this is Angie’s List, a home services review community that required payment until a little while ago.
It’s a tough model because most people prefer free forums and other types of communities, but good if people will pay for higher quality information.
- How to Design Your Business Model
We can finally get to some practical work on your business model.
As mentioned before, monetization methods are not enough on their own.
There are 2 main approaches that you can take if you would like to create a new business model or refine an existing one.
Business Model Canvas
The Business Model Canvas comes from Alexander Osterwalder.
It’s a chart that includes the 9 important elements of a business model.
9 Sections of The Business Model Canvas
Let’s go through the 9 sections, each one includes questions to prompt you if you get stuck:
- What value do we deliver to the customer?
- Which one of our customer’s problems are we helping to solve?
- What bundles of products and services are we offering to each Customer Segment?
- Which customer needs are we satisfying?
- For whom are we creating value?
- Who are our most important customers?
- Through which channels do our Customer Segments want to be reached?
- How are we reaching them now?
- How are our Channels integrated?
- Which ones work best?
- Which ones are most cost-efficient?
- How are we integrating them with customer routines?
- What type of relationship does each of our Customer Segments expect us to establish and maintain with them?
- Which ones have we established?
- How are they integrated with the rest of our business model?
- How costly are they?
- What are the most important costs inherent in our business model?
- Which Key Resources are most expensive?
- Which Key Activities are most expensive?
- What Key Activities do our Value Propositions require?
- Our Distribution Channels?
- Customer Relationships?
- Revenue streams?
- What Key Resources do our Value Propositions require?
- Who are our Key Partners?
- Who are our key suppliers?
- Which Key Resources are we acquiring from partners?
- Which Key Activities do partners perform?
- For what value are our customers really willing to pay?
- For what do they currently pay?
- How are they currently paying?
- How would they prefer to pay?
- How much does each Revenue Stream contribute to overall revenue?
Lean Business Model Canvas
The Business Model Canvas is a general model that works well in most cases.
However, the Lean Canvas has been created by Ash Maurya as an adaption that’s more suited to startups and small businesses with lots of uncertainty. You can find an image file to print out here .
Lean Canvas Sections Explained
Again, there are 9 sections, but it’s “easier” to fill out for these types of businesses.
Here’s a brief description of each section:
- Problem (P) – What are the main 3 problems that your business solves?
- Solution (S) – What are the essential features of your product(s)?
- Unique Value Proposition (UVP) – What’s your business’ differentiating factor from competitors that make you better for your customers?
- Unfair Advantage (UA) – What part of your business can’t easily be copied by competitors?
- Customer Segments (CS) – Who are your target customers? Be as specific and niche as possible.
- Key Activity (KA) – What are the key interactions that lead to revenue? For example, creating their first blog post on a blogging platform.
- Channels (CH) – What channels will you be using to acquire customers?
- Cost Structure (C$) – List both your fixed and variable costs, estimate if needed.
- Revenue Streams (R$) – Specify your revenue model (refer to the previous section of this guide).
If you got this far, you understand business models more than most entrepreneurs.
I’d highly recommend spending just another ten minutes or so and quickly work through either the Business Model Canvas or Lean Canvas .
Even if you can’t fill it out completely, you’ll quickly realize which areas of your business models need more attention and strengthening.
Table of Contents
© 2019 Digital.com
- 600 Stewart St, Ste 400, Seattle, WA 98101
- Privacy Policy
- Affiliate Disclosure
Mobile Navigation
Customizing gpt-3 for your application.
Fine-tune with a single command.
Developers can now fine-tune GPT-3 on their own data, creating a custom version tailored to their application. Customizing makes GPT-3 reliable for a wider variety of use cases and makes running the model cheaper and faster.
You can use an existing dataset of virtually any shape and size, or incrementally add data based on user feedback. With fine-tuning, one API customer was able to increase correct outputs from 83% to 95%. By adding new data from their product each week, another reduced error rates by 50%.
To get started, just run a single command in the OpenAI command line tool with a file you provide. Your custom version will start training and then be available immediately in our API.
Last year we trained GPT-3 and made it available in our API . With only a few examples, GPT-3 can perform a wide variety of natural language tasks , a concept called few-shot learning or prompt design. Customizing GPT-3 can yield even better results because you can provide many more examples than what’s possible with prompt design.
