How To Describe Your Business Model

Clearly describing your business model to others, such as partners, investors, consulters, employees, etc., enables you to share your knowledge and effort simply and completely. This article will show you how to describe your business model clearly and easily.

How should you describe your business model? The best way to describe your business model is by using these two tools: 
1- The Business Model Canvas 
2- The Business Model Metrics 
By combining these two tools, you will create a clear and concise description of your business model.

A clear and sufficient description of your business model is a difficult, yet easy task at the same time. I experienced this problem at the beginning of my business journey, and I learned a lesson in a difficult way. In this article, I’ll show you how you can easily describe your business model. Let’s begin!

Why is the description of your business model important?

If you can’t describe your business model clearly and efficiently, you will have a lot of problems that result in losing effort, time and money. This section shows you the importance of this task.

What is the business model?

Simply, a business model describes how a company works to achieve its goals. It describes how the company creates value (product), how it provides value to the customer, and how the company generates profit.

The business model was a confusing term

In the 1990s, the term ‘business model’ became a common term in business.

Usually, when a company works in teams to improve the business, create new products, or describe their company during a meeting with an investor, etc., they discuss their business model.

In fact, at that time, there was no standard framework for the business model, and there were much confusion and ambiguity surrounding the term. In this case, there was a lack of understanding among all parties.

There is a book written by Dan Roa that called this lack of understanding the BLAH BLAH BLAH phenomenon. This phenomenon happens when people talk, but they don’t understand each other. Not because they’re not smart but because they don’t speak the same language. They spend effort, time and money, but this session will not produce perfect results.

Finally, if you do not have a clear description of your business model, you will lose a lot of effort, time and money on useless discussions.

The appearance of the business model canvas

In 2010, when Alexander Osterwalder published his book “Business Model Generation“, he provided a visual tool, called the business model canvas, which was sorely needed. This tool consists of 9 blocks used to describe the business model. This tool provides a standard framework for a business model that can be clearly used in discussions.


The business model canvas

The business model canvas consists of 9 blocks as shown in the image below. These blocks are used to describe any company business model.

The Business model Canvas

Download the Business Model Canvas template.

The 9 blocks of the business model canvas are:

  • Customer segment
  • Value proposition
  • Channel
  • Customer relationship
  • Revenue stream
  • Key activity
  • Key resource
  • Key partnerships
  • Cost structure

Fill the 9 blocks of the business model canvas with detailed, clear information. This is the first step in the process of describing your business model. Now, let’s take these blocks one by one in a few lines.

1. Customer segments

In the customer segments block, you should describe the most important customers and for whom you are creating value.

The customer segment is the niche of the market you selected to serve, solving their specific problem or satisfying their specific needs.

2. Value proposition

In the value propositions block, you will describe the group of products and services that create value for your Customer Segment.

The value proposition is a group or collection of things. This collection describes what you offer to customer segments. Maybe your product has extra services, like free shipping, a warranty, or customer support after purchase… etc.

The customer may sometimes select your offer, not because of your unique product but because of other services coupled with it.

Also, you need to describe how important the value proposition is to your customers. Is it a priority need or a luxury need that can be easily discarded?

Explain what your offer is and why the customer will choose it.

3. Channels

In this block, you will describe how your company communicates with customer segments. How does the company reach its customers, deliver a value proposition, receive customer feedback …etc.?

The company typically uses multiple channels for different functions. For example, certain channels are used for advertising, whereas another channel is used by customers to communicate with your company, and others are used to deliver the value proposition to customers and so on.

4- Customer Relationships

Most relationships with customers belong to one of these three categories:

  • How to get the customer?
  • How to keep the customer?
  • How to Grow customer?

Therefore, the customer relationships block describes the strategies and tactics used to get, keep, and grow customers.

5- Revenue Streams

In the revenue streams block, you will describe the cash a company generates from the customer segment.

If your company serves more than one customer segment, the revenue must be declared for each customer segment. Also, if your company provides more than one product/service, the revenue generated from each product/service should be described separately.

6- Key Resources

The key resources block describes the most important assets required to make a business model work.

These resources can be physical, financial, intellectual, or human. Also, the resources can be owned or leased by the company, or they may be acquired.

7- Key Activities

Key activities block describes the main activities required to make your business model work. Extra to the most important actions your company must take to operate successfully.

8- Key Partnerships

The key partnerships block describes the network of suppliers and partners that support you in running the rest of your business model blocks.

