• Guide to Business Model Design Process

phases of business model design

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phases of business model design

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In this article, we look at the 1) business model design process , the 3) starting point for business model design innovation , 3) the phases , and the 4) design attitude .

BUSINESS MODEL DESIGN PROCESS

All business model design projects are unique and present a challenge to the participants because there is no one formula or prediction for how they will evolve.

Business Model Design Process_

Objectives of business model innovation

Innovations and new iterations of business models are usually made with one of the following purposes ;

  • To fulfill a current need in the market which no other product or company are meeting.
  • Be first in market with an idea, technology or product.
  • Be a change agent in the industry by introducing a new business model. This can be done out of a desire to bring innovation, create an evolution in the market or simply to change things up and breathe new life into the industry.
  • Target and give birth to a whole new market.

Motivations of business model innovation

When an already established business is exploring the possibility of innovating in its business model, it is usually with the following motives;

  • An emergency or perceived near disaster due to the current business model,
  • Ensuring that the current business model is flexible enough to meet and withstand possible changes in the business and industry,
  • Being first in market with a revolutionary product, technology or idea,
  • Fostering a spirit of flexibility and experimentation by testing new business models which may define the future sustainability of the business.

STARTING POINT FOR BUSINESS MODEL DESIGN INNOVATION

The impetus for creating or innovating in existing business model is driven by a number of factors. Each of these factors represents contextual elements that have their relevant set of challenges that come with them.

  • The company wants to answer an unmet need and, therefore, satisfy the market. One example of such an organization is Grameen Bank. Grameen Bank is based out of Bangladesh and has a unique and a first of its kind business model. Grameen Bank extends micro-credit to people who other banks have traditionally ignored because they aren’t economically viable as loan candidates. The first of its kind, Grameen Bank operates on a relationship of trust and faith with its borrowers and does not take any assets as collateral or ask family members to pay off loans in the event of the loan candidate’s death. The model, though seemingly improbable to most banks, has been wildly successful and resulted in pushing Grameen Bank to the current standard for all Microfinance banks in the world.
  • The company wants to bring either an entirely fresh product or service to its customer segment or take advantage of existing intellectual property to do so.
  • Bring positive innovation or simply change an existing market.
  • Provide the genesis for a new market.

The challenges faced by new organizations when introducing a new business model in the market are;

  • Discovering and selecting a model that fits your requirements,
  • Experimenting with the model to discover any limitations or glitches before actually launching it,
  • Creating buy-in in the industry so more people will adapt to the model,
  • Tweaking the model as and when needed due to feedback,
  • Handling the ambiguity.

1. Mobilize

In this phase, the entrepreneur takes steps to be ready for implementing a new business model successfully. The purpose of the team working on the change is to ensure that everything is in place for the business model to be implemented. This requires ensuring that all the elements of the 9 building blocks of Business Model Canvas are available.

The following four activities form the crux of this stage;

  • Be ready for a successful business model design project;
  • Gather all the necessary requirements for the project;
  • Make people cognizant of why a new business model is required;
  • Elaborate on the motive for creating a new model as well as formalize a common lingo for design and analysis purposes.

Framing the objectives is heavily dependent on the project parameters but some steps are common across projects. These include defining the scope of the project, creating a narrative for why the project is necessary and what the deliverables of the project will be. When deciding the project scope, it is essential to plan for at least the first three steps of the process i.e. Mobilize, understand and design. The final two phases are a product of the former three and can therefore not be planned in advance.

Pulling together the right team for the project is another key activity which will define the success or failure of your project. It may be difficult to find a pre-trained team for the project, especially for truly entrepreneurial venture. However, the safest option is to pull together an eclectic mix of people with diverse backgrounds and experiences, so your project is overseen by people with an extensive combined pool of knowledge. Since entrepreneurial ventures thrive on ideas and innovations, such a team will help boost creativity and produce unique solutions to customer pains. This is the phase when the team needs to establish the use of the Business Model Canvas as the common medium to record the evolution of the business model.

The mobilization phase can be dangerous because it causes people box themselves in with the idea on the table without challenging or exploring it. Their initial buy-in with the idea means that they commit to it completely. One way to avoid this is by engaging the team in an activity called kill/ thrill. This is a two portion activity which asks the entire team to list reasons why the project may end in failure (kill) and then list reasons why the project will be a raging success (thrill). This causes the team members to address the business model from all aspects and fully explore its efficacy.

2. Understand

This is the immersion stage of the project and is signified by resources deployed to thoroughly analyze the proposed business model design efforts to ensure it is sound. This involves the core team immersing themselves into the customers, technology and environment of the business.

  • Conduct research and analysis on the requirements of the business model design process.
  • The team should be deeply informed of the different aspect impacting the business model design whether they are internal such as the customers and technology or external like the market and environment.
  • Create a data bank of information by getting in touch with other experts related to the business.
  • Observe target customers to gain insight into their needs and what kind of jobs need to be done in their life.

Some of the activities involved are interviewing both experts and customers to collect ideas, inputs and needs. Another great source of information is to study past cases where other companies have tried to provide similar solutions and identify the reasons they failed to do so. Essentially this phase aims to understand the environment in which the business model will be expected to flourish and grow.

The key success factors for this phase are a deep understanding of the potential target market as well as observing target markets from fresh perspectives rather than being boxed in by traditional market boundaries.

The business model ‘design space’ has to be understood thoroughly for this stage to be a success so an environmental scan is a must. This includes market research, studying and involving customers, interviewing domain experts and observing the business models of potential customers. However, a surplus of research may leave your team paralyzed and unable to push through to the next stage. One way to avoid this eventuality is to start the prototyping phase in parallel with the understanding phase. This will help test out different hypotheses gleaned from the research.

Though it may seem obvious, customers are an extremely important source of information at this stage, yet they are often ignored, especially by entrepreneurs who still aren’t sure who their main target segment are. The customer empathy map can be a huge help if this is the case.

In the previous stage, we understand customers and prototype models as a result of this understanding. When we share these models with potential players and adapt them in accordance with their responses, we have officially entered the design phase .

Various iterations of many different models need to be tested out during this phase before the team settles on one which will form the backbone of the future business. Hence, this stage is often referred to as the inquiry phase.

The following three activities lie at the crux of this phase;

  • Come up with a number of relevant business model options and test them against your business to find a suitable match or number of matches;
  • Come up with a business model prototype based on the results of Phase 2;
  • This phase must be focused on arriving at one final iteration which is a perfectly tailored business model for the organization.

The critical success factors in this stage are to include as many people from the organization as possible in the creation process; the participants must possess the train of exploration, so they look beyond the way things are currently being done; and there must be plenty of time so all the business model ideas can be thoroughly explored.

There is always an imminent danger of the participants getting too attached to their business idea. All the iteration possible in the nine building blocks of the business model canvas should be thoroughly weighed for their probability of success.

4. Implement

This is the execution phase of the entire process. Now that you are armed with the perfect business model, it is time to start the groundwork on the company itself and take it from a concept to reality. As the name suggests, this phase is focused on implementing the business model of choice. This is the one activity which forms the crux of this fourth phase in the process.

The critical to success factors in this phase are the use of the best project management techniques and tactics; flexibility in adapting the business model quickly when and if the need arises; create synergy between the traditional business model and the new one.

Now that you have the final iteration of the business model, you will begin as with any other project; defining timelines and mapping milestones for the implementation process. Throughout this process, there will be continuous risk and reward calculation taking place to ensure that the reality and the expected results still coincide.

In this stage, the evolution of the company is the focus through improving and changing the business model as a result of the intelligence received about market reaction to its various aspects. This will happen through a team of managers who are hired with the responsibility of molding and managing this evolution.

The key activities which form the crux of this stage are;

  • Change and improve the business model design based on market reaction;
  • Establish a management structure which will take on the responsibility of nurturing the evolution of the business model based on intelligence they receive from the market and the environment.

The critical to success factors in this phase are obviously the ability of the management to view the business from a strategic and long-term perspective; be proactive and manage the day to day running of and adherence to the business model itself.

Most start-ups will probably be too small to have an entire team managing it. Instead, luckily for them, every employee will have a stake in the management of the business model and will constantly be alert to how changes in the environment may require realignment in the business model .

DESIGN ATTITUDE

For most organizations it is a major challenge to create and sustain a Design Attitude which is defined as the knowledge and willingness to invest time in thinking up a multitude of ideas with the knowledge that most of them will be discarded. Most managers may consider this a waste of time because they are inculcated with a decision attitude which gives precedence to the speed of the decision rather than coming up with a number of excellent alternatives and then selecting the best amongst them.

