Close

February 28, 2021

‘Business Model Innovation’ Defined

Share It!

What is Business Model Innovation?

Innovation using the Business Model as the main mechanism, rather than product or technological innovation. Reinventing a business model – or creating a new one – is a matter of remixing the core components of a business model and developing new value propositions, revenue streams, and cost structures.

What are the Key Components of a Business Model?

There are 9 Building Blocks in the Business Model Canvas.

Value Proposition:

What unique value does a company’s product or service create for customers?

Customer Segments:

What group(s) of customers is a company targeting with its product or service?

Customer Relationships:

How does a company plan to build and maintain relationships with the customers it is serving?

Customer Channels:

What channels does a company use to acquire, retain and continuously develop its customers?

Revenue Streams:

How is a company pulling all of the above elements together to create a revenue stream(s) and generate cashflow?

The above 5 Building Blocks represent the right side of the canvas, and contribute to the Revenue side of the business model.

Key Resources:

What assets and knowledge does a company possess that allow it to deliver its value to customers in ways that other companies can’t?

Key Activities:

What activities does a company engage in that allow it to execute its strategy and either establish a presence in the market or gain market share?

Key Partnerships:

What strategic and cooperative partnerships does a company form to increase the scalability and efficiency of the business?

Cost Structure:

What are the key costs associated with running the business and how can key partnerships/resources be leveraged to reduce the cost structure?

The remaining 4 Building Blocks come together to form the left side of the canvas, and contribute to the Cost Structure of the business model.

A business model is defined as:

“the rationale of how an organization creates, delivers and captures value.”

Alex Osterwalder et al invented the Business Model Canvas to help individuals and organizations conceptualize how to analyze, create, and develop business models.

Explained - components of the canvas
Business Model Canvas - Index

Remixing the Business Model

Remixing the business model is not easy, nor necessarily glamorous. It is research-intensive, rigorous, and more than anything a process.

The simple reason it is so challenging is because it requires a change in something fundamental such as: commonly-held beliefs in an industry, consumer behavior relative to how something is purchased, shifts in culture, social convention, etc.

Thinking about a lot of the household names at the top of the S&P 500 and Nasdaq nowadays, and we can see that many of these innovative business models were built over the course of a decade or more in many cases. Despite the way many of these companies are portrayed, these were high-risk endeavours that represent only a minute fraction of those who tried to do the same; that’s why the upside for achieving success in this regard is typically exponential.

>UBER: (Founded) Mar. 2009 – (Market Cap) ~$100 Billion – (Sector) Mobility and Delivery – (BMi) No-Inventory Taxi Service, Commission-based model

>ABNB: (Founded) Summer 2008 – (Market Cap) ~$120 Billion – (Sector) Travel & Hospitality – (BMi) No-Inventory Hotel Service, Weighted Host/Guest Commission Structure

>APT.AU: (Founded) 2014 – (Market Cap) ~$34 Billion AUD – (Sector) Financial Services – Credit: Buy Now Pay Later – (BMi) Merchant-based Commission Model

Not that the goal of business is always about trying to build the next Airbnb, Uber, or Afterpay for the vast majority. Smaller & medium businesses – even freelancers – can achieve the same types of results for themselves, but the Remix (ie. Business Model Innovation) needs to be structured and executed strategically. These examples simply illustrate the effort, stamina, and capital required to develop an innovative business model at scale.

The Business Model Canvas – combined with research around analogs/proxies (similar models in other industries) – is a good place to start. Understanding the basics of the Canvas helps to map out a given business model, and seeing what market leaders/innovators are doing in other industries can provide much-needed inspiration, insight and ideas.

These Decks (in Keynote and Powerpoint) provide a basic structure for how to get started on this.

Share It!

February 28, 2021 BMi