9- Cost Structure

The cost structure block describes all costs incurred to operate the business model, such as the basic operating costs of the business, the cost to build and make the product, the costs of using different channels, the cost to get, keep, and grow customers …etc.

During your description of your cost structure, make sure not to mix or count these costs twice, as this will affect all your business model.

Additional description is required

When describing a business model, try not to describe each block as being isolated from the rest of your business model. While describing each block, try to describe the impact of the blocks on each other and how they work together to form a business model as a whole.

Visualization tools have a great impact. So try to make your description as visible as possible and support your description with shapes and graphics. ِFor example, you can use the value proposition canvas to illustrate how the value affects the customer segment.

Hidden sides of the business model canvas

The Business Model canvas illustrates the business model quickly and easily, by presenting the most important aspects that affect the success of companies.

However, other considerations of business success are implicit but not explicitly covered by the business model board such as the level and nature of competition and the determination of measurable goals.


Is it enough to use the business model canvas alone?

A business model canvas has been a well-known tool for describing a business model since 2010. But the way people use it makes the difference.

Here are examples of some description mistakes: Describing each block in the business model canvas separately, having no description or incomplete description of how these blocks work together to generate a complete business model.

Therefore, we coupled the business model canvas tool with the business model metrics tool as an additional description tool to supplement any lack in your description.

This additional tool will force you to describe how the business model blocks work together to achieve your company’s goals. Also, this additional tool will help remind you if something is missing in your description.

This method makes describing your business model easily, even if you’re not an expert at this point.


The Busines model metrics as description tool

The business model metrics are used to evaluate the business model. But we also found it useful as a description tool with some modifications. For more detail about the original business model metrics refer to this article: “What Are The Business Model Metrics? How Do You Evaluate Any Business Model

The business model metrics consist of 4 main factors. You need to describe the strategies and tactics your business model uses in these four factors.

In addition to strategies and tactics, you need to give current factor values or expected future values as much as possible.

The following paragraphs show these factors. Some questions have been added under each factor as illustrative examples to identify easily what is required.

1- Profitability

  • Is your business model profitable?
  • How does your business model create profit?
  • What is the balance point of your business model?

2- Competition

  • Who are your main competitors now?
  • What is your competitive advantage?
  • Why does the customer choose your offer and ignore other competitors’ products?
  • How easy or difficult is it for new companies to enter the market?

3- Repatriable

  • Is your business model repeatable? Repeatable means your business model will always produce the same result if you repeat the same steps in different processes, such as production, sale, etc.
  • Can you build a system around your business model?

4- Scalability

  • Is your business model scalable and how?
  • If you would spend an extra $ 1 on your business model, how many dollars would that return as a profit?
  • What is the size of your customer segment?
  • Is your competitive advantage enough to grow?

5- Risk

  • What are the main risks you expect in your business model?
  • Will these risks affect other business model components and other factors such as profitability, replicability, scalability?
  • What are the strategies and tactics that you have prepared to face these risks?

Finally, by pairing these tools, the process of describing your business model will be easy and straight forward, and the outcome of this process will be a clear and sufficient description of your business model.


Conclusion

Having a poor description of your business model can be a fatal mistake. It will reduce your ability to improve and grow your business. Therefore, a clear and sufficient description is necessary. This is not an option.

Describing your business model is difficult, yet easy at the same time. It’s easy for those who have the right tools to begin the process.

The business model canvas has been a well-known tool for describing a business model since 2010. But it is not a sufficient tool to describe a business model on its own, especially for the non-expert.

Examples of description mistakes include: Describing each block in the business model canvas separately, having no description or incomplete description of how these blocks work together to generate a complete business model.

This article coupled the business model canvas tool with an additional tool to make it easy for a non-expert to get a clear and concise description of their business model.

The business model canvas description blocks

  • Customer segment
  • Value proposition
  • Channel
  • Customer relationship
  • Revenue stream
  • Key activity
  • Key resource
  • Key partnerships
  • Cost structure

The Business model metrics 5 factors

  • Profitability
  • Competitions
  • Repatriable
  • Scalability
  • Risk

These two tools will force you to describe the way your business model blocks work together to achieve your company’s goals. Also, these tools will help you remember if something is missing in your description.

By using the above mothed, the process of describing the business model will be easy and straightforward, and the outcome of this process will be a clear and sufficient description of your business model, even if you’re a non-expert at this point.

For more details on this subject and related topics, we suggest attending the Free Training course How to Build a Startup.


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