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A business model – how to develop and present a business idea
Many budding entrepreneurs are looking for the right way to develop, validate and then present their business idea in order to attract investors, customers or business partners.
An effective way to conceptualise and assess the consistency and comprehensiveness of a business premise can be the creation of a business model. This stage precedes the development of a business plan and the business model itself often becomes an essential element of the document.
Concepts and element of a business model
There are many classifications and definitions of business models that can be found in the relevant literature. In general, it is regarded as ‘an idea how to earn money’1 or ‘a story that explains how an enterprise works’.2
The business model as conceptualised by O. Gassmann, K. Frankenberger and M. Csik should provide answers to questions as to who the company’s target customers are (who?), what the company offers (what?), how it develops products and services (how?) and why its business activity is profitable (why?). These elements make up the so-called magic triangle of the business model (Fig. 1).
If a business model definition is too general, it is difficult to understand its essence, which is why this study adopts the approach represented by A. Osterwalder and Y. Pigneur. They define a business model as a description of the rationale behind the way in which an organisation creates value in order to ensure and generate profit from the value created. In their concept, the business model is made up of nine elements which are linked to four core areas of a company’s activities.3 The elements of the business model developed by Osterwalder and Pigneur can be found in Table 1.
| Company activity area | Business model element | Characteristics / activities / aims |
|---|---|---|
| Customers | Customer segments | Defining groups of people and organisations that the company is trying to reach and serve. Dividing customers into distinct segments helps the company to better meet their needs. |
| Relationships with clients | Characteristics of the relationships that the company has with representatives of a particular customer segment. The objective of building customer relationships is to attract and retain customers and increase sales. | |
| Offer | Value proposition | A description of a set of products and services that generate value for a particular customer segment. The value proposition is the reason why customers prefer a particular company’s offer over those of competitors. |
| Infrastructure | Channels (of communication, distribution and sales) | An element of the business model indicating how a company communicates with different segments of its customers and conveys its value proposition to them. Communication, distribution and sales channels determine the company’s interactions with its customers. |
| Key resources | An element indicating the most important resources needed for the business model to function properly. | |
| Key activities | The most important actions a company needs to take in order to make its model work well. | |
| Key partners | Description of the network of suppliers and collaborators on which the smooth operation of the company depends. | |
| Financial position | Revenue streams | The amount of funds generated by the company in relation to serving each market segment. To determine the level of profits, costs must be subtracted from revenues. |
| Structure of costs | A statement of the expenses incurred while applying a particular business model. |
The elements of the business model listed in Table 1 make up the Business Model Canvas, which has become a recognised methodology of its development in the business world.
Characteristics and functions of a business model
Business models simplify reality, which can be both an advantage and a disadvantage. Nevertheless, they are very helpful in the process of conceptualising a business. Developing a model and analysing the relationships between its elements makes it possible to understand better a more complex reality reflected by the model.
A business model can become a source of a competitive advantage for a company, one difficult to copy for its competitors. Studies carried out by IBM, the Boston Consulting Group and MIT Sloan confirm that business model innovation ensures sustainable development and enhances a company’s ability to succeed more than product or process innovation.4
A special feature of a business model is its scalability, which, as defined by A. Jablonski, is ‘the ability of a business model to maintain similar or higher efficiency, while continuously increasing or decreasing the number of its components and at the same time adjusting the boundaries of its impact (e.g. in a network environment)’.5 The notion of scalability of business models appears, for example, in one definition of start-ups. According to S. Blank, a start-up is a temporary organisation engaged in the search for a scalable, replicable and profitable business model.6 This means that achieving the goal of a scalable business model is a milestone in the development of a company from a start-up to a mature enterprise.
It is also worth noting that presenting a business idea based on the aforementioned well-known and highly regarded Business Model Canvas methodology by A. Ostelwalder and Y. Pigneur7 can contribute to a better understanding of the concept and, consequently, its positive perception by potential business partners, customers or investors.
Footnotes
1A. K. Koźmiński, Zarządzanie w warunkach niepewności, PWN, Warszawa, 2004, p. 123.
2J. Magretta, Why business models matter? Harvard Business Review, 2002, 80(5), p. 88.
3A. Osterwalder, Y. Pigneur, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Wiley, 2010, pp. 18-45
4O. Gassmann, K. Frankerberger, M. Csik, Business Model Navigator: The Strategies Behind the Most Successful Companies, FT Publishing International, 2020, pp. 20-21.
5A.Jabłoński, Skalowalność modeli biznesu w środowisku sieciowym, Difin, Warszawa, 2015, pp. 114-115.
6S. Blank B. Dorf, The Start-Up Owner’s Manual: The Step-By-Step Guide for Building a Great Company, K & S Ranch, 2012, p.19.
7A. Osterwalder, Y. Pigneur, Op. Cit.
Reference literature
Blank S., Dorf B., The Start-Up Owner’s Manual: The Step-By-Step Guide for Building a Great Company, K & S Ranch, 2012.
Gassmann O., Frankerberger K., Csik M., Business Model Navigator: The Strategies Behind the Most Successful Companies, FT Publishing International, 2020.
Jabłoński A., Skalowalność modeli biznesu w środowisku sieciowym, Difin, Warszawa, 2015.
Koźmiński A.K., Zarządzanie w warunkach niepewności, PWN, Warszawa 2004.
Magretta J., Why business models matter? Harvard Business Review, 2002, 80(5), ss. 86–92.
Osterwalder A., Pigneur Y., Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Wiley, 2010.
About the author
Aneta Lipińska holds a doctoral degree in management sciences and works as a researcher and academic teacher at the Institute of Economics, Finance and Management of the Jagiellonian University in Krakow. Her major research interests focus on the activity and ecosystem of start-ups, e-business, social media and the development of information society. Through her work at the Jagiellonian University, which involves research, teaching and organisational tasks, she can share her knowledge and gain new competences, thus combining her passion and professional activity.
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