Since most managers possess the time is money attitude, they often fall into the trap of undervaluing the efficacy of the time spent in the business model design process because to them, the more time being used up in this process, the longer it takes to make money from the business. For new companies, this may be even more of an issue since many industry experts, venture capitalists and other investors, as well as the entrepreneurs own wallet may demand cutting short the time it takes to complete the process. However, it is fundamental, at this stage to remember, that you may make money sooner by doing away with the business model design process but that influx of money will not last long if you end up picking the wrong business model in your hurry to jumpstart the business.

phases of business model design

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  • 11.2 Designing the Business Model
  • Introduction
  • 1.1 Entrepreneurship Today
  • 1.2 Entrepreneurial Vision and Goals
  • 1.3 The Entrepreneurial Mindset
  • Review Questions
  • Discussion Questions
  • Case Questions
  • Suggested Resources
  • 2.1 Overview of the Entrepreneurial Journey
  • 2.2 The Process of Becoming an Entrepreneur
  • 2.3 Entrepreneurial Pathways
  • 2.4 Frameworks to Inform Your Entrepreneurial Path
  • 3.1 Ethical and Legal Issues in Entrepreneurship
  • 3.2 Corporate Social Responsibility and Social Entrepreneurship
  • 3.3 Developing a Workplace Culture of Ethical Excellence and Accountability
  • 4.1 Tools for Creativity and Innovation
  • 4.2 Creativity, Innovation, and Invention: How They Differ
  • 4.3 Developing Ideas, Innovations, and Inventions
  • 5.1 Entrepreneurial Opportunity
  • 5.2 Researching Potential Business Opportunities
  • 5.3 Competitive Analysis
  • 6.1 Problem Solving to Find Entrepreneurial Solutions
  • 6.2 Creative Problem-Solving Process
  • 6.3 Design Thinking
  • 6.4 Lean Processes
  • 7.1 Clarifying Your Vision, Mission, and Goals
  • 7.2 Sharing Your Entrepreneurial Story
  • 7.3 Developing Pitches for Various Audiences and Goals
  • 7.4 Protecting Your Idea and Polishing the Pitch through Feedback
  • 7.5 Reality Check: Contests and Competitions
  • 8.1 Entrepreneurial Marketing and the Marketing Mix
  • 8.2 Market Research, Market Opportunity Recognition, and Target Market
  • 8.3 Marketing Techniques and Tools for Entrepreneurs
  • 8.4 Entrepreneurial Branding
  • 8.5 Marketing Strategy and the Marketing Plan
  • 8.6 Sales and Customer Service
  • 9.1 Overview of Entrepreneurial Finance and Accounting Strategies
  • 9.2 Special Funding Strategies
  • 9.3 Accounting Basics for Entrepreneurs
  • 9.4 Developing Startup Financial Statements and Projections
  • 10.1 Launching the Imperfect Business: Lean Startup
  • 10.2 Why Early Failure Can Lead to Success Later
  • 10.3 The Challenging Truth about Business Ownership
  • 10.4 Managing, Following, and Adjusting the Initial Plan
  • 10.5 Growth: Signs, Pains, and Cautions
  • 11.1 Avoiding the “Field of Dreams” Approach
  • 11.3 Conducting a Feasibility Analysis
  • 11.4 The Business Plan
  • 12.1 Building and Connecting to Networks
  • 12.2 Building the Entrepreneurial Dream Team
  • 12.3 Designing a Startup Operational Plan
  • 13.1 Business Structures: Overview of Legal and Tax Considerations
  • 13.2 Corporations
  • 13.3 Partnerships and Joint Ventures
  • 13.4 Limited Liability Companies
  • 13.5 Sole Proprietorships
  • 13.6 Additional Considerations: Capital Acquisition, Business Domicile, and Technology
  • 13.7 Mitigating and Managing Risks
  • 14.1 Types of Resources
  • 14.2 Using the PEST Framework to Assess Resource Needs
  • 14.3 Managing Resources over the Venture Life Cycle
  • 15.1 Launching Your Venture
  • 15.2 Making Difficult Business Decisions in Response to Challenges
  • 15.3 Seeking Help or Support
  • 15.4 Now What? Serving as a Mentor, Consultant, or Champion
  • 15.5 Reflections: Documenting the Journey
  • A | Suggested Resources

Portions of the material in this section are based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.

Learning Objectives

By the end of this section, you will be able to:

  • Define a business model and its purpose
  • Describe a business model canvas
  • Describe a lean model canvas
  • Describe a social business model canvas

According to Alexander Osterwalder and Yves Pigneur , the authors of Business Model Generation , a business model “describes the rationale of how an organization creates, delivers and captures value.” Nevertheless, there is no single definition of this term, and usage varies widely. 29

In standard business usage, a business model is a plan for how venture will be funded; how the venture creates value for its stakeholders, including customers; how the venture’s offerings are made and distributed to the end users; and the how income will be generated through this process. The business model refers more to the design of the business, whereas a business plan is a planning document used for operations.

Each business model is unique to the company it describes. A typical business model addresses the desirability, feasibility, and viability of a company, product, or service. At a bare minimum, a business model needs to address revenue streams (e.g., a revenue model), a value proposition, and customer segments. In non-jargon English, this means you want to address what your idea is, who will use it, why they will use it, and how you will make money off it.

A canvas is a display that would-be entrepreneurs commonly use to map out and plan different components of their business models. There are several different types of canvases, with the business model canvas and the lean canvas being the most commonly used. There are hard-copy canvases modeled after an art canvas as well as digital versions. The original physical canvases are meant to serve as visual tools, used with sticky notes and sketches.

As developed by Osterwalder and Pigneur, the business model canvas has nine components, as shown in Figure 11.6 .

Link to Learning

Visit this site to see examples of completed Business Model Canvases for a variety of industries for a deeper understanding of how the different categories are filled in.

Osterwalder and Pigneur wrote Value Proposition Design as a sequel to Business Model Generation . Their value proposition canvas is a plug-in that complements the business model canvas, going in depth on activities such as encouraging entrepreneurs to address and tackle customer pains, gains, and jobs-to-be-done trigger questions, and designing pain relievers and gains. The complementary and accompanying activities and resources can be useful for a deeper dive into and understanding of customer value creation in the form of value proposition, although there are other approaches to conceptualizing your value proposition. For Christensen, the originator of the disruptive innovation and jobs-to-be-done theories, a value proposition is a product that helps customers do a job they’ve been trying to do more effectively, conveniently, and affordably.

Finding the intersection of your customers’ problems and your solutions is how you create a unique value proposition, according to the entrepreneur Ash Maurya , the author of Scaling Lean and Running Lean . In Running Lean , Maurya offers the following formula for creating an initial value proposition in the canvas, as shown in Figure 11.7 .

Maurya deviated from the standard business model canvas to create the lean canvas. It overlaps the business model canvas in five of the nine components: customer segments, value proposition, revenue streams, channels, and cost structure ( Figure 11.8 ]. Rather than addressing key partners, key activities, and key resources, the lean canvas helps you tackle problems, solutions, and key metrics instead.

Visit this site to see examples of completed Lean Model Canvases from some major companies for a deeper understanding of how the canvas can be applied.

While the business model canvas and the lean canvas are similar in format, there are differences in how they are used. It is generally accepted that the lean canvas model is a better fit for startups, whereas the business model canvas works well for already established businesses. The lean canvas is simpler; the business model canvas provides a more complete picture of a mature business.

Watch this Railsware video that demonstrates how the lean canvas model might be applied to startups to learn more. In the case example in the video, the lean canvas model is applied to the successful P2P ride-sharing app Uber, as if it were a startup.

Both the business model canvas and the lean canvas are designed for constant iterations, allowing for multiple versions and changes throughout the entrepreneurial process. Part of that process involves customer discovery; thus, the canvases invoke customer-focused design. The target customer is integrated into the canvas from the start through the use of a customer empathy map and a number of design-thinking ideation activities. 30 The customer empathy map is a portrayal of a target customer —the most promising candidate from a business’s customer segments—that explores the understanding of that person’s problems and needs ( Figure 11.9 ). Osterwalder and Pigneur used a customer empathy map as part of the design ideation phase of developing a business model canvas. There are differing versions of customer empathy maps, but most seek to answer common questions pertaining to the customer, such as:

  • With whom are we empathizing?
  • What do they need to do?
  • What do they see?
  • What do they say?
  • What do they do?
  • What do they hear?
  • What do they think?

Phillips, Proctor & Gamble, Microsoft, and Yeti are examples of well-known companies that make use of customer empathy mapping because, according to the journal Entrepreneur , every transaction can be turned into a meaningful and valuable customer interaction. 31 Once a company analyzes the results of customer mapping exercises, it may very well lead to new products that serve customer needs and/or wants.

For example, Philips used empathy mapping to detect a high level of fear in young patients immediately before an MRI medical procedure, so it invented a miniature version of the CAT scan equipment used in the procedure called the “kitten scanner” along with toy animal characters that were used to dispel the fear of MRIs among children. Proctor & Gamble created a new advertisement that was released for the 2012 Olympics visualizing the trials and tribulations of mothers raising young athletes, demonstrating Proctor and Gamble’s awareness that some of its customers wanted or needed empathy for the sacrifices they had made to help their children succeed. Likewise, Microsoft has attempted to demonstrate empathy with customers’ privacy concerns by developing an interactive website that explains not only how data is stolen but also how we can better protect our own data. 32

On their company website, the now-famous Yeti cooler company publicly extols the value of empathy mapping, explaining that it leads to better products. Yeti doesn’t just create one on its own, it actually asks its clients to work with the company to create an empathy map. 33 Thus, empathy mapping for Yeti is part of its product development process.

Customer empathy maps also strive to address customer pains (in this case, fears, frustrations, and anxieties) and gains (wants, needs, hopes, and dreams). 34

Strategyzer offers six videos outlining the business model canvas that total about 12 minutes; specifically they cover the prototyping journey from ideation to visualization of conceptualization.

Business Model Canvas 35

As Osterwalder and Pigneur describe it, according to Media Innovation and Entrepreneurship , their business model canvas blocks include revenue streams, customer segments, value propositions, cost structures, channels, key activities, key partners, key resources, and customer relationships.

Early on, your greatest focus should be on the right side of the canvas because:

  • These are, in many ways, the most critical aspects of starting a new venture (customer segments, value propositions, channels, and revenue streams).
  • The most fluid (revenue streams, channels, and value propositions will likely differ for the differing customer segments and, as you iterate and adapt throughout the customer discovery process, could likely change).
  • These follow a logical temporal order (there’s no need to focus on the costs of building a company if you won’t have customers).

