The term "Business Model" is over used

and under defined. Business models

explain how organisations work – how do
they create value for customers, and in
doing so how they create value for all other
stakeholders. They can map the current
business, or explore options for the future.
A business model is a framework for
finding a systematic way to unlock long-
term value for an organization while
delivering value to customers and
capturing value through monetization
strategies. A business model is a holistic
framework to understand, design, and test
your business assumptions in the
marketplace.
What is a business model?
A business model is a crucial component of
any company that wants to thrive in the
long-run. In fact, many times the difference
between a successful and a failing
business – besides the product or service
offered – is how value gets unlocked.

The business model is the main driver of

value. In fact, the business model can
determine the difference between a
monkey and a unicorn.

In start-up lingo, a unicorn is a company

valued more than a billion dollars.
Whatever you want to call that, any start-
up wildest dream is to scale up fast and get
there!
There is a simple reason for that. If you get
to a billion-dollar valuation, the chances of
survival will improve exponentially.
According to visualcapitalist.com, seven
business models have higher odds to get
into the unicorn circle:

1. Commission

2. Asset Sale

3. Subscription plans

4. Advertising

5. Usage Fees

6. Licensing

7. Rent/Lease
The importance of business model design
The primary aim of a business model is to
create a sustainable chain, able to unlock
value for several players in a market,
industry or niche.

Therefore, this value chain will start from a

value proposition, a promise you make to
the key players and partners in that
market, industry or niche depending on
where you start.

For instance, when PayPal started it didn’t

look to dominate the whole market. It
started from a niche. As Pether Thiel put it
in his book, Zero to One:

The most successful companies make the

core progression—to first dominate a
specific niche and then scale to adjacent
markets—a part of their founding narrative.
Business modeling is about
experimentation

Where scientists have labs where they can

manufacture and run experiments.
Entrepreneurs have the real world as a
way to measure their assumptions.
However, where a scientist might be
looking for lasting truth, an entrepreneur
searches for a business model that will
work in the marketplace at that particular
point in time. Indeed, one of the common
beliefs is that business models can be
sketched on a piece of paper and they will
work in the real world.
That (almost) never happens. Before a
business model does work in the real world
that will require a lot of strategic and
deliberate thinking, experimentation, and
tinkering. Thus, a successful business
model is usually the fruit of this process.

That implies that often an entrepreneur has

to design multiple variations of the same
business model and test those in the
marketplace.
Vision vs. Mission: why understanding the
difference between them is important
There is one key ingredient of any
company’s business model that seldom
changes, that is the company’s vision.

While the company’s mission statement

might change over time, the vision sticks.
The main difference between mission and
vision is about the present and future. The
mission is the way the company wants to
achieve its objectives now and its purpose
in the present.
One-for-one business model
Have you ever heard of TOMS Shoes? As
you can understand from the name, this is
a company making shoes. What’s new
about it? The founder of TOMS Shoes
founder has come up with a model, in
which, for a pair of shoes sold, another pair
is given to kids around the world that
cannot afford them.

This kind of model might be seen as a sort

of hybrid that combines profit with non-for-
profit models. In reality, TOMS Shoes has
proved to be profitable and sustainable
over time.

Indeed, the non-profit side of the business

model works as an excellent propeller for
the business. Anyone wants to take part in
the growth of a company that not only sells
shoes but takes care of kids around the
world.

Thus, it isn’t anymore just a pair of shoes;

it is a story you want to be part of.
Razor and blade revenue model
Have you ever wondered why a blade
costs more than a razor? This is the razor
and blade revenue model in action. When
a company makes its customers loyal to a
product. Then that same companies might
leverage on that product to sell related
“accessories” for a premium price.

Companies like Apple, for instance, use an

inverse razor and blade, business model.
Apple has created platforms like the App
Store and iTunes, which sell app and
songs, movies or tv series at a convenient
price. While Apple charges premium prices
on its devices (iPhone, iPad, and Mac).

