Oh dear. My friend Jeff Cornwall gave me a very nice shout out this morning on the topic of business modeling. It's something that he and I have kicked around a few times over the last year or so and that both of us have integrated into entrepreneurship classes we're teaching this semester. It's also a topic I've posted on a few times in the last year but I've promised more and not delivered. Jeff has shamed me into coming back to the subject.
It's a subject that I've been interested in for years but felt stymied in terms of trying to apply due to a lack of useful tools and published material on the topic. But last year there were two significant contributions on the topic published: Business Model Generation by Osterwalder and Pigneur and Getting to Plan B by John Mullins and Randy Komisar.
These two books complement each other. Both treat a business model as a living, breathing thing that must be thoughtfully designed, continuously monitored and regularly evolved. Both have a design-oriented approach to business modeling. Where they differ is in offering totally different and yet complementary views of what constitutes a business model.
Osterwalder and Pigneur present a visual, qualitative tool called the business model canvas that has nine boxes that contain the major components of a business model - items such as value proposition, customers, channels, key resources, revenue model, cost model, etc. Mullins and Komisar define a business model as consisting entirely of five quantitative models: revenue model, working capital model, gross margin model, operating model, and investment model. I think both definitions, by themselves, are lacking in very important ways. Combined, they seem to provide most or all of the tools that an entrepreneurial team needs to design, implement, and refine the business model of a new venture. That's a preliminary judgement and I'm sure experience will lead to improvements and tweaks but taken together these two books give us tools that represent a huge step forward for those of us who want to launch new ventures, improve our existing ventures, or teach folks how to improve their chances of success as entrepreneurs.