In a follow-up to business model generation, the Strategyzer team created a second canvas, the value proposition canvas: https://www.strategyzer.com/canvas/value-proposition-canvas. The value proposition canvas is a new tool that pulls out the customer segment and value proposition blocks of the business model canvas, and encourages more in-depth exploration of those blocks to achieve a good fit between the two. The value proposition canvas tool looks at customer pains, gains and jobs to be done on the customer side and painkillers, gain creators, and products and services on the value proposition side. 36

Read this blog that provides a walk-through of how to fill in a value proposition canvas to learn more.

When you peel away the language used to describe business models, the early startup planning stages come down to a series of questions. When it comes to formulating a business model for a startup concept, another popular framework used in entrepreneurial circles is that of desirability-feasibility-viability Figure 11.10 ). This framework forces the entrepreneur to address broad questions about the startup concept:

  • Desirability: How desirable is the product? Who will use it and why?
  • Feasibility: How feasible is this idea? What are the costs of making it? How practical is the concept?
  • Viability: Will this idea remain viable? How will it make money? How will it be sustained over time?

These questions then begin to connect to form a narrative about where the startup concept came from, whom it serves, why it’s needed, how it will make money, and how it will be sustained in the future.

The value propositions, customer relationships, customer segments, and channels address the assumptions that will create customer value (desirability). The cost structure and revenue stream blocks are aimed at viability, or overcoming flawed business models. The key partners, key activities, and key resources are about execution and address feasibility. The risk of poor execution can undermine your assumptions that you chose the right infrastructure to execute your business model (feasibility). The risk of solving an irrelevant customer job (sometimes derisively labeled “a solution in search of a problem”) undercuts desirability in your business. The risk of a flawed business model would hamper the financial assumption that your business will earn more money than you spend (viability). Adaptability is about the assumption that you chose the right business model within the context of external factors such as technology change, competition, and regulation.

The business model canvas is not an exhaustive planning tool by any means. 37 , 38 The risk of such external threats is not specifically addressed on the canvas blocks. The external threats not specifically covered by the canvas blocks can be designed for adaptability, that is, the business model canvas is a necessary but insufficient component of determining the viability of the business idea/concept. There are many elements not included in the canvas that entrepreneurs must address. Industry analysis, including a competitive analysis, for example, falls “off canvas” but is important nonetheless.

The Lean Model Canvas

The lean model canvas is Ash Maurya ’s adaptation of the original business model canvas. As we noted earlier, gone are the customer relationships, key activities, key partners, and key resources blocks. Instead, a problem block is added, because as Maurya explains, “Most startups fail, not because they fail to build what they set out to build, but because they waste time, money and effort building the wrong product. I attribute a significant contributor to this failure to a lack of proper ‘problem understanding’ from the start.” Maurya next added a solution block to the lean model canvas, which corresponds well with features on a minimum viable product (MVP), which you will recall was covered in depth in Launch for Growth to Success . The lean model canvas also adds an “Unfair Advantage” block, similar to the block for competitive advantages or barriers to entry found in a business plan. 39

Social Business Model Canvas

As you’ve noticed by now, the core canvas components are common throughout the various versions. Many of the blocks of the social business model canvas are similar to those used in the business model canvas and the lean model canvas. 40 A few differences, as developed by Tandemic , focus on areas unique to social entrepreneurship ventures. For example, the new areas added include measures of what kind of social impact you are creating or developing, measures of surplus to address what happens with profits and where you intend to reinvest them, and measures of beneficiary segments, and social and customer value propositions. 41 These could be measures such as the number of trees planted, number of refugees housed and fed, jobs created, or investments made—depending on the venture. Social impact looks at an organization’s social mission beyond the bottom line. Measurement can differ among social entrepreneurs, but in terms of the canvas, impact measures are an effort to establish quantifiable metrics.

Social impact can be hard to measure, but nonetheless, many social entrepreneurs aim for long-lasting impact. 42 A 2014 report by the think tank, consultancy, and member network SustainAbility lists cooperative ownership, inclusive sourcing, and the “buy one, give one” model as three forms of social impact. 43 In addition to the Tandemic social business model canvas, there are other versions of similar canvases used for social entrepreneurship. For instance, Osterwalder adapted the business model canvas for mission-driven organizations into a mission model canvas. 44 There’s also a social lean canvas that adds purpose (explaining your reason for creating the venture in terms of social or environmental problems) and impact sections (describing the intended social or environmental impact). 45

This completed social business model canvas for the popular peer-to-peer lending platform Kiva illustrates how the business model canvas can and perhaps should be adapted for social entrepreneurship ventures.

What Can You Do?

Toms Shoes is perhaps one of the best-known companies for adopting a social entrepreneurship purpose into its business model. Part of its early success hinged on the fact that for every pair of shoes a customer bought, the company donated a pair of shoes to someone in need. The company won a prize in 2006 for its innovative solution to poverty. This “ 1-for-1 business model ,” sometimes commonly called the “Toms model” after the shoe company that popularized it, gained traction among other companies that followed suit in similar fashion, seeing both the social and the financial successes in the Toms model. Warby Parker is another example of a company that does essentially the same: A customer purchases a pair of eyeglasses, and the company donates a pair (although Warby Parker pays a third party to procure the glasses, as eyeglasses require an individual prescription, whereas shoes do not).

  • Can you think of an innovative social entrepreneurship business model?

The Birthday Party Project

Paige Chenault wanted homeless children in Dallas to feel special on their birthdays. Many have never experienced a birthday party. So this professional event planner sprang into action in January 2012. She launched the Birthday Party Project (https://www.thebirthdaypartyproject.org/), a nonprofit group whose mission is to celebrate the lives of homeless children (ages one to twenty-two). The group organizes monthly birthday parties with partner shelters. Since its inception, the concept has spread beyond Texas to cities across the United States, including Atlanta, Chicago, Los Angeles, New York, and San Francisco. In six years, the Birthday Party Project has celebrated 4,800 birthdays with 30,000 kids in attendance, eaten 40,000 cupcakes, cracked 30,000 glow sticks, and performed 1,100 renditions of “Happy Birthday.”

  • Identify a need in your community that could become a social entrepreneurship business, as Paige discovered with an initial passion project.
  • 29 Alexander Osterwalder and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, NJ: Wiley, 2010.
  • 30 Charlene Perrin. “Create A Customer Empathy Map in 6 Easy Steps!” Conceptboard . March 28, 2019. https://conceptboard.com/blog/create-a-customer-empathy-map-in-6-easy-steps/
  • 31 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
  • 32 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
  • 33 Mike Godlewski. “The Secret to Knowing What a Client Is Thinking? Empathy Maps.” Yeti. February 8, 2016. https://yeti.co/blog/the-secret-to-knowing-what-your-client-is-thinking-empathy-maps/
  • 34 Germán Coppola. “What Is an Empathy Map, and Why Is It Valuable for Your Business?” Medium . November 28, 2017. https://medium.com/swlh/what-is-an-empathy-map-and-why-is-it-valuable-for-your-business-14236be4fdf4
  • 35 This material is based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.
  • 36 Michelle Ferrier and Elizabeth Mays. Media Innovation and Entrepreneurship . The Rebus Foundation, 2017. https://press.rebus.community/media-innovation-and-entrepreneurship/.
  • 37 Jennifer van der Meer. "Do You Suffer from Value Proposition Confusion?" Linkedin . October 19, 2016. https://www.linkedin.com/pulse/do-you-suffer-from-value-proposition-confusion-jennifer-van-der-meer/
  • 38 “The Value Proposition Canvas.” Strategyzer . n.d. https://strategyzer.com/canvas/value-proposition-canvas
  • 39 Ash Maurya. “Why Lean Canvas vs Business Model Canvas?” Medium . February 27, 2012. https://blog.leanstack.com/why-lean-canvas-vs-business-model-canvas-af62c0f250f0
  • 40 "Social Business Model Canvas.” Business Model Toolbox . 2013. https://bmtoolbox.net/tools/social-business-model-canvas/
  • 41 “The Business Model Canvas Reinvented for Social Business.” Tandemic . n.d. http://www.socialbusinessmodelcanvas.com
  • 42 Ayse Guclu, J. Gregory Dees, and Beth Battle Anderson. “The Process of Social Entrepreneurship: Creating Opportunities Worthy of Serious Pursuit.” Duke/Fuqua case . 2002. https://centers.fuqua.duke.edu/case/knowledge_items/the-process-of-social-entrepreneurship-creating-opportunities-worthy-of-serious-pursuit/
  • 43 Lindsay Clinton and Ryan Whisnant. “Model Behavior: 20 Business Model Innovations for Sustainability.” SustainAbility . February 2014. https://sustainability.com/wp-content/uploads/2016/07/model_behavior_20_business_model_innovations_for_sustainability.pdf
  • 44 Alexander Osterwalder. “The Mission Model Canvas: An Adapted Business Model Canvas for Mission-Driven Organizations.” Strategyzer . February 25, 2016. https://blog.strategyzer.com/posts/2016/2/24/the-mission-model-canvas-an-adapted-business-model-canvas-for-mission-driven-organizations
  • 45 Social Lean Canvas. n.d. https://socialleancanvas.com/

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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.

phases of business model design

  • 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.

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What is a business model? (Plus, how to define yours)

Last updated: September 2023

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Business model large

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

15 elements of a brilliant business strategy

This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

phases of business model design

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

  • What is value-based product development?
  • What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Business model in Aha!

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

Lean canvas example in Aha!

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

Deliver more with Aha! — try it free for 30 days .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

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  • How to position your product

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phases of business model design

The Process for Business Design

We get more and more operational now. This chapter of the Knowledge Base is about phases and activities within the agile innovation process of Business Design. Learn about key activities, duration, participants, workshop designs and tools for each phase and dig deeper into important skills such as discovering customers, business modelling and (social) prototyping.