You can customize GPT-3 for your application with one command and use it immediately in our API:
It takes less than 100 examples to start seeing the benefits of fine-tuning GPT-3 and performance continues to improve as you add more data. In research published last June , we showed how fine-tuning with less than 100 examples can improve GPT-3’s performance on certain tasks. We’ve also found that each doubling of the number of examples tends to improve quality linearly.
With one of our most challenging research datasets, grade school math problems , fine-tuning GPT-3 improves accuracy by 2 to 4x over what’s possible with prompt design.
Customizing GPT-3 improves the reliability of output, offering more consistent results that you can count on for production use-cases. One customer found that customizing GPT-3 reduced the frequency of unreliable outputs from 17% to 5%. Since custom versions of GPT-3 are tailored to your application, the prompt can be much shorter, reducing costs and improving latency.
Whether text generation, summarization, classification, or any other natural language task GPT-3 is capable of performing, customizing GPT-3 will improve performance.
Apps powered by customized versions of GPT-3
Keeper Tax helps independent contractors and freelancers with their taxes. After a customer links their financial accounts, Keeper Tax uses various models to extract text and classify transactions. Using the classified data, Keeper Tax identifies easy-to-miss tax write-offs and helps customers file their taxes directly from the app. By customizing GPT-3, Keeper Tax is able to continuously improve results. Once a week, Keeper Tax adds around 500 new training examples to fine-tune their model, which is leading to about a 1% accuracy improvement each week, increasing accuracy from 85% to 93%.
Viable helps companies get insights from their customer feedback. By customizing GPT-3, Viable is able to transform massive amounts of unstructured data into readable natural language reports, highlighting top customer complaints, compliments, requests, and questions. Customizing GPT-3 has increased the reliability of Viable’s reports. By using a customized version of GPT-3, accuracy in summarizing customer feedback has improved from 66% to 90%. The result is tangible, intuitive information that customers need to inform their product decisions.
Sana Labs is a global leader in the development and application of AI to learning. The Sana learning platform powers personalized learning experiences for businesses by leveraging the latest ML breakthroughs to tailor the content for each individual. By customizing GPT-3 with their data, Sana’s question and content generation went from grammatically correct but general responses to highly accurate outputs. This yielded a 60% improvement, enabling fundamentally more personalized and effective experiences for their learners.
Elicit is an AI research assistant that helps people directly answer research questions using findings from academic papers. The tool finds the most relevant abstracts from a large corpus of research papers, then applies a customized version of GPT-3 to generate the claim (if any) that the paper makes about the question. A custom version of GPT-3 outperformed prompt design across three important measures: results were easier to understand (a 24% improvement), more accurate (a 17% improvement), and better overall (a 33% improvement).
All API customers can customize GPT-3 today. Sign-up and get started with the fine-tuning documentation .
How to customize GPT-3 for your application
Install the openai python-based client from your terminal:
Set your API key as an environment variable:
Train a custom model
Fine-tune the Ada model on a demo dataset for translating help messages from Spanish to English.
Use the custom model
Ask your customized model for a translation.
Luke Miller
- Customer stories
- Safety standards
- Terms & policies
- Give this article Give this article Give this article
Advertisement
Supported by
Tesla Offers a New ‘Master Plan’ but Few Big Revelations
Elon Musk confirmed his car company would build a factory in Mexico and said it was working on more affordable vehicles. But he did not reveal a new model, disappointing some investors.
Send any friend a story
As a subscriber, you have 10 gift articles to give each month. Anyone can read what you share.
By Jack Ewing
Tesla said on Wednesday that it would build a factory in Mexico to manufacture an electric vehicle that would be significantly more affordable than any of the cars it sold now. But the company disappointed investors who were expecting it to make big announcements about new products and strategies.
Shareholders and analysts had expected Tesla to reveal information that would clarify how the company would retain its crown as the world’s dominant maker of electric vehicles in the face of energetic competition from established carmakers and relatively younger Chinese manufacturers.
Instead, company executives offered a seminar on its manufacturing processes, supply chain organization and software. The message was that Tesla is eons ahead of other automakers in technology and efficiency, on track to someday produce 20 million vehicles a year, twice as many as Toyota does now. Tesla provided few of the financial bullet points or strategic initiatives that are often found in investor presentations.
Elon Musk, Tesla’s chief executive, portrayed Tesla as a company on a mission to eliminate global dependence on fossil fuels, a theme he has often highlighted.
