How to Constructing the Business Model

A business model concerns how a business delivers and receives value. Any method of arranging the various components of the business that are part of or contribute to this process is a representative business model. 

What is the Business Model Canvass? 

This lecture continues the discussion from Overview of a Business Model and The Business Model Canvass. The process outlined in Mr. Osterwalders book is a great guide for building a business model. As an alternative, using the following steps you can use a set of general techniques to construct a business model that fits your business.

• Study the operation of competitors in the industry and list out the key functions of how they exchange value with customers.
• Comparing your business to the operational models of your competitors, identify the key operational characteristics that have to take place in order to successfully carry out your business.
  • For example, your competitor may sell the use of its Internet services to customers. You may provide free services, but charge for certain upgrades to or premium features of the service.
• Categorize these elements under the appropriate section(s) of the business model listed above. (If it doesn't fit under any of the listed business model segments, then create a new segment for it.)
• For each critical element, make a list of assumption or necessary occurrences that must take place in order to satisfy this critical element. Under each assumption or occurrence, explain why the assumption is true or how you will carry out each operational requirement.
  • Note: As you can see, you now have a categorized list of operational segments:
    • Key Segment
    • Key operational characteristics
    • Key occurrences or assumption
    • Explanation of each assumption
    • How you will execute or bring about occurrence.
• Organize the segments in quadrants and place the quadrants together so they can be seen as a holistic model.
  • Note: Designate a single page of paper for each segment. Lay the segment pages out on a table. Organize the pieces of papers to that they are closest to (beside, below, above) operational segments that that are related in nature. Organizing the segments in this single view format allows you to prioritize and logically organize your operational segments.
• Change the location and order the segments as the business develops to demonstrate of their current operational priority.

You now have a working business model. You have an outline of the major activity needed to establish you business and a prioritized list of tasks to accomplish and resources to secure.  

How to Use a Business Model

The business model is a stand-alone document that provides operational guidance for your business. All of the sections or segments of the business model should come together to provide a strategic vision for what you hope to accomplish and the necessary resources and actions to make it happen.