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Bernhard Doll

Business Design Maverick

The Business Design process is the core of the Business Design approach. It is the embodiment of entrepreneurial thinking hunting for business opportunities. The process can best be described as an "agile" development and learning process for building new business models, products, services or software applications in one to many succeeding iterations of 10 weeks.

phases of business model design

Each phase of the process gives all stakeholders involved a clear structure and guidance, which is specifically important when everything else is risky and uncertain. In each iteration, we design or improve a future scenario as a new business model, product, service or software (= Design), based on a short discovery phase (= Discover) and validate the scenarios with scientifically designed experiments to learn which aspects of the scenarios work and which don't (= Validate). Based on these learnings, a project sponsor is empowered to make clear decisions on how to proceed in the project (= Decide). In a nutshell, three decisions are possible:

To kick off a project based on the Business Design process, a Project Charter (= Setup) is required to define some basic elements of the project such as motivation, objectives, schedule and stakeholders. The output of a Business Design process is a management proposal consisting of the results of each phase (e.g. business model, hypotheses and results of experiments, prototype), suggestions for the sponsor and the decisions made by the sponsor.

The overarching goal of every Business Design project is to find simple answers to the sponsor's motivation and objectives for the project. This, however, is rarely an easy task and usually leads to a journey with ups and downs as illustrated below. Be prepared for this!

phases of business model design

These phases enable us to develop, learn and make clear decisions:

Setup Phase :  First, you set up your project by ensuring the support of decision makers (= sponsors) within your company, defining the focus of your project and building the right team.

Discover Phase :  To better understand the context of your project, you discover the space of your customers, competitors and technologies related to your project focus.Above all, you want to understand, what ”pains“ your customers have today when using existing solutions.

Design Phase :  Based on insights gained, you create business ideas as ”pain relievers“ and translate them into a business model to define how to create value for both your customers and your organization. Furthermore, you plan how to validate the business model.

Validate Phase :  To further develop your business model, you explore open questions and test hypotheses to validate key elements of your business model.

Decide Phase : Finally, you decide with your internal sponsor how to continue with the project. Often two to three iterations are needed to achieve the necessary knowledge and maturity for market launch.

These five phases constitute an "iteration" of a Business Design project, which encompass 1 to X iteration(s)

If you want to learn more about our "agile" development and learning process for building new business models, join our Certificate Program (DE) and become a certified Business Design Expert.

Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder

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Chapter 5. Process

Business model design process.

In this chapter we tie together the concepts and tools from the book to simplify the task of setting up and executing a business model design initiative. We propose a generic business model design process adaptable to your organization's specific needs.

Every business model design project is unique, and presents its own challenges, obstacles, and critical success factors. Every organization starts from a different point and has its own context and objectives when it begins addressing an issue as fundamental as its business model. Some may be reacting to a crisis situation, some may be seeking new growth potential, some may be in startup mode, and still others may be planning to bring a new product or technology to market.

The process we describe provides a starting point upon which just about any organization can customize its own approach. Our process has five phases: Mobilize, Understand, Design, Implement, and Manage. We describe each of these phases in a general way, then revisit them from the perspective of the established organization, as business model innovation in enterprises already executing on one or more existing business models requires taking additional factors into account.

Business model innovation results from one of four objectives: (1) to satisfy existing but unanswered market needs, (2) to bring new technologies, products, or services to market, (3) to improve, disrupt, or transform an existing market with a better ...

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phases of business model design

A business journal from the Wharton School of the University of Pennsylvania

The Latest Innovation: Redesigning the Business Model

November 18, 2014 • 14 min read.

Innovation in the business model – not just products – can drive enormous value, says Wharton management professor Raffi Amit.

phases of business model design

Innovation has become a buzzword in business today, as new-product sales advantages so often flow from new designs or features. Think mobile phones, tablets, or even autos. But apart from product or service leaps, can innovation in the way a company conducts business give it a leg up? Research from Wharton management professor  Raffi Amit and co-author Christoph Zott, a professor at IESE Business School in Barcelona, Spain, suggests that it can. In this Knowledge at Wharton interview, Amit covers the highlights of a research paper titled, “ Business Model Innovation: Creating Value in Times of Change .” The authors note: “Business model innovation … relies on recombining the existing resources of a firm and its partners, and it does not require significant investments in R&D.”

An edited transcript of the conversation appears below.

The importance of business-model design:

Raffi Amit: My colleague, Chris Zott, and I started a research program that addresses the broad question of how firms do business, which is the business model. A business model is a system of activities that are interdependent and that create value for the stakeholders of the firm. For example, in the old days, Apple designed the hardware, either produced or assembled some of the hardware, and then sold it. The value equation was to the sale of hardware.

Enter the iPod, which was a profound change in Apple’s business model, because the company realized it can create value for stakeholders not just by selling a gadget which is nicely designed, but also through the use of the gadget. So, Apple, in introducing the iPod, profoundly changed its business model by having a relationship with the music industry, the owners of the intellectual property to the various songs, and convincing those studios to sell by the song, not by the CD. Then through an electronic store, iTunes, [Apple] enabled people to download selected music. Each time a song was downloaded, Apple got a share of the proceeds, and therefore … it created value for the customer, for Apple’s shareholders and obviously for its employees.

“Innovation is not limited to the innovation of product [but also includes] innovation of the very way a company engages in business.”

The business model is a description of how the firm does business, and it is a system of activity. When Apple introduced the iPod, new activities were added, and the value that was created by this modified business model was enhanced because there were new stakeholders. Note that the stakeholders span both firm and industry boundaries. Who would think a computer company would be in the music business? And suddenly Apple was literally in the music business.

Over the years, Chris Zott, who is now at IESE Business School in Barcelona, Spain, and I have addressed a number of issues that relate to the business model. For example, what are the elements of a business model? What are activities that decide the content? What is the structure? How are those activities combined to create the system and, as importantly, the governance of the business model?

Who carries out each activity? We ask the questions, “How does the business model create value? What are the fundamental value drivers in the business model?” That’s where we created the so-called NICE business model, which stands for: Novelty, Lock-in, Complementaries. These are the fundamental value drivers. We asked managers to ask themselves, “Is our business model NICE?”

There’s another aspect, and that’s the process by which companies go through the business model’s design. Much of the work that’s been done so far focused on the content of what a business model is, or how the business model creates value and so on. But very little work has been done on how organizations design the business model. How do they modify it? And this applies to early-stage organizations — new startups — and to established organizations.

Once you think about what do managers do — obviously they have to lead their organizations and develop the strategies — how are they going to compete? The business model answers a different question. How are we going to do business? So, that’s the essence of our research program.

Key conclusions:

Our research on the process of designing a business model established that, by building on the methodology that was adopted for the purpose of product design by IDEO — which is a leading design company in the Bay Area on the West Coast — and in applying it to the design of the business model, we developed a five-phase process that’s embedded in the understanding of the antecedent for the design of the business model.

Some of the work we’ve done has established that when a company designs its business model, it doesn’t do it in a vacuum. It has to do it by considering a number of antecedents. For example, what’s the goal of the business model? [The answer is] one antecedent. What are some of the templates that other companies have been using? And to some extent thoughtfully and mindfully adopting some of those templates is another antecedent.

[We also looked at] understanding who are the stakeholders of the organization that would benefit from that business model. [Further, we looked at] constraints — whether these are financial, human capital, regulatory or any other type of constraints that would affect what the firm can and cannot do for any one of the reasons I just mentioned.

Once these antecedents are acknowledged and communicated, then there’s a process that we suggest in the research paper that involves five steps. First, to observe … a little bit of an ethnographic study — how people use your product or your service. What do they like and not like? When and how do they use it? Who uses it? Who makes the buying decision, and how is that decision made? So, a lot of observation is involved.

Then there’s a phase of synthesis — taking all of the information you observed and pulling it together. Then there’s a point of generating some product-type business model. [You can] say, “This is one idea of how we do business. Here’s another idea of how we do business, and let’s compare them.” [The fourth step is to] refine the model as you think about it more vigorously and more definitively. The last phase is implementation.

That cycle — observation, synthesis, generation, refinement and implementation — should be an ongoing process. It’s not the starting point. It’s a dynamic process in which the firm never sits still and says, “This is how we do business, and we work in silos.” Our main observation here is the need for people in the organization to think in a holistic way — not to think in silos — to take a broader view of the organization, not just of the activities in which they are involved. And that, we believe based on the research we’ve done, will create value for all stakeholders.

“Design doesn’t just apply to product design. It applies very much to the design of how firms do business.”

In fact this process paper is an attempt to journalize our past research that focused on emerging companies. This was our attempt to move from focusing and empirically examining young emerging-growth companies to focusing on … large, global, diversified companies.

What current business events are relevant in light of this research?

What are the implications of not adopting a process of continuously updating and revising your business model? I’d like to give two examples.

Look at a company like Blackberry, which dominated the smart phone industry in government, business and among consumers. Blackberry almost became a verb in American society. Even the President of the United States used a Blackberry. But Blackberry stuck to a particular way of doing business and ignored the changes that were happening in telecommunications, in the ability of wireless networks to transmit videos and other graphical information. Executives did not adapt the company’s business model. Today, Blackberry is in decline, and according to some, on the verge of bankruptcy.

Another example of a company that has not adapted its business model is Nokia. At one point it was by far the largest marketer of handsets for wireless communication. Nokia has since disposed of its handset business, and it declined to a very small percentage of the global number of handsets that have sold. It’s been taken over by the likes of Samsung, Apple, HTC and others.

