What Exactly Is A Business Model?

First things first: What exactly is a business model?

When you look at academic publications, thought leadership, and popular research - which I did - you quickly realize that there is no universally accepted definition. It's just a complete mess. That's probably the main reason why most discussions are filled with business jargon and subjectivity.

Among the thousands of definitions of what a business model is and what it contains we can find:

• A company's core strategy for profitably doing business.
• An outline of how a company plans to make money with its product and customer base in a specific market.
• A framework or recipe for making money (by creating and capturing value).
• A combination of resources which through transactions generate value for the company and its customers.

In practical terms, a business model is a picture of how a firm does business.

This is a simple and clear definition, but not so useful when we want to better understand where and how to start making changes to our consulting firm.

What does it mean to change or innovate our business model? We need more clarity on what are the different components of an organization. What the levers we have at our disposal to “do business” are.

And to do that, a much more useful definition is that of Osterwalder, Pigneur & Tucci:

“A Business Model describes the rationale for how an organization creates, delivers, and captures value.”

This gives us a good starting point to look at business model innovation. Value creation, value delivery, and value capture are universal functions of every business. If we understand the smaller parts that each of those functions consists of, we can start to look for patterns and possibilities of experimentation.

Tomorrow, we will look at that next question: What are the essential components of a consulting business?