The logic is the same, but inverted. As

consumers are locked in the Apple
ecosystem, they feel compelled to buy
Apple products at a premium price and
with very low price elasticity.
Freemium model (freemium as a growth
tool)
Free can be a powerful weapon for growth.
Many in the tech industry and more
specifically in the SaaS business model
use the Freemium to grow their business.
The freemium is a mix of free and paid
service.

The company offers a basic version of the

product that works just like the premium
product but it either has limited usage, or it
has limited features. Thus, the free version
is used for lead generation (capture
contacts of people) and invite them to
upgrade to the paid version or have the
users with a free account to advertise their
product.

Take SumoMe, a tool that allows you t

grow the audience of a blog through
newsletter forms, pop-ups, A/B tests, and
heat maps:
In short, the free product can be leveraged
in several ways. First, for lead generation.
Second, as a way to trigger upsells for
non-paying customers.

Third, as a virality tool, with CTAs and links

placed in strategic places to have free
publicity from non-paying users.

If appropriately implemented the freemium

model can be a great way to grow a brand
and a business fast.
Affiliate marketing model
Let’s say you have a website with a large
amount of traffic each month. Yet you don’t
sell any product or service, which is yours.
How do you make money? Well, thanks to
affiliate marketing you don’t need either a
product or a service, you have many from
other companies.

Thus, you’ll make money by merely

featuring other products or services and
getting a commission for that. Affiliate
marketing done right can be a powerful
source of income.
Think those two scenarios. You have a
series of online courses that you sell as a
one-off. You’ve sold 100 courses in one
month at $100; you’d made $10,000. Next
month to have the same level of revenue
generation you’ll have to sell other 100
courses.

This means you either find more students

or you produce new courses. Imagine the
second scenario. You have a few courses,
and you make them available for a monthly
subscription at $75. If you have 100
subscribers, this means that each month
you’ll have $7,500 without having to find
new students.

Given this example, you can understand

why the subscription business model is so
powerful. Today companies like Netflix,
Amazon (with Prime), LinkedIn and many
others use subscription-based models to
monetize part of their business. However, a
subscription-based business model also
needs a lot of resources.
Leveraging on price to gain a competitive
advantage isn’t new. However, price wars
are not the best way to create a
sustainable business model. Instead, the
supermarket chain – ALDI – has done just
the opposite. One of the critical ingredients
of ALDI business model is to keep its
prices low while maintaining its quality as
high as possible.

How? WIth several strategies. For

instance, ALDI limits its stores to 1,300
items, which generates minimum wastes.
Also, ALDI also features its brands, which
makes it inexpensive to sell them, as there
will be lower sales and marketing costs
associated. 90% of ALDI brands have an
exclusive agreement with the market chain!
E-Commerce
With almost $23 billion in revenues and
nearly $7 billion in profits. While in North
America and the western world in general,
Amazon is the synonym of “e-commerce.”

When it comes to the Chinese industry,

Alibaba is the market leader! In 2016 the
company recorded over 423 million active
buyers. Alibaba, just like Amazon has a
diversified business model, with many
moving parts. However, as of 2017 most of
its revenues still came from core
commerce.
For how much we love to believe that
things can be easily classified.
Organizations, like Amazon, have complex
business models that are hybrid.

Thus, rather than rely on a single type of

model, they are dependent on the mixture
of those models. The way those models
interact is quite subtle, yet that is what
really creates, unlocks and generates
value in the long-term.
Business Strategy Case Studies
We’ll look now at a few case studies, of companies that
at the time of this writing are playing an important role in
the business world.