A concrete example of a company that totally transformed itself by transforming its business model is IBM. Historically, IBM was a product-centered company. It sold computers, disk drives, tape drives, a number of boxes. Today, the vast majority of IBM revenue comes from services where the products are not a means to an end, but are a means to deliver the services.

That’s a profound transformation of how IBM does business. Today, the most profitable part of the company is not the boxes, but the services. The largest fraction of IBM’s revenue comes from services. So, IBM is a good example of a global, multi-national, large and diversified firm that has undertaken a profound updating or revision of its historical business model and, as such, enabled it to stay on top.

How does this research stand apart from other studies?

We believe we are the first to focus exclusively on the process of business model innovation. There has been a realization that business model innovation matters. But before we did this study, no one had really vigorously looked at the process of how you innovate a business model. And that’s where we believe our main contribution lies.

Two main takeaways for business:

First, the need to apply design thinking to the design of the business model. Traditionally, design thinking has been applied to the design of products. What we’ve established through this research project is that the process by which firms design the business model can, in and of itself, create enormous value.

The second takeaway is that firms need to develop a capability to continuously ask themselves how to tweak their business models, how to refine and revise them. This is an organizational capability that needs to become part of a firm’s DNA. The business model needs to change as the environment in which the firm competes changes. There [needs to be] a realization that each and every member of the organization needs to look at: “Are we still doing business in a way that maximizes the value creation potential?”

“The process by which firms design the business model can, in and of itself, create enormous value.”

The answer, therefore, is that designing the business model is no longer just a job that the CEO has to do. Each and every member has to ask: “In the activities that I’m involved in, is there another way to do this activity? How do the activities that I’m involved in relate to other activities that are going on in our firm that create value for our stakeholders?” And when I talk about stakeholders, there are obviously the customers of the firm, the partners, owners, employees and managers — to pick a few stakeholders. All of them need to be considered in thinking through the design of the business model.

So, these are the two main takeaways. Design doesn’t just apply to product design. It applies very much to the design of how firms do business. And secondly, this has to be a continuous activity that becomes part of a firm’s DNA.

Surprises that came out of the research:

On one hand, the impact of the business model’s design on the firm’s performance has been substantial, greater than what I would have anticipated. But what surprised me most is how rare it is in the organizations that we surveyed and talked to where the process of designing the business model is part of the firm’s DNA.

Very few organizations routinely think, “How can we tweak our business model? How can we find a better, more efficient, greater value-creating business model?” That surprised me, and I think that managers and organizations more generally would benefit by thinking deeper about the design and thinking about it not as a one-time or once in two years thinking, “Is there a better way?” — but as an ongoing, dynamic capability that the firm has.

And it’s up to the leadership of the company to instill that kind of design thinking into the DNA of the firm. And the fact that this is rare was a surprise to me.

Misperceptions dispelled:

The perception is that innovation is about product innovation. And what our study attempts to show is that innovation is not limited to the innovation of product [but also includes] innovation of the very way a company engages in business, how it interacts with its stakeholders, how the various activities are connected to each other. Who carries out each of the activities?

Because in business models in today’s environment — where there have been enormous advances in information and communication technologies — companies are involved in activities that are carried out by other companies. And that’s very much part of the business model of how a modern corporation operates today.

I can give you a lot of examples of how the business model of Amazon relies on UPS delivering the products that people buy from it. And Amazon doesn’t produce or stock most of the products it sells. They’re just drop-shipped from another company. So, the business model of Amazon involves companies and activities that are happening outside of the boundaries of Amazon — outside of the industries it’s in.

There are companies where the entire innovation is how they do business. Take Priceline, which has revolutionized travel. Rather than you going to the website of any airline and looking at the menu of what it has to offer, it’s just the opposite. You say, “I want to travel from A to B, and I’m willing to pay X dollars to travel, and, you airline, make me an offer.”

It’s kind of a reverse auction in some sense. But in many ways, it’s a way to create value — for the airline to dispose of seats it hasn’t sold, because if it flies an empty seat, it makes no money. So, everybody wins. This is a value-creating business model, and there’s no product there. With eBay, there are no products, right? The business model is where the value creation is.

What’s next?

We’re engaged in a fairly massive effort of collecting data to address a related question, and that is focusing on large companies and how the business models evolved side by side with the organizations — the people, the incentives. That’s because a business model focuses on what activities the firm is engaged in, in order to create value, and how that system of activities creates value, how it’s connected, who does it. But there are other elements of the organizations that need to be looked at. And that’s how we see ourselves in the next phase of this research program which, as I said, we started over 15 years ago.

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Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

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How To Create A Business Model In Seven Steps

Define the problem you’re going to solve, then define the customers for which the problem will be solved. Next, identify the customer and the problem. After that, define a set of possible solutions. After, define a set of possible monetization strategies for that solution, test, and choose your business model .

Table of Contents

A business model design in seven steps

Time needed:  1 day

How to create a business model in one day and seven simple steps

product-market-fit

The most valuable asset any organization has is its business model .

Indeed, that is the way all the moving parts of the organization fit together to create a value chain.

The aim of the value chain is value creation for several players in that industry, market, and so on.

The business model is not static, it changes and evolves along with the scale of the organization.

The type of  business model you designed for your company will not work if your company scales. You’ll need to rethink and redefine it.

This is even more evident in companies that are trying to innovate.

When those organizations create a new technology or an innovative approach to existing industries, it is critical to understand who are the players involved in that industry and how you’re creating value for them.

In this blog, we covered the business models  of many organizations.

For instance, Google’s massive success is strictly connected to its business model .

The company managed to create a balance between several players in the publishing and information industry where each of those players gets back some value (economic and not) from having a relationship with Google .

Where do you start when it comes to creating a business model ?

Related : Successful Types of Business Models You Need to Know

It’s all about business model design

The primary aim of a business model is to create a sustainable chain, able to unlock value for several players in a market, industry, or niche .

Therefore, this value chain will start from a value proposition , a promise you make to the key players and partners in that market, industry, or niche depending on where you start.

For instance, when PayPal started out it didn’t look to dominate the whole market. It started from a niche .

As Pether Thiel put it in his book, Zero to One:

The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

Indeed, PayPal began by identifying its most valuable partner, what at the time they called “power user.”

That was a choice driven by its business model design .

Therefore, instead of focusing on generically offering a service for everyone, PayPal focused on acquiring and attracting as many power users as possible.

Those power users were mostly on another platform that had already scaled up: eBay.

Thus, PayPal focused all its effort on acquiring those power users from eBay , fast!

Only after PayPal had drafted, tested, and validated a clear value proposition for a small , yet critical group of power users, it could move on to take larger and larger segments of that market.

What is a value proposition?

At its most basic level, a value proposition is a promise you make as an organization to deliver something (either monetary or advantage) to a critical player you have in our industry.

For instance, when Google started it showed right away it was capable of offering 10x of search results, at a faster speed and more relevant to users.

However, had Google kept its search engine primarily focused on providing paid results, it would not have taken off.

Instead, Google focused on offering relevant paid results but also a bunch of organic results.

In short, Google managed to index and rank the web pages from blogs, journals, news sites and any other website that made those pages available to Google for its index.

In exchange for that content, Google offered back visibility as qualified traffic toward those sites.

Indeed, search engines back then (at the end of the 1990s) were not focused on offering quality traffic.

Thus, most of the audience you got back to your site might have been quite relevant to your business.

Google instead, with its dominant search engine allowed publishers, and businesses (small and large) to gain customers.

That sealed an implicit deal “Me (Google) will send you qualified traffic that helps you grow your business if you (publisher, business, or whoever publishes on the web) offer me your content to be indexed.”

We might call that an implicit contract, which is the beginning of a value chain.

In fact, from this sort of contract part of the Google business model has been built. Imagine the scenario where Google was not attractive enough to provide qualified traffic to content producers.

They would have stopped offering their content for free by blocking access to the search engine.

Instead, they allowed Google to index their pages because the visibility they got was too attractive.

A business model is also about how you make money but how you make money isn’t your business model

One of the biggest misconceptions of the business model is to confuse it with the monetization strategy or the revenue model of the company.

While this is an essential piece of the puzzle, it is just one of the components of a successful business model .

In this blog, we’ve discussed at great length how companies make money  as a way to start the discussion of a business model .

However, a business model implies the understanding of

operations, customer acquisition and retention, supply chain management, and the cost above and revenue aspects

According to the business model you designed over the years for your organization there will be a piece that plays a more critical role compared to others.

For instance, a vital component of the Coca-Cola business model is its distribution strategy .

For other companies like McDonald’s, the key to its business model success is the heavily franchised restaurants that helped the company scale up all over the world.

Each company will develop a unique  model  among the many types of business models which is what makes it thick in the long run!

What principles should I follow to create and design a business model?

Developing a deep understanding of your business model implies asking a few critical questions. For instance, some of those questions might be:

  • What value do I offer my potential customers? Or what problem do I solve with my product/service?
  • How do I charge my customers?
  • What does my acquisition cost look like?
  • What channels can I tap into to find my ideal customer?
  • Did I create a predictable revenue stream ? If not what can I do to generate that?

Your business model will be based on a few critical assumptions about who your customers are, how your product or service should look like, what are the favorite channels to reach them, and a few others.

Those assumptions will be tested as soon as you start kicking off your operations.

Your main concern should be just that. You need to check those assumptions as quickly as possible. 