“I really want today to be not only about investors who own Tesla stock but anyone who is an investor in Earth,” Mr. Musk said early in the event at the company’s factory in Austin, Texas. “Earth can move to a sustainable economy and will do so in your lifetime,” Mr. Musk said, before ceding the stage to other executives who offered wonky presentations on topics like electrode manufacturing, Tesla's energy storage business and how the company will build electric motors that do not require rare minerals.
“We didn’t hear as much about market conditions in electric vehicles as we did about ‘Here are some very grand goals we have for sustainable energy,’” said Tammy Madsen, a professor at the Leavey School of Business at Santa Clara University.
Mr. Musk waited until the end of the event, which lasted more than three hours, to confirm reports that Tesla would build a factory, its fifth car plant, in Monterrey, Mexico. He indicated that Tesla would build a more affordable model there, but declined to offer any details about the vehicle’s design or performance.
President Andrés Manuel López Obrador of Mexico said on Tuesday that the company had decided to build the plant.
Tesla’s presentation on Wednesday seemed more like a recruiting event for engineers than an investor presentation, said Vincent Pluvinage, the chief executive of OneD Battery Sciences, a battery technology company.
“It was all about efficiency, getting more for less,” Mr. Pluvinage said. “I don’t think he cares about investors,” he added, referring to Mr. Musk.
There had been speculation that Mr. Musk would unveil plans for a Tesla vehicle that would be less expensive than the Model 3, which starts at $43,000 in the United States.
Mr. Musk spoke of a $25,000 car in 2020, but he later seemed to quash the idea. Whether the car would be so affordable when it goes on sale is another question. Mr. Musk and Tesla had said the Model 3 would cost $35,000 before it went on sale in 2017, but few were sold at that price. Since then, the car’s price steadily climbed before Tesla lowered it a bit in January .
Analysts and investors have expressed concern that Tesla has been too slow to introduce new vehicles and respond to carmakers like Hyundai, Volkswagen and Ford Motor that have brought out a wide variety of new electric models, many much cheaper or very different from Tesla’s four models: the S, X, 3 and Y. General Motors plans to begin selling three new electric vehicles this year, including an electric version of the Chevrolet Equinox crossover that will start at around $30,000.
Investors had also expected Mr. Musk to make an announcement about battery technology. One of Tesla’s main selling points has been its batteries, which provide more range and faster charging than many of the models offered by other manufacturers. Executives talked about Tesla’s lead in battery technology, but no major announcements were made.
The event on Wednesday was seen as a response to investors who have complained that Mr. Musk’s acquisition of Twitter last year diverted his attention and left him less focused on his car company.
But the presentation does not appear to have impressed investors. Tesla’s share price, which is often volatile, was down about 5 percent in extended trading on Wednesday evening.
In China , the automaker BYD has surpassed Tesla in electric vehicle sales, challenging the notion that Tesla is poised to dominate the auto industry as battery-powered cars increasingly supplant gasoline models. BYD is now making a big push into Germany and other European countries, threatening to undermine Tesla’s dominance there.
When asked about China, Mr. Musk handed the question off to Tom Zhu, who oversaw construction of Tesla’s factory in Shanghai and now oversees all of the company’s factories. As long as Tesla offers good products at reasonable prices, “you won’t have to worry about demand,” Mr. Zhu said. “I’m not too concerned about China.”
China has the world’s largest car market, and Tesla’s factory in Shanghai produces more cars than any of its other plants.
After falling 65 percent last year , Tesla’s share price has recovered some of its value but is still down almost 50 percent from its high in November 2021, when the company was worth more than $1 trillion.
With the factory in Monterrey, Tesla is following a path taken by almost all other major carmakers, which have long made cars and components in Mexico, attracted by cheaper labor and duty-free access to the U.S. market. Ford makes the electric Mustang Mach-E in Cuautitlán, north of Mexico City. BMW in February announced that it would build electric vehicles in San Luis Potosí, where it already has a large manufacturing operation.
Monterrey, in Nuevo León State, has been less prominent in the auto industry than other Mexican states like Guanajuato, where G.M., Toyota, Honda, Volkswagen and Mazda have operations. But Monterrey is a seven-hour drive from Austin, where Tesla began manufacturing vehicles last year.