• Amazon Business Strategy

• Apple Business Strategy
• Airbnb Business Strategy
How does Amazon work?
Amazon is a giant marketplace where each
day billions of people find anything from
the latest best selling book to things like
Nicolas Cage pillowcase.
That makes Amazon the fourth most
popular site in the US. The Amazon
business model revolves around four main
players:

1. Consumers
2. Sellers
3. Developers and enterprises
4. Content creators
1. Serving the Consumer
Focus: selection, lowest price, and convenience

Sales: Hundreds of millions of unique products

Access: sales through website, mobile websites, and apps

Products: Manufacture and sell electronic devices

Service: shipping offers, easy-to-use, fast and reliable fulfillment

Subscription: Amazon Prime, an annual membership program that

includes unlimited free shipping on tens of millions of items, access to
unlimited instant streaming of thousands of movies and TV episodes
Sellers
We offer programs that enable sellers to
grow their businesses, sell their products
on our websites and their own branded
websites, and fulfill orders through us. We
are not the seller of record in these
transactions. We earn fixed fees, a
percentage of sales, per-unit activity fees,
interest, or some combination thereof, for
our seller programs.
Developers and enterprises
We serve developers and enterprises of all
sizes, including start-ups, government
agencies, and academic institutions,
through our AWS segment, which offers a
broad set of global compute, storage,
database, and other service offerings.
Content creators
We serve authors and independent
publishers with Kindle Direct Publishing, an
online service that lets independent
authors and publishers choose a 70%
royalty option and make their books
available in the Kindle Store, along with
Amazon’s own publishing arm, Amazon
Publishing. We also offer programs that
allow authors, musicians, filmmakers, app
developers, and others to publish and sell
content.
An effective business model to work
properly has to involve and generate value
for several stakeholders.
If we look at the Amazon revenue model, a
few things pop up right away. As we saw
the online stores are still the core part of
the business.

However, the core business is the

foundation for other emerging businesses
that run with different logic to its online
stores. Where online stores run at tight
margins and high volume by taking
advantage of cash conversion cycles.

Other parts of the Amazon business model,

like Amazon Advertising Services, Amazon
Prime and Amazon AWS run with much
higher margins. Thus, Amazon online
stores are the foundation for those other
businesses that make the overall company
more profitable in the long run.

Let’s give a look at the Amazon cash

machine, which is the foundation of its
ability to expand, and disrupt other
industries, while expanding in other areas.
As technology becomes more and more
competitive business models lose
effectiveness. However, a business model
well-designed can make a company
capture value for a long time!
.
Amazon is a ginormous company. Don’t get overwhelmed.

None of us are billion dollar

players.

What’s the point?

• Explore a variety of proven

business models
For each company’s business
strategy, a business model essence
will help us navigate through the noisy
business world.
Amazon is a ginormous company. Don’t get overwhelmed.
Keep in Mind:

1. Amazon started with a single

purpose and focus. What
was it?
Started in 1994 as a bookstore, Amazon
soon expanded and became the everything
store. While the company core business
model is based on its online store. Amazon
launched its physical stores, which
generated already over five billion dollars
in revenues in 2017.
Amazon Prime (a subscription service)
also plays a crucial role in Amazon‘s
overall business model, as it makes
customers spend more and being more
loyal to the platform.

Besides, the company also has its cloud

infrastructure called AWS, which is a world
leader and a business with high margins.
Amazon also has an advertising business
worth a few billion dollars.
Thus, the Amazon business model mix
looks like many companies in one. Amazon
measures its success via a customer
experience obsession, lowering prices,
stable tech infrastructure, and free cash
flow generation.
Therefore, even though in the minds of
most people Amazon is the “everything
store” in reality, its revenue generation
shows us that it has become a way more
complex organizations, that also have a
good chunk of advertising revenue and
third-party services.
Amazon has been widely investing in its
technological infrastructure since the
2000s, which eventually turned like a key
component of its business model.
Caveat: Frameworks work until suddenly
they don’t
When you stumbled upon a “business
formula” you can’t stop there. That
business formula, if you’re lucky will allow
you to succeed in the long term. Yet as
more and more people will find that out,
that will lose relevance. And the matter is,
reality is a villain. Things work for years
until they suddenly don’t work anymore.
We’ll see some frameworks, but the real
deal is not a framework but the inquiry
process that makes us discover those
frameworks. In short, the value is in the
repeatable process of discovery and not in
the discovery itself. A discovery once
spread it loses value.
Master a business
strategy process
There isn’t a size-fits-all business playbook
that you can apply to all the scenarios.
Business Model CANVAS

Business Model Canvas YOU pdf

download – add info from this
handout!!
Business model canvas in a nutshell
The nine building blocks of the business
model canvas comprise vital partners, key
activities, value propositions, customer
relationships, customer segments, critical
resources, channels, cost structure, and
revenue streams.
and offer your partners a compelling
reason to do business with you.