Steve Blank has identified 17 principles in his  Customer Development Manifesto :

  • There Are No Facts Inside Your Building, So Get Outside
  • Pair Customer Development with Agile Development
  • Failure is an Integral Part of the   Search for the Business Model
  • If You’re Afraid to Fail You’re Destined to Do So
  • Iterations and Pivots are Driven by Insight
  • Validate Your Hypotheses with Experiments
  • Success Begins with Buy-In from Investors and Co-Founders
  • No Business Plan Survives First Contact with Customers
  • Not All Startups Are Alike
  • Startup Metrics are Different from Existing Companies
  • Agree on Market Type – It Changes Everything
  • Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
  • If it’s not About Passion, You’re Dead the Day You Opened your Doors
  • Startup Titles and Functions Are Very Different from a Company’s
  • Preserve Cash While Searching. After It’s Found, Spend
  • Communicate and Share Learning
  • Startups Demand Comfort with Chaos and Uncertainty

I suggest you read this manifesto over and over again. This should be the first step!

What tools can you use to design and create your business model?

One of the most used tools to design and create a business model has revolved around the customer development manifesto above.

However, it is essential to keep in mind that this manifesto was the fruit of an era where venture capital had become scarce compared to the dot-com bubble at the end of the 1990s.

Those tools for business modeling have been developed in that context. Thus, those are not a one-size-fits-all toolbox but rather work better in a context where capital is scarce, and you need to test your business model assumptions as quickly as possible. In that context three primary tools are:

  • Business model canvas.
  • Lean startup canvas.
  • Customer development canvas.

Those tools can be used by entrepreneurs in the phases of the business model generation:

  • Map the business model hypotheses.
  • Test these hypotheses with customer feedback.
  • Iterative this process.

The result will be an incremental development of a product that will reach a minimally viable version .

The better the product, based on customer feedback, the larger the audience it will reach.

Lean makes sense when capital is scarce and when you need to keep burn rates low.

Lean was designed to   inform the founders’ vision  while they operated frugally at speed. It was not built as a focus group for consensus for those without deep convictions .

Is the lean startup still a valuable model?

As Steve Blank has pointed out in an HBR article entitled “ Is the Lean Startup Dead? “

I realized it was time for a new startup heuristic: the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.

In other words, the more risk capital that is available on the market the least the lean startup model might work.

The reason is, that if you have massive risk capital, you won’t need to test all your assumptions.

Quite the opposite, you’ll need to execute them fast.

Also, one of the primary logic of the lean startup is to burn cash at the slowest rate possible, while evolving (so-called pivoting) your business model .

If money is not an issue, then why go for the lean startup?

Steve Blank went further:

Rather than the “first mover advantage” of the last bubble ,  today’s theory is that  “massive capital infusion owns the entire market.”

Therefore, if you secured a massive injection of money, then your aim might be primarily toward growth , rather than profits.

In that context, the lean startup might not work!

Are capital moats sustainable?

blitzscaling-business-model-innovation-canvas

When a company or startup has a substantial capital allocate for growth , that is when this injection can become a short-term competitive advantage.

However, as companies finance growth through artificial injection of capital, those also become extremely risky, because many of the assumptions underlying the business model can’t be tested organically, thus leaving the company’s foundations weak.

An example of this excess of use of capital as a competitive moat has been WeWork , which has proved one of the most disastrous business endeavors of the last decade.

Thus, capital moats and technological moats need to be balanced with careful business model testing and organic validation in the marketplace!

Key Highlights

  • This step is the foundation of your business model . It involves identifying a specific problem that your product or service aims to solve.
  • Problems can be functional (solving a practical need) or emotional (addressing a psychological desire or pain point).
  • Defining the problem clearly helps you focus on delivering value to your target audience.
  • Once the problem is defined, it’s important to identify the individuals or groups who are facing this problem. These are your potential customers.
  • Group your potential customers into categories, keeping it to a maximum of three types. Each type may have distinct characteristics and needs.
  • From the categories of potential customers and the identified problems, narrow your focus to one key customer type and one specific problem.
  • This step helps prevent spreading your resources too thin and allows you to concentrate on understanding your primary audience and addressing their primary need.
  • Brainstorm a range of solutions that could address the key problem for your chosen customer type.
  • List up to ten solutions. Then, evaluate these solutions based on feasibility, cost, time, and resources required.
  • Narrow down the list to three solutions that are viable given your constraints.
  • For the solution you’ve chosen, consider how you’ll monetize it. Determine how your business will generate revenue from providing the solution to your target customers.
  • Brainstorm up to five potential monetization strategies. These could include subscription models, one-time purchases, freemium offerings, etc.
  • Focus on the two strategies that can be tested quickly and efficiently.
  • This step involves practical validation of your selected solution and monetization strategies.
  • Test your product or service with real customers to gather feedback. Evaluate how well your monetization strategies perform in real-world scenarios.
  • Based on the feedback and data collected, choose the most effective solution and monetization strategy combination.
  • With a validated solution, monetization strategy , and a clear understanding of your target audience, you have the foundation of your business model .
  • Your business model is the blueprint that outlines how your company will create, deliver, and capture value in the market.
  • Continuously monitor and refine your business model as you gather more insights from customers and adapt to changing market conditions.

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Business model design.

Discover everything you need to know about business design. we explain what it is and how it can help you build profitable businesses through customer centricity, business model innovation, and evidence-based learning., business model innovation sprint., a new robust business model for your organization., 4 steps of designing an innovative & sustainable business model., trusted by fortune 500 and global innovators..

phases of business model design

Research has shown that business model innovation can create up to 25x greater  competitive advantage  compared to product and process innovation. However, only 17% of companies have invested in evaluating their business model design. And while we observe more and more companies understanding the importance of business model innovation, they still have a hard time translating high-level business modeling concepts to practical techniques and tools while designing or redesigning a busines

  • We see teams asking themselves: How do we quantify the markets properly? What assumptions are already validated by other players?
  • How do we know that this business model is the  best fit  for us? What are the implications of choosing this business model?
  • Given this business model, what are the important things to remember moving forward?
  • How should we experiment  with different business models?

The goal of our  business model design program  is to research, ideate, model & evaluate business models together with you.

Know your industry before diving deep

In the first stages of business model design, we will map your industry & most dominant business models. This will help us identify long-held beliefs that might be ready for disruption.

Also, know the numbers behind your industry. You’ll understand exactly what you need to know about the market you’re going to operate in.

Don't rely on 1 business model, ideate at least 5

Most teams run with the first business model they come up with.

We’re a huge fan of ideation because we know there is value in spending time on coming up with creative models. With tailored exercises, you’ll end up with 5 models that could work for your business.

Model your business to understand it better

Ideas are great. But if they stay on post-its, they tend not to make it off the paper. 

You will further develop your business by modeling and structuring the most important aspects of your company. This will help to further ideate on features of the business model as well as uncover critical assumptions to test.

Evaluate your business models

A lot of business models that are only ideated and modeled don’t make sense simply because they don’t add up (or have a very low chance of adding up in the future).

During an evaluation session, you’ll challenge your own business model to see if it has a chance of surviving in the real world.

What-is-business-model-innovation-2-500x341

Program overview

At Board of Innovation, we have a holistic approach to business modeling. We design businesses the same way we design products. Combining target segment & user research, we carry out comprehensive market & competitor research. We focus on outlining the dominant business models & most important long-held beliefs that can be disrupted. When we prototype solutions, we design different relevant business models together with you. Our product reviews are followed by business model evaluation exercises. And finally, while trying out different prototypes, we experiment with different business models, too.

Our  3-day business model innovation sprint  is structured into 4 stages which are detailed below.

Goal: understand your market, identify unknowns that need to be further researched

  • Identify the  dominant business models  & most important long-held beliefs that can be disrupted
  • Understand the  numbers, KPIs & benchmarks  behind your industry, market & business
  • Identify the most important  trends  & how they will change your industry
  • Identify the important  things you don’t know  about the industry, that you will need to ask during interviews with stakeholders

Goals: 3-5 distinct business models that could work for your business

  • Translate long-held beliefs to  opportunities for disruption  (opposite thinking for BMs)
  • Identify business models that you could operate (Business Model flowchart)
  • Ideate your business model features  with ideation exercises crafted to your project

Goal: structure your newly ideated business models and uncover underlying assumptions

  • Model your newly ideated business model with  value exchanges  (using the  business model kit ) to make it concrete
  • Summarize the most important aspects of your business model & identify  underlying assumptions

Goal: figure out if the business model you came up with has a chance of survival in the real world

  • Build your business factory using growth metrics (AARRR) and identify your potentially biggest challenges under an operating business model that you can start testing right away
  • Estimate the cost of acquisition (COA) and lifetime value (LTV)  of your customers. Learn how will this impact your business.
  • Build your scale model &  understand your upcoming scaling challenges  ahead of time that you can start testing immediately
  • Based on your model, what are the examples and unique features of well-designed business models,  go-to-market strategies, scaling techniques and things you should keep in mind when moving forward

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The complete guide to business process modeling (BPM)

phases of business model design

If you’ve been in business for a while, then you understand the importance of your processes. Your profitability is completely tied to your ability to design, manage, and optimize your business processes and operations.

Sadly, many business owners never take the time to actually map and model their processes in a visual way, leading to a lack of understanding of their own business. In this blog, we’ll take you through why business process modeling is essential for modern organizations and how to implement it today. Let’s start with the basics.

What is business process modeling?

First, we need to make sure we’re all in sync about what a process is.

A business process  is the logical sequence of events that lead to a particular outcome relevant to your organization. A process includes all the activities or tasks in a chain of events that accomplishes something. Some examples of common business processes are issuing purchase orders, product assembly, shipping products,  invoicing clients , and estimating project costs.

Business process modeling is the practice of back-engineering each process in your business to understand the different components needed to achieve the goal and finding potential improvements for each component.

