Platt Perspective on Business and Technology

Moving past early stage and the challenge of scalability 4: business model analytical tools – 1

Posted in startups by Timothy Platt on August 11, 2012

This is my fourth installment in a series on building a business for scalability and long-term success (see Startups and Early Stage Businesses, postings 96, 98 and 99 for Parts 1-3.) Much of this discussion has focused on business models and on their completeness and their capacity for scaling up if a business is to grow beyond its initial early stage at which it first begins to bring in revenue and profit.

After setting a foundation for discussion to follow, in Part 1, I briefly outlined a series of specific business model approaches that are commonly followed businesses today in Part 2: what needs to scale? and Part 3: some specific standard business models. And I turn with this posting to discuss some of the more commonly used analytical tools for evaluating business models in general and for determining applicability and scalability of these models for specific business contexts.

The first framework-approach for analytically discussing business models per se that I would look into in any discussion of this topic is the business model canvas as originally developed by Alexander Osterwalder, beginning in 1988 (see his doctoral dissertation on this: The Business Model Ontology: a proposition in a design science approach.) The basic underlying concept there is fairly simple; a business can be operationally modeled as falling into a set of four distinct functional and structural domains:

Infrastructure with its core activities and resources, and including any partner networks that would functionally support and enable it.
Offering: the value proposition as products and/or services that the business brings to its marketplace. Osterwalder and I take a similar approach here and primarily define value proposition in terms of unique value to the target market and its consumers, and in terms of distinguishing a business from its competition through that.
Customers: Osterwalder includes in this model component the determination and identification of target markets and of potential customer demographics and market segments with it, channels through which the business would reach out to and market and sell to those demographics and to individual customers from them, and customer relations management in all of its aspects – and with all of the various business defining and differentiating options that could be developed here included as model differentiators. To pick up on this model domain as a working example as to the business model diversity possible, and on customer service and support alternatives as model differentiators, this might include direct human-touch staff support from customer service specialists, provision for self-service options and/or automated customer support services, connection into online fellow-consumer communities for reviews, for question and answer support and other services, and more. And different approaches and channels and suites of them might be offered to customers and to the overall marketplace pre-sales, at point of sale and/or post-sale.
Finances: This is another comprehensive term for this model building approach. What is the overall cost structure of the business? Is it cost-driven and with a focus on cost savings in the provision of products and services, or is it value-driven with an emphasis on creating value and differentiating value for the consumer? For industries such as bus companies or airlines, where a ride from point A to point B is essentially the same for all carriers, with fundamentally standardized passenger accommodations for vehicles used, competitive pressures would lead to a more cost-driven model for most competing businesses. Where product and service differentiators become more important, value-driven models can become more important. And for all of these businesses with their varying business model decisions and operating independently of cost structure considerations, marketing points that these businesses would present to their customers and potential customers would tend to highlight their products and services as offering more to the customer for less – and businesses would tend to market as if more value-driven and even if they are not.

To continue with the cost structure considerations of these business models, along with the basic differentiators of cost-driven versus value-driven or pursuit of some hybrid model of them, Finances would include expense/revenue structure differentiators too. This is where different ways of identifying fixed and variable costs, and of categorizing and covering them enter into the business model and it is where economies of scale and scope become important for their financial impacts. And any Finances component of a business model has to account for revenue streams and how income and profits are generated too, and whether this is through sale of products and/or services as assets sold, or sale of licenses or usage rights. And revenue stream models can also be based on offering subscription or rental services or any of a variety of other, related alternatives. And on top if that, businesses can generate revenue through middleman approaches such as brokerage services, or by capitalizing on their own business’ marketplace visibility to sell advertising access and revenue generating visibility to other businesses. This just touches on some of the possibilities, with online businesses facing an increasing range of cost containment and revenue generation options that they can pursue.

And with this, I have outlined some of the basic properties and business development options that business models cover, and as represented in business model analytical tools – here the business model canvas. I am going to further discuss this analytical tool in my next series installment and will continue on from there to look into some alternative business model tools, and with that leading up to a discussion of business model analysis for Web 2.0 generation businesses. The interactive online community and our increasingly ubiquitous global online connectedness have created whole new worlds of opportunity for creating and building from new types of business model. Meanwhile, you can find this and related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

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