For instance, if you think about Google, the

principal partners are the small publishers
part of the AdSense program, together to
the businesses that are part of the
AdWords network and the users that daily
keep going back to the Google search box
by giving it critical data to sustain its
business model.

If you think about Uber instead, you’ll

notice how the key partners are its drivers
for which Uber means an additional if not a
full-time income as self-employed. Its
engineers that keep the platform smooth
and running and people that sustain the
cause of Uber.

If you think instead at Airbnb, you’ll notice

that those key partners aren’t only hosts
and travelers that transact each day on the
platform. Also, freelance photographers
that travel the world to take professional
When it comes to partners “who” and “why”
are critical questions. In short, who’s the
niche of people that can sustain your
business? And why, so what compelling
reason are you giving them? What value
do they get from this partnership? It
doesn’t have to be just in terms of
finances.

Of course, initially, a better deal would do.

But it could also be about social values or
personal values. For instance, initially for
its drivers, Uber didn’t mean right away full-
time income. But it also meant more
freedom for its drivers to work when they
wanted. So initially freedom might have
been a critical aspect.
Key activities
What key activities does your value
proposition require?

What activities are important the most in

distribution channels, customer
relationships, revenue stream…?
As innovationtactics.com explains, critical
actions for Uber were:

Remove friction from all interactions

Scale driver and customer side to reduce
idle times for drivers and waiting times for
customers
Reduce negative externalizes, e.g., bad
behaviors on both sides
Grow the platform by getting more
participants joining
Keep participants engaged and stimulate
ongoing participation
Continue improving the value proposition,
e.g., cheaper rides for regular commuters
through UberPOOL
Look out for complementary value
propositions (e.g., car financing, new
customer segments, etc.)
Deliver on the customer proposition
Reduce churn (esp drivers)
Expand to more cities (US and global)
Analyze the data to fine-tune everything
Enhance technological lead and intellectual
property to steepen barriers of entry
Value Proposition:
What core value do you deliver to the
customer?

Which customer needs are you satisfying?

Although the value proposition is not listed
as the first element. In reality, this is the
first thing you should assess. I’d say this is
the foundation of your business model.
That is what keeps the blocks together.

Without knowing the core values for your

customers or partners and what needs
you’re satisfying, or what problems you’re
solving for them you might have a product
but not a business.
The value proposition isn’t marked in the
stone, but it can change over time. As new
partners join; and as you tinker with your
business model and as new unforeseen
needs come about your value proposition
might also change.
Customer relationship
What relationship that the target customer
expects you to establish?

How can you integrate that into your

business in terms of cost and format?
If you take Uber, as specified by
innovationtactics.com it needs to consider
four elements to manage their customer
relationships.

(1) the customers(=riders),

(2) the drivers,

(3) the broader public and

(4) regulators.
Another example, if you take the Airbnb
business model, hosts are critical to the
success of the platform, and concerns like
liability coverages are essential for them to
keep using it.
Customer segment
Which classes are you creating values for?

Who is your most important customer?

It is important to stress that although this is
a list of blocks, it is not necessarily meant
to be read or assessed in order. In fact, at
times you might have some blocks but
miss others.
software-based on new, emerging
technologies. The startup founders might
know for sure that technology is valuable
and it will open up market opportunities.

Yet that same founder might not have a

clue about who the potential customers
might be. This shouldn’t surprise you.
Starting up a business doesn’t necessarily
mean to start from a problem people have.

That is true in more traditional industries. In

tech, the opposite might apply. You have
new technology and a product that does
many things.