It’s a business analysis and continuous improvement discipline that helps you maximize any process through critical examination. For example, a typical business process model might look something like this:

( Image Source )

Though the above is only one example, there are other popular techniques for business process modeling. We’ll discuss some of these techniques more in-depth a bit later, but first, we’ll look into how process modeling can impact your company.

Benefits of business process modeling

As organizations evolve, so do their processes. We live in a hyper-accelerated world where businesses face massive changes almost overnight. If you don’t have a strategy in place to adapt to this constantly changing environment, your organization won’t survive for long. Cultivating a culture of learning and innovation within your organization is paramount. This fosters an environment that not only adapts to change but also anticipates it, staying one step ahead of industry dynamics.

In short, if you don’t model your processes, you’ll never know whether you’re operating at your best, and you’ll miss out on huge opportunities.

Some key benefits of process modeling are:

  • Better alignment:  align your activities with the core goals of your business
  • More control:  improve the way you control your activities and resources
  • Better productivity:  maximize your time and focus on what really matters
  • Improve your bottom line:  reduce inefficiencies, costs, and bottlenecks
  • Produce better products and services:  build more efficient production processes that delight your customers

A solid process model isn’t just a drawing or visual representation of your process—you’ll need other elements to really get the most out of this strategy.

8 critical elements of business process modeling

Diagrams —like the example we saw above—are just one of the many elements involved. To fully model a process, you must create a document with the following elements:

  • Scope statement:  a relevant description of the process name, as well as when the process starts and ends
  • Outcome:  a definition of the desired outcome of the process
  • Description:  a step-by-step walkthrough of the process description (i.e., the different steps that need to be executed to achieve the desired outcome)
  • Exceptions and variations:  a description of potential alternative process paths based on conditional data or action triggers
  • Entry criteria and inputs:  the elements you must have in place to execute the business process
  • Exit criteria and output:  what must be true once the process is completed
  • Dependencies:  a description of any other process or activity that’s dependent on this one
  • Process flow diagram:  a visual representation of the business process and its components

By documenting the entire process using these elements, you’ll have a clearer idea of where to start, as well as be able to communicate your full plan to your team and stakeholders.

It’s important to remember that business process models should include both visual and textual information to analyze each process at a more granular level. With that said, let’s look at some examples.

What are 5 business process modeling techniques?

Now that you understand the elements of a business model, let’s examine how can you represent your processes visually, starting with these five techniques:

  • BPMN diagram
  • UML diagram
  • Gantt chart
  • PERT diagram

1. Business process modeling notation (BPMN) diagram

BPMN stands for Business Process Modeling Notation, and it’s a technique that helps you represent your processes in a visual manner through 100+ proprietary objects.

Some of these objects include:

  • Process flow object:  represents the sequence flow and execution of tasks
  • Pool:  represents process participants
  • Swimlane:  define sub-groups and divisions within pools
  • Data object:  represents information flowing through the process
  • Artifacts:  used to define how tasks and activities are organized

BPMN provides you with clear specifications for each diagram. By having a unified strategy or “language” to model your processes, you can make sure everyone is on the same page.

The example we shared earlier is a fairly simple business model diagram. Here’s an example of a more complex one:

Complex BPMN diagram of a research process

2. Flowchart

Flowcharts are one of the simplest and most widely-used techniques for process modeling. As the name suggests, flowcharts help you map out the sequence flow of activities you need to perform to complete a specific process.

In a flowchart, you should represent each step in the process with a shape. Then, you should connect those shapes with lines or arrows to indicate the logical progression of each step.

Here’s a simple process model example:

As you can see, flowcharts can use different process diagram shapes to represent different stages of the process. In the example above, we have two different shapes:

  • Rectangle:  represents start and end points
  • Diamond:  represents specific activities

In practice, you can use many different shapes to represent the different components of your processes — especially when you’re dealing with a complex process.

Flowcharts are simple yet powerful tools to communicate a business process in a way everyone can understand.

3. UML diagram

Communicating the value of software design isn’t always easy, especially when you’re dealing with a non-technical audience.

This is where UML comes in handy.

UML stands for Unified Modeling Language. It’s a modeling technique that helps you describe the elements that make up a specific software system and how such elements interact with each other.

UML involves different types of diagrams, which can be broken down into 2 main categories: structural diagrams and behavioral diagrams.

Structural diagrams represent the structure of a system. That is, the different elements and objects that make up the software. Some of the most popular structural diagrams include:

  • Class diagram:  mainly used for data modeling in a system
  • Component diagram:  describes the physical structure of the system in question
  • Deployment diagram:  describes the execution strategy and structure of the system

Behavioral diagrams, on the other hand, focus on the relationship between the objects in a system — how the different objects interact with each other to achieve a particular goal. A few common behavioral diagrams are:

  • Use case diagram:  describe the possible interactions between user and system
  • Activity diagram :  graphical representation of a user’s activities and actions when using a system
  • State machine diagram:  represent the behavior of an object within a system

4. Gantt charts

Gantt charts are used to plan a project’s schedule against tasks and dependencies on a horizontal bar chart.

Setting up a Gantt chart is easy on monday.com because you have access to a built-in Gantt View and a widget for your project dashboard . You can also make changes to tasks directly in the Gantt View.

5. PERT diagrams

Similar to Gantt charts, PERT, or Program Evaluation and Review Technique, is a framework to map out task dependencies and estimations for a project’s duration.

This type of flowchart is useful for the early stages of planning when sorting through how all the pieces go together.

Example PERT flowchart for a fictional project.

Let’s pause quickly; we’ve already covered the importance of business process modeling, as well as some of the most common techniques for visual process representation.

But if you want to achieve the highest level of performance in every one of your processes, you need the right system — a system that helps you centralize all your workflows onto a single place and can automate repetitive activities.

Business modeling processes and monday.com — how to

monday.com is a powerful Work OS that helps you build a custom digital workspace for any type of process, regardless of its complexity. To show you how it works, let’s follow a four-step process to model, manage, and improve your processes and operations.

1. Streamline the process

To improve any existing process, you must break it down into components. Consider what you need to achieve the goal. With the answer to that question in mind, you then need to prioritize those activities based on the impact they make on your bottom line.

Once you organize your activities in a progressive order, coordinate the execution with your team. You may also want to identify which activities can be automated and how.

To achieve all this, you need a flexible system that adapts to your needs and helps you streamline your processes. With monday.com Work OS, you can access fully customizable, pre-built templates to structure different processes in various industries, including:

  • Advanced Project Management Template
  • CRM Template
  • Recruitment and Onboarding Template
  • Social Media Planner Template

You can explore our complete list of templates in our  Templates Center . We also provide you with over 250,000 automations, so you can speed up your operations and improve your productivity. A few tasks you can easily automate include:

  • Recurring activities
  • Notifications
  • Item creation
  • Dependencies
  • Integration recipes

For more on monday.com Work OS automations, watch this short video below:

Finally, monday.com helps you centralize your entire organization into a single workplace, which makes it easier for you to streamline your workflows and improve your processes. You can create or add documents, files, automations, various views, data, and more all from monday.com Work OS.

2. Implement

Once you’ve defined your processes, it’s time to implement them. Start with a platform that allows you to collaborate with your entire team, remove silos between departments, and track progress with ease.

For instance, on monday.com Work OS, you can invite your entire team from the start and access powerful collaboration tools to improve your communication, including:

  • File sharing
  • Instant-messaging
  • Video conferencing

For instance, you can click any of your items on your boards and add context to each task in real-time. This way, you can brainstorm ideas, get direct feedback from your peers, and improve your operations much faster.

monday.com's collaboration features in action

From task management to resource allocation, you can structure and manage all your business processes more efficiently.

You can’t improve what you can’t measure. That’s why you need a system that helps you monitor all the information that’s important to you and analyze your progress.

Access powerful reporting dashboards that help you track everything from revenue to productivity, time, sales, tasks, performance, and more on monday.com.

monday.com's reporting dashboards in action

Dashboards make it easy to understand the overall performance of your processes and optimize accordingly. The best part? These dashboards are fully customizable, and you can adapt them to your exact needs.

4. Optimize

Finally, you should schedule a meeting with your team to analyze the data you collected in the last step and brainstorm how to improve current process. Consider asking:

  • Where are the major bottlenecks?
  • Is the team working productively?
  • Are you using your resources wisely?
  • Where are your biggest revenue leaks?

By answering these questions, you’ll be able to spot major issues in your processes before they start snowballing and fix them fast. Since monday.com Work OS is fully customizable, optimizing and adapting your processes to your new process ideas is completely feasible for any type of organization.

monday.com's drag-and-drop features in action

Frequently asked questions

What are the four phases of business process modeling lifecycle or bpm, what are the basic elements of bpmn.

Four elements of BPMN are flow objects, connecting objects, swimlanes, and data.

Ready to improve your business processes?

Hopefully, now you have enough understanding of the overall process, as well as why it’s crucial for the success of your business. And if you’re looking for a platform that helps you optimize each of your processes with surgical precision, then monday.com Work OS may be a great fit for you.

To see for yourself, we suggest you start with our  Advanced Project Management Template . It’ll help you get your business process modeling off to a great start.

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The Five Design Sprint Phases for Start-Ups

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Design Sprints are a win-win for start-ups, producing a scaled-down testable product or feature and providing a start-up with valuable, actionable testing data. Imagine building a finished product only to then find out that your target audience didn’t engage with it. You find that not only have you stretched your budget too far, but you can’t afford to make the necessary amendments to the product either.

Working with a Design Sprint agency will help you avoid getting into these sticky situations! It’ll allow you to build your prototype, test it, then launch it into the market without wasting big sums of money.  

Design Sprints comprise five phases: Empathize, Define, Ideate, Prototype, and Test.  But first, let’s touch on who the people and roles critical to the success of the Design Sprint.

