Business Model

“A business model describes the rationale of how an organisation creates, delivers and captures value”

The business model is a term you hear used frequently on Dragons Den (BBC TV). It is a high level description of how the business is supposed to hang together. The Dragons often ask questions relating to: “What are your markets” , “What are you offering to your customers” i.e. the proposition , “How are you charging for your services” and “What are your costs”.

This is the level of the business model; it seeks to explain what the business is about and how does it work at a conceptual level. What is often surprising on the programme is the number of people who pitch that just don’t have the answers to those simple questions. They turn up with an idea of a product and service and just pitch. Often it is all marketing and nothing else. They have no idea of costs and operational activities and some don’t even know the meaning or turnover, gross profit and net profit. These pitches descend into cringe-worthy events coupled with cries of incredulity from the likes of Peter Jones and his peers.

A depiction of a business model is one of the core and early components of any business design or business architecture endeavour. You have got to have one of these, or several intertwining ones, before you flesh out the detail and create a depiction of an operating model which explains the how in more practical and operational detail the business will or does work.