However, you struggle to have that

business take off. How to find your
customers? Often they will come to you as
the interactions with the first customers
become more intense. You’ll also refine
your service to make it more focused on
specific features and needs.

That process of iteration will bring you to

Key resource
What key resources does your value
proposition require?

What resources are important the most in

distribution channels, customer
relationships, revenue stream…?
Through which channels that your
customers want to be reached?

Which channels work best? How much do

they cost? How can they be integrated into
your and your customers’ routines?

if you don’t have a distribution you don’t

have a product.
In the book, Gabriel Weinberg identified 19
channels for growth:

Targeting Blogs
Publicity
Unconventional PR
Search Engine Marketing
Social and Display Ads
Offline Ads
Search Engine Optimization
Content Marketing
Email Marketing
Viral Marketing
Engineering as Marketing
Business Development
Sales
Affiliate Programs
Existing Platforms
Trade Shows
Offline Events
Speaking Engagements
Community Building
.
.
a business model that works, in the long
run, needs to be aligned with users’
interests.

Thus, the way you monetize isn’t only

about the bottom line but also about the
kind of organization you’re building. If the
revenue streams you generate provides
value and is in line with your users’
interests, there is no need for corporate
slogans like “don’t be evil.”

What more? Once you’ve found a revenue

stream the works and is in line with your
business model you can’t stop there. You
need to keep experimenting with new
revenue models.

In short, the business model canvas is the

starting point for your business, rather than
the ending point of your entrepreneurial
journey.
Lean Startup Model
The lean startup canvas is an adaptation
by Ash Maurya of the business model
canvas by Alexander Osterwalder, which
adds a layer that focuses on problems,
solutions, key metrics, unfair advantage
based, and a unique value proposition.
Thus, starting from mastering the problem
rather than the solution.
It’s a methodology called the “lean start-
up,” and it favors experimentation over
elaborate planning, customer feedback
over intuition, and iterative design over
traditional “big design up front”
development.

Today startups take this methodology for

granted. Yet at the time this was an
innovation as Steve Blank recounted:

Although the methodology is just a few

years old, its concepts—such as “minimum
viable product” and “pivoting”—have
quickly taken root in the start-up world, and
business schools have already begun
adapting their curricula to teach them.
Some of the key aspects fo the lean
startup movement is based on using a
“scientific method” and a process of
creating, launching and growing a startup.

This focuses on getting insights as quickly

as possible from customers without
focusing too much on business planning.
As Steve Blank remarked in his 2013
article:

A business plan is essentially a research

exercise written in isolation at a desk
before an entrepreneur has even begun to
build a product. The assumption is that it’s
possible to figure out most of the
unknowns of a business in advance, before
you raise money and actually execute the
idea.

Once the money is raised:

Developers invest thousands of man-hours

Business plans rarely survive first contact
with customers
As remarked by Steve Blank business
plans are long documents written by
entrepreneurs or aspiring ones in isolation
and to get money from investors. Most of
the time those documents won’t survive the
first contact with customers. I argue this
happens for several reasons.

The business plan’s main purpose isn’t to

plan for the business but to impress
investors. Most of the time targeting the
right market is more a matter of tinkering
than planning. And usually, a business plan
is biased by the view of the world and
untested hypotheses by the person drafting
it.
Five-year plans are worthless and a waste
of time
On the HBR article Steve Blank remarks
the waste of time a five-year business plan
represents:

No one besides venture capitalists and the

late Soviet Union requires five-year plans
to forecast complete unknowns. These
plans are generally fiction, and dreaming
them up is almost always a waste of time.
Start-ups are not smaller versions of large
companies
One of the critical differences is that while
existing companies execute a business
model, start-ups look for one

This point is critical because of a large

organization or existing companies
operating with known business models.

The lean startup instead iterates until it

finds a business model that fits that
startup. In fact, Steve Blank defines the
lean startup as:

a temporary organization designed to

search for a repeatable and scalable
business model

It is crucial to emphasize the fact that the

business model needs to be repeatable
and scalable.
The lean start-up movement is about agile
development
Agile development is a methodology that
works hand-in-hand with customer
development.

