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What is a Business Model and Why Does It Matter?

It’s hard for a business leader to understand the value of a business model if they don’t understand what a business model is. In my less than scientific personal survey, few small business owners understand the concept and neither do many business coaches. Moreover, business modeling was never mentioned during any of my MBA courses – and these included business strategy and planning!

One definition of a business model is that it “describes the rationale of how an organization creates, delivers, and captures value.” It sounds unbelievably complicated to understand and document this. The business schools probably figured that you paid them tens of thousands of dollars to understand this magic dust, and they were probably right. Until recently.

In 2010, Alexander Osterwalder and Yves Pigneur wrote the book Business Model Generation, based on discussions with 470 practitioners from 45 countries. They distilled this knowledge into a manageable concept called the Business Model Canvas, which is comprised of a single sheet with 9 business Building Blocks. I won’t go into the details here, but suffice it to say that this is a very powerful planning process. One reason for its power is that it can accommodate and incorporate other business methodologies, such as Lean Startup, Blue Ocean Strategy, prototyping, visual thinking, and storytelling. The Business Model Canvas process can also be tweaked to accommodate all types of organizations: non-profit and for-profit, large and small, simple and complex.

So why would an organization want to utilize the Business Model Canvas? Here are some reasons:

  • Provides a visual representation of how your organization creates value and generates income.

  • Generates a shared understanding of your organization by people at all levels and functions.

  • Creates better teamwork in brainstorming opportunities and improvements.

  • It is simple, practical, and intuitive; yet has the ability to generate powerful new ideas,

  • The current fast changing business climate requires continuously creative business thinking in order to stay ahead of (or even) with the pack.

For a quick, 2 minute explanation of the Business Model Canvas, watch this YouTube video. Then feel free to contact me to discuss how it might provide value in your organization.

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