Design Sprints: The main players

Facilitator .

The person most central to the success of a Design Sprint, the facilitator is responsible for fostering collaboration among participants, staying on track, and encouraging creativity. A facilitator should aim to be a good listener and have an open mind when it comes to new ideas. Instead of overpowering the group, they focus on guiding them to make strategic and efficient decisions. They encourage everyone in the team to participate and create an open and thriving work environment. 

Wisely, many companies choose to hire a facilitator instead of choosing an in-house one to lead a Design Sprint. This is because being a facilitator requires experience and a particular set of skills. Facilitators are not only responsible for ensuring all the pre-sprint work is done on time, but also have duties after the Sprint has been done. They need to make sure to team keeps up with the 5-day sprint process efficiently and doesn’t fall behind.  

Designer 

The presence of a designer in a Design Sprint makes sure that a designer’s perspective is considered. In the early stages of a Design Sprint, a designer will bring an understanding of aesthetics and usability to the process, while their skills are crucial to the prototyping stages as well. The success of a sprint will hinge on their input. 

Engineer 

An engineer will help the team articulate the reality of the type of product they’re seeking to develop. Most prototypes need a certain level of engineering talent to bring into being, and an engineer is best placed to do that.  

Marketer 

Having a marketing executive on a Design Sprint team means they’ll be passing on all their marketing knowledge onto you. This can be of help when creating sales strategies later on. A marketer will also provide you with the right words to describe the products with. After all, they’re the first thing potential customers will interact with, so they’ve got to be engaging. A marketeer is the best person to help you do that.  

Product chief 

A product chief can be the owner, CEO, or Vice President of product. However, product chiefs in Design Sprint teams can also be heads of customer service or lead engineers: there is no black and white rule to it. Simply put, the product chief will be the person who has the most tangible exposure to the product issue you’re solving. Their opinion can make or break the success of the Sprint.  

The Five Phases 

The Design Sprint process is divided into five phases: Empathize, Define, Ideate, Prototype, and Test

The Design Sprint process is divided into five phases.

Empathize  

Empathy is the ability to put yourself in another person’s shoes and really understand what they’re feeling or experiencing. It might sound intangible and maybe even not so important, but empathy is the fundamental stage of a Design Sprint. You will not build a successful product without it. 

In the Empathize stage, you build understanding of your customers’ needs and challenges and where you can make improvements. The facilitator may conduct empathy-building activities, such as Proto Personas, Empathy Map , and Journey Map.  

In this phase, the team comes together to understand the business problem from various angles and contribute their knowledge and ideas in 10-15 minute sessions and discuss different aspects of the business problem. The Sprint Master displays all the ideas on a whiteboard, which the rest of the team can use as a reference throughout the Sprint.  

Define 

Building on the learnings from the Empathize phase, in the Define phase the team works to define outcomes and solutions the problem at hand. The team will organize unstructured information into well-defined maps. Useful templates in this phase include the Business Model Canvas and the Value Proposition Canvas.  

Ideate 

During this phase of the Design Sprint process, the ideas that need to be prototyped are generated. Sketching is a common activity, where participants draw out their visions in a rough format. It’s important for team members to have enough time to create well-articulated sketches that can speak for themselves without requiring much explanation. At the end of the day, your team should be able to create a step-by-step storyboard for your final prototype. 

The key is to have an open mind to addressing the problem and not be afraid to embrace ideas that are out of the box. Helpful activities in this phase include Lightning Talks and Affinity Mapping.  

Prototype  

The prototype stage is where designers shine: they use their skills to whip up a testable prototype in a few hours. The preceding stages all inform the design of the prototype. Identify the testing schedule, review the prototype and complete the interview script for the last phase. 

During this phase, the team guides users through the prototype product to generate useful data. Focus on how the product meets the users’ goals here, instead of leading them. Asking the right questions is also important and so is being a good listener. Ask your users what they really expect from your product and how you can capture their needs. You can structure and organize user responses via Excel.  

In most of the product teams, the UX designer or the researcher usually interacts with the users. In a Design Sprint, each team member gets a chance to be part of the validation session. This is key to capturing some of the learnings, putting different concepts to test using real-time user feedback. 

Conclusion  

Design Sprints are valuable to start-ups and have proven benefits. To get the most out of a Design Sprint, work with a company that understands the value of each contributor and sprint phase. Windmill Digital offers exceptional Design Sprint services . Our experts are have conducted more than 300 successful Design Sprints. For more information, contact us here.  

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A Systemic Framework for Business Model Design and Development -Part A: Theorizing Perspective

  • Original Research
  • Published: 21 November 2017
  • Volume 31 , pages 437–461, ( 2018 )

Cite this article

  • Payam Hanafizadeh   ORCID: orcid.org/0000-0002-5233-987X 1 ,
  • Mohammad Mehrabioun 1 ,
  • Kambiz Badie 2 &
  • Jahanyar Bamdad Soofi 1  

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Developing innovative business models is one of the complicated issues. Owing to the multiplicity of stakeholders with diverse worldviews about value creation and dynamic markets, the development of innovative business models has turned out to be a complex issue. Therefore, this research seeks to: (1) examine the complicated nature of the development of business model problem and, (2) provide a holistic and systemic framework for the development of business models. The proposed framework employs the Soft Systems Methodology (SSM). This framework is composed of 18 phases, which ranges from the phase of finding out the problem of developing a business model to the phase of its implementation. This methodology is characterized by taking into account the considerations of rational positioning views, evolutionary views, and cognitive views in designing and developing business models.

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Payam Hanafizadeh, Mohammad Mehrabioun & Jahanyar Bamdad Soofi

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Hanafizadeh, P., Mehrabioun, M., Badie, K. et al. A Systemic Framework for Business Model Design and Development -Part A: Theorizing Perspective. Syst Pract Action Res 31 , 437–461 (2018). https://doi.org/10.1007/s11213-017-9435-6

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Circular economy: definition, importance and benefits

The circular economy: find out what it means, how it benefits you, the environment and our economy.

phases of business model design

The European Union produces more than 2.2 billion tonnes of waste every year . It is currently updating its legislation on waste management to promote a shift to a more sustainable model known as the circular economy.

But what exactly does the circular economy mean? And what would be the benefits?

What is the circular economy?

The circular economy is a model of production and consumption , which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended.

In practice, it implies reducing waste to a minimum. When a product reaches the end of its life, its materials are kept within the economy wherever possible thanks to recycling. These can be productively used again and again, thereby creating further value .

This is a departure from the traditional, linear economic model, which is based on a take-make-consume-throw away pattern. This model relies on large quantities of cheap, easily accessible materials and energy.

Also part of this model is planned obsolescence , when a product has been designed to have a limited lifespan to encourage consumers to buy it again. The European Parliament has called for measures to tackle this practice.

Infographic explaining the circular economy model

Benefits: why do we need to switch to a circular economy?

To protect the environment.

Reusing and recycling products would slow down the use of natural resources, reduce landscape and habitat disruption and help to limit biodiversity loss .

Another benefit from the circular economy is a reduction in total annual greenhouse gas emissions . According to the European Environment Agency, industrial processes and product use are responsible for 9.10% of greenhouse gas emissions in the EU, while the management of waste accounts for 3.32%.

Creating more efficient and sustainable products from the start would help to reduce energy and resource consumption, as it is estimated that more than 80% of a product's environmental impact is determined during the design phase.

A shift to more reliable products that can be reused, upgraded and repaired would reduce the amount of waste. Packaging is a growing issue and, on average, the average European generates nearly 180 kilos of packaging waste per year . The aim is to tackle excessive packaging and improve its design to promote reuse and recycling.

Reduce raw material dependence

The world's population is growing and with it the demand for raw materials. However, the supply of crucial raw materials is limited.

Finite supplies also means some EU countries are dependent on other countries for their raw materials. According to Eurostat , the EU imports about half of the raw materials it consumes.

The total value of trade (import plus exports) of raw materials between the EU and the rest of the world has almost tripled since 2002, with exports growing faster than imports. Regardless, the EU still imports more than it exports. In 2021, this resulted in a trade deficit of €35.5 billion.

Recycling raw materials mitigates the risks associated with supply, such as price volatility, availability and import dependency.

This especially applies to critical raw materials , needed for the production of technologies that are crucial for achieving climate goals, such as batteries and electric engines.

Create jobs and save consumers money

Moving towards a more circular economy could increase competitiveness, stimulate innovation, boost economic growth and create jobs ( 700,000 jobs in the EU alone by 2030 ).

Redesigning materials and products for circular use would also boost innovation across different sectors of the economy.

Consumers will be provided with more durable and innovative products that will increase the quality of life and save them money in the long term.

What is the EU doing to become a circular economy?

  In March 2020, the European Commission presented the circular economy action plan,  which aims to promote more sustainable product design, reduce waste and empower consumers, for example by creating a right to repair ). There is a focus on resource intensive sectors, such as electronics and ICT , plastics , textiles and construction.

In February 2021, the Parliament adopted a resolution on the new circular economy action plan demanding additional measures to achieve a carbon-neutral, environmentally sustainable, toxic-free and fully circular economy by 2050, including tighter recycling rules and binding targets for materials use and consumption by 2030. In March 2022, the Commission released the first package of measures to speed up the transition towards a circular economy, as part of the circular economy action plan. The proposals include boosting sustainable products, empowering consumers for the green transition, reviewing construction product regulation, and creating a strategy on sustainable textiles.

In November 2022, the Commission proposed new EU-wide rules on packaging . It aims to reduce packaging waste and improve packaging design, with for example clear labelling to promote reuse and recycling; and calls for a transition to bio-based, biodegradable and compostable plastics.

Find out more

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