The business model template (right) identifies the three choices management must make to define a business (Abell, D. "Defining the Business. Prentice Hall, 1980) and, in the process, build a business model.
The "triangle elements" in the diagram above are universally applicable. All businesses, by definition, consists of these elements.
These three elements can therefore be used to:
Describe an existing business; OR
Develop an entirely new business.
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The three "triangle elements" are equally important.
But they're not.
The nature of business makes the three equals unequal.
The customer is the first and most important choice. The customer is the sine qua non of business, the ingredient without which there is no business.
The second most important item is the value proposition. You must persuade a customer to buy from you. The only means of doing so is by offer the customer a compelling value proposition. If the customer doesn't find your offer attractive, he will go elsewhere. When he leaves, he takes along the revenues and profits you would have earned.
Resources and capabilities (R&C) create, deliver, and refine the value proposition. They are thus the means by which you fulfill the promises (both stated and implied) you made to the customer.
To build a new business-model, or to analyze an existing business, start at the top of the graphic and proceed in a clockwise manner. Identify the customer first, then determine the value proposition to be offered.
Then determine what resources will be needed to create and deliver the value proