Business Model Generation

by

Two and a half years ago a couple of friends and the two of us read Business Model Generation by Timothy Clark, Alexander Osterwalder, Yves Pigneur.

It seemed that the purpose of the book was to convey to the masses that everyone can create and manage business models; and the Business Model Canvas (BMC) is the way to do this.

There are 9 dimensions described in BMC:

  1. Customers Segments: An organization serves one or several Customer Segments.
  2. Value Propositions: It seeks to solve customer problems and satisfy customer needs with value propositions.
  3. Channels: Value propositions are delivered to customers through communication, distribution and sales Channels.
  4. Customer Relationships: Customer relationships are established and maintained with each Customer Segment.
  5. Revenue Streams: Revenue streams result from value propositions successfully offered to customers.
  6. Key Resources: Key resources are the assets required to offer and deliver the previously described elements…
  7. Key Activities: … by performing a number of Key Activities.
  8. Key Partnerships: Some activities are outsourced and some resources are acquired outside the enterprise.
  9. Cost Structure: The business model elements result in the cost structure.

As you can imagine, the Key Resources we posses or have access to should correlate to our Key Activities, and regardless of how you want to view these two aspects, none of them would exist without the mentoring and assistance of your Key Partners.

This is the basis of your offering, but it is also the basis of your Cost Structure. What your business is good at, what means you have to achieve these and how much it will cost you add up to the center of your business model; what do you offer you customer segments, what is your Value Proposition?

So when does Revenue Streams enter the business model? There are a couple of components, as with Cost Structure, that composes Revenue Streams.

In an ideal world, a Customer Segment is a mass of people or firms that are seen as an organism. When there are different Customer Segments, and often there should be, these respond to different stimuli; you must approach them in a specific way. Your firm’s way of handling each Customer Segment should be as unique as the Customer Segment itself, and so the Customer Relationships tie your Value Proposition together with your Customer Segment.

There is also the need to reach your Customer Segments with your Value Proposition and BMC use the term Channels for this. Your Revenue Streams depend on what Customer Segments, how you have chosen to interact with these through Customer Relationships, what they are willing to pay for your Value Proposition and how your firm delivers this. This neatly ties up the BMC and creates a platform for entrepreneurs to interact with their business model and simulate changes in the business model as a result from external forces as Customer Segments or shortages of resources.

As we read this book, we did not think this was anything new. But as years have gone by, it seems like BMC is better motivated and that the authors of Business Model Generation have contributed to the masses. We believe that the framework and techniques presented in this book are, especially, suitable for agile project management methods where adaption, pivoting and sprints happen at a fast pace, the kind of management that we are here to learn and apply.

 

// Ludwig and Svesjo

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