What Are The Key Components Of Any Business Model?

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What Are The Key Components Of Any Business Model?

The key components of any business model are:

A compelling value proposition: How do you want your people to think about your brand?
A unique brand positioning: What do you offer to your people that make them want more?
A 10x goal setting: Can you offer a 10X better product or service? (compared to existing solutions)
Customer segments: Who is your customer? (to notice here we’re not talking anymore about people but customers, those willing to pay for your product or service)
Distribution channels: How do you get your product or service to your customer?
Profit formula: Is the business financially sustainable?

A glance at the business model tools available

With FourWeekMBA I’ve been researching into over a hundred business models at the time of this writing. From tech to luxury, from innovative to more traditional.

I’ve been in search of a framework, recipe or something that could help me dissect any company. As I came from a financial background the most logical thing for me was to look at these companies by analyzing their numbers.

However, I soon realized that approach was too reductive. So I started to look at other frameworks that could be used to find the simplest parts of a business model and its key components.

In this article, I’ll show you a few approaches and how they come down to similar vital components.

A recap of key components according to several business model tools and frameworks

A business model is a representation of a company in the real world (this is a definition that works for practitioners, not necessarily for academics).

Business modeling for entrepreneurs might be a useful tool to gain insights about competitors, better understand your organization or design toolbox to grow your business.

From that standpoint, over the years a few tools came handy. Some of them have been discussed at great length on this blog:

business model canvas
lean startup canvas
blitzscaling canvas
sales navigator framework
and many others

Each of those frameworks assumes a business model has several key components. For instance, the business model canvas tells you that a business model has nine key components:

Key partners
Key activities
Value proposition
Customer relationship
Customer segment
Key resource
Distribution channel
Cost structure
Revenue stream

While a lean startup canvas tells you there are still nine key elements, but it substitutes key partners, key activities, key resources, and customer relationships, with a problem, solution, key metrics, and unfair advantage. Therefore, the lean startup canvas will look like that:

problem
solution
key metrics
value proposition
unfair advantage
channels
customer segments
cost structure
revenue streams

The lean startup canvas as an adaptation from the business model canvas might be better suited for startup organizations, which need to scale quickly while gathering feedback from customers.

The blitzscaling business model innovation canvas instead, looks at a business model as primarily skewed toward massive growth.

In that instance, what identifies a business model is its ability to leverage on growth, or to limit its growth.

Thus it is comprised of four growth levers and two growth limiters:

Key growth factors

Market size
Distribution
High gross margins
Network effects

Key Growth limiters

Lack of product/market fit
Operational scalability

Another framework from BMI Lab put together in the sales navigator assumes that a business model key components are three:

value proposition
value chain
revenue model

Those elements come together when a business owner answers to a few key questions, such as, “what do you offer to the customer?” or “how is the value proposition created?” or yet “why is it profitable?”

Another tool called four box business model framework by Innosight breaks down the business model in four key components:

customer value proposition
key resources and processes
and the profit formula

Each of those elements feeds into each other to create a feedback loop of business model innovation. Those tools are quite useful, and it tackles how you can assess your business at each stage.

The FourWeekMBA business model framework

After looking at the key components of a business model based on a few toolboxes; based on the analyses performed over the years, for the business model boils down to three key elements, those are tied up by another ingredient.

This framework by FourWeekMBA has three aims:

simplicity
noise reduction
branding
and profitability

In short, I believe that a great business model toolbox has to have a super simple set up. It has to be based on very few elements. And it needs to focus on its long term financial sustainability.

However, what the toolboxes I’ve been looking at mostly miss is the branding of each business model success.

In short, for me there are two dimensions of a business:

The people dimension
The financial dimension

These two dimensions walk hand in hand. Yet the people side is what also makes the business thick from the economic standpoint.

The people side comprises the following elements:

This people dimension will help you build a solid brand. A solid brand builds up a tribe, a group of people that can follow you anywhere. Once you have a solid brand, you can focus on the second dimension: the financial dimension.

The three elements of the financial dimensions are:

Customer segments: Who is your customer? (to notice here we’re not talking anymore about people but customers, those willing to pay for your product or service)
Distribution channels: How do you get your product or service to your customer?
Profit formula: Is the business financially sustainable?

Key takeaway

To recap an effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand.

The financial dimension will help you build proper distribution channels by identifying the people that are willing to pay for your product or service.

Other resources for your business: