A business model by any other name...
We talk a lot about a business models, but we rarely say what they actually are.
As part of our forthcoming series on business model patterns, it would be easy to take for granted what a business model actually is.
That might, at first glance, seem like a pretty obvious concept, but there are tons of misconceptions, and we're going to reap a lot of value by creating a really simple, shared language that we can use to talk about business models really early in this series. In later articles, we'll apply patterns on top of those models, and it'll be very easy to see the relationships between each component.
Have I convinced you to stay tuned? Alright — let's get started!
There quite a few business model tools and methods out there that we can use that help us document business models and visualize them. The most famous is the business model canvas, but there is also operating models, value networks, value chains, and so forth.
But there's a crazy simple — almost dumb — model that we like to use a lot at The Right Box in the context of business model innovation: the magic triangle. It comes out of innovation research at the university of St Gallens, and it is by far the simplest and easiest way to see the relationships between those four key elements.
At its core, a business model is everything we need to know about an organization, but stripped down to its bare essentials. It answers four key questions: who, what, how, and why. The Magic Triangle just takes those four key questions and overlays them onto a simple triangle, where the customer is at the center — and rightfully so!
who: for whom are we creating our value proposition?
what: what is the value that we are creating, often called the value proposition. This is what we're trying to do in order to provide value to someone else.
how: how are we taking that value that we've created inside of our company and actually getting it into the hands of our customers?
why: why does this make money? This a combination of the revenue model (how we're bringing money in) and the operating cost (what it takes to actually create and deliver that value). But it also includes all the reasons why that is going to work.
That's it — it's pretty simple. As we get further into this series, we'll talk through tons of examples and tons of patterns, and really tease out the extraordinary complexity hidden within this is super simple model.
Speaking of patterns, let me end with this: when we talk about business model patterns, what we're talking about is some subset of that triangle that we can encapsulate in a concept that we can easily talk about and apply to different organizations, verticals, industries, and circumstances.
But more on patterns coming soon!
Published 9 months ago
Josh David Miller
Managing Director // The Right Box
JDM is the founder of The Right Box, where he facilitates the process of innovation with startups and Fortune 100s alike. He and his team help get new ventures to market, innovate on business models, and establish a culture of intrapreneurship. JDM spends his free time as a startup ecosystem builder, connecting founders and funders in the Sacramento area — where is known as that guy wearing unusually colourful shoes.