There’s no really good definition of what we mean by “business model”, though it’s certainly a way of organizing inputs to extract value.
However, we recognize one when we see it in practice. Many components of businesses – fast turn-round, low cost, built-to-order, dynamic price, ‘printer and ink’, publisher, leasing, franchise, producer, broker, distributor, customized-service, subscription-fee, web-based, out-sourced, are witness to the utility of a business model.
But, how to build or adopt a business model and fine-tune it? One way is to observe what works elsewhere – in another area of the world – and to work out how it can be imported and made to work locally.
The business model could also be a new and surprising blend of elements that work in another industry; say furniture that you hire, or cars that you build yourself, parking spaces that continually change price according to supply and demand, or meals that are built to order.
Thinking about business models can be a real boost to business creativity.
Many business breakthroughs come from the application of new technologies or scientific discoveries. But, these also deliver a lot of failures due to a misinterpretation of the way the technology can change our basic assumptions.
It was thought that the telephone would be used for listening to opera and that computers would only be used by scientists and the military. The critical factor is often a change in the cost model that enables higher volume and greater accessibility; just as the increased power of microchips constantly release the potential of new electronics functionality.
To recognize a problem or a frustration is perhaps the most successful way to initiate a new business model. We often live for years with imperfections that then turn out to be redundant when finally an improvement is proposed, like music to buy on-line and salads prepared in pre-selected packs.
However good the idea the capital funding never just drops from the skies, generously offered by a beneficent archangel. Even business angels seek proof and reassurance that the big idea will actually work.
Ideas that succeed are often the ones that can be tested quickly in a real-life context. The test should search for flaws. To prove that the concept will really work the customer must make an investment of time or of money. The issue here is opportunity cost. Any idea can seem wonderful until something of value has to be forfeited.