Tesla also has factories in Fremont, Calif., and Berlin. The factories in Austin and Berlin are still getting up to speed, suggesting it will be a challenge for Tesla to manage the ramp-up of another plant.
IMAGES
VIDEO
COMMENTS
Aligning with company goals While designing a business model, the choices made should enable the organization to achieve its goals. Example: Xerox PARC; Xerox was unable to draw new business from its innovation, due to lack of alignment with its goals.
Other experts define a business model by specifying the main characteristics of a good one. For example, Harvard Business School's Clay Christensen suggests that a business model should...
Competing through Business Models: In the January-February 2010 issue of the Harvard Business Review, authors Ramon Casadesus-Masanell and Joan E. Ricart explore business model innovation in an article entitled "How to Design a Winning Business Model". The article focuses on how companies might compete more effectively through business models.
A business model is a plan or diagram depicting how businesses compete, use resources, structure relationships with clients and create values that help an entity survive in a business based...
(PDF) How to create a business model: Taxiwoman case study How to create a business model: Taxiwoman case study Authors: Rubén Macías Acosta Autonomous University of Aguascalientes Manuel...
(PDF) Business Model Architecture by Design Home Business Management Strategic Management Economics Business Administration Business Models Business Model Architecture by Design CC BY...
How to Design A Winning Business Model Smart companies' business models generate cycles that, over time, make them operate more effectively. by Ramon Casadesus-Masanell and Joan E. Ricart StRategy haS been the primary building block of competitiveness over the past three decades, but
They can be companies of any size and in almost any industry. 3. Fee-for-service model. A fee-for-service is just what it sounds like: A business charges a set fee for a specific service. A ...
its customers. These important consequences of the firm's business model design choice have ob-vious ramifications for its ability to create and capture value. The stronger the competition implied by the choice of the business model, for instance, the more difficult value appropriation will be.
This essay considers what a business model is, locates the pursuit of 'ambivalent value' in the strategy literature, and proposes a new strategic role for the business model - as a means of negotiating for a portion of that 'ambivalent value'. We provide a substantive definition of the 'business model', a collection of decisions
attributes. A business model may define one or several large or small Customer Segments. An organization must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.
business model is one of the most critical steps an entrepreneur can take toward being a successful entrepreneur. A business model will help you get a handle on all those details and help you turn your ideas and dreams into a solid step-by-step plan. Eventually, your business model will become a resource you will use to convince a potential
To start your Business Model Canvas you will need to breakdown and analyze each of the 9 building blocks. A good way to approach this is to gather the heads from marketing, sales, operations, finance, and manufacturing (if product-based) and pencil-in a morning where you can all meet together.
Classic How to Design a Winning Business Model By: Ramon Casadesus-Masanell, Joan E. Ricart Most executives believe that competing through business models is critical for success, but few have come to grips with how best to do so. One common mistake, the authors' studies show, is… Length: 9 page (s) Publication Date: Jan 1, 2011
1. To compete with rivals having similar BM, companies must quickly build rigid consequences; create and capture more value. S Group, being a consumer cooperative may gain market share by offering customers bonuses on lowering prices BUT Kesko may increase profitability though its superior shopping experience. 2.
How to create a business model canvas Launch Canva — Open Canva and search for "Business Model Canvas" to start your design project. Choose a business model canvas template — Pick a template from our collection of business model canvas examples. You can easily find what you need when you filter by color, style, or theme.
Business Model Template ...
Notwithstanding, a business model can be conceptualized as an architecture that connects various activities focused on the three interrelated key elements: value proposition, value creation,...
of business model design under varying regimes of environmental munificence, specifically for entrepreneurial firms whose transactions are enabled by information and communication technologies. There is little prior theory on this issue. Third, drawing on a large and a unique hand-collected data set .
Before we look at specific models you may want to consider using, let's briefly go over the attributes of a solid business model. 1. They Match Up With Company Goals and Values Your business model comes after you define what your company is trying to do. Certain models will match up with your goals and values, and some won't.
You can customize GPT-3 for your application with one command and use it immediately in our API: openai api fine_tunes.create -t. See how. It takes less than 100 examples to start seeing the benefits of fine-tuning GPT-3 and performance continues to improve as you add more data. In research published last June, we showed how fine-tuning with ...
There had been speculation that Mr. Musk would unveil plans for a Tesla vehicle that would be less expensive than the Model 3, which starts at $43,000 in the United States. Mr. Musk spoke of a ...