This methodology “eliminates wasted time

and resources by developing the product
iteratively and incrementally.”
The lean startup canvas vs. business
model canvas
In the Business Model Canvas, nine
building blocks help us assess any
business model.

The business model canvas is a useful

way to assess the overall business model.
However, as Ash Maurya has noticed, that
canvas seemed to be useful in hindsight.

In short, he was looking for a way to get

more insights on what business model
would be best suited for a start-up before it
scaled up.
designers vs. lawyers, I will create a
separate canvas for each. More than likely
a lot of the other pieces like problem,
solution, channels, etc. will be different too.

3. Unique Value Proposition: What is the

product’s tagline or primary reason you are
different and worth buying?

4. Solution: What is the minimum feature

set (MVP) that demonstrates the UVP up
above?

5. Key Activity: Describe the key action

users take that maps to revenue or
retention? For example, if you are a
blogging platform, posting a blog entry
would be a key activity.

6. Channels: List the FREE and PAID

channels you can use to reach your
customer.

7. Cost Structure: List out all your fixed and

variable costs.
As Jason Cohen remarked in “Real Unfair
Advantages:”

Anything that can be copied will be copied,

including features, marketing copy, and
pricing. Anything you read on popular blogs
is also read by everyone else. You don’t
have an “edge” just because you’re
passionate, hard-working, or “lean.”

Thus, as he remarked in the same article,

“the only real competitive advantage is that
which cannot be copied and cannot be
bought.”

I suggest you read the article carefully as

he mentions six things that can give you an
unfair advantage:

Insider information
Single-minded, uncompromising obsession
with One Thing
Personal authority
The Dream Team
(The right) Celebrity endorsement
As Jason Cohen pointed out in “No, that IS
NOT a competitive advantage,” although
common misconceptions the following are
not competitive advantages:

We have feature X
We have the most features
We’re patenting our features
We’re better at SEO and social media
We’re passionate
We have three PhDs / MBAs
We work hard
We’re cheaper
For instance, if I’m studying business
models for Apple, Google, Amazon and so
on, the business model canvas might be a
helpful tool.

However, most of the times those

companies created a business model
based on a lot of tinkering, rather than
design.

Also, the business model canvas might be

better suited to understand how to run the
overall business rather than have more
insights about product development to
reach the so-called “product-market fit.”

If you need a canvas to understand better

your customers’ problems, I would start
from the lean startup canvas.

If instead, you need a canvas to

understand other businesses or to have an
overview of your business the business
model canvas might be more suited.
scientific method based on
experimentation, tested assumptions and
continuous iterations is the key.

From this movement, the lean startup

canvas was born. This is a model that
helps entrepreneurs get actionable insight
for business and product development.

This is based on a profound understanding

of the problems your customers are facing
and the unfair advantage you can build or
have built into your business.

I’d like to remind that the lean startup

canvas is a practical and portable tool for
the entrepreneur.

The main aim is to have a holistic view of

your business on one page, which allows
you to iterate on your business model.

Thus, I’d say that the lean startup canvas

is as much about “market-business model
fit” than it is about “product-market fit.”
 you don’t need to get bogged down on its
definition or to stick with the business
model canvas to assess your business
model. You might want to develop your
way to look at your business as – if you’re
an entrepreneur – there’s none better than
you to do that. In short, use the business
model canvas as one of the many methods
you can use to assess your business.
What really matters is that you’ll be able to
build a valuable business in the
marketplace.
Breaking Down Value
Proposition

https://fourweekmba.com/value-
proposition-canvas/
Business Model Essence
For each company’s business
strategy, a business model essence
will help us navigate through the noisy
business world.
Amazon Business Strategy

Business Model Essence: E-

Commerce/Marketplace Distribution And
Monetization Model Leveraging On
Proprietary Infrastructure To Offer Third-
Party Services

What the shizola does that mean?