Beyond Business Models

Talking about “our business model” is a pleasant diversion. It was the diversion of the era, the fodder for venture capitalist pitches and the endless source of conversation – and speculation – at social gatherings around the globe. Everyone was drawing models on napkins, and no one was executing. It’s the fun part of business, but in reality it’s the most serious of all the matters before us. Creating it and implementing it successfully is real work.

In essence the technology-driven transformation in today’s business environment puts a premium on the model we adopt. Not only are entirely new business models possible; they are also necessary for survival. And they must be so designed that they can morph into something new on the fly when the environment changes. A lesson being learned by far too many organizations, and a little too late, today.

“Business model” is one of those terms that takes on the meaning of its user, and we should begin with a clear understanding of what it is and isn’t. You can’t always be sure that one person’s “business model” isn’t another’s “value proposition,” “business case,” “revenue model,” “strategy,” and so on. Before explaining what I think the term ought to mean, let me point out a few of the ways people use it that have little bearing on converging the management of business and technology:

The Cocktail Napkin One-Liner – The first way that “business model” is used mistakenly is when people associate it with a convenient one-liner about what a company does. The proverbial business idea scribbled on a cocktail napkin, for example, falls squarely into this camp. Although this gross simplification is too shallow to form an effective basis for business/technology convergence, it does, perhaps inadvertently, echo one of the crucial attributes of a proper business model: it represents a big picture of the business.

The Financial Model in Disguise – Ironically, the second way that people misapply the term is almost exactly the opposite of the cocktail napkin mistake: rather than oversimplify to the point of jingoism, they dive in at a level of complexity that precludes a big-picture view. This happens when a business model is equated with a financial model. Before you can build even the most basic financial model, you have to first make some important assumptions (which industry to compete in, who the customers are, etc.) that preclude the unbiased, big picture that is integral to our purposes.  

When I use the term business model, I mean something different from both the cocktail napkin one-liner and the financial model in disguise. In my view, a business model is a big picture that captures a snapshot of the enterprise and communicates direction and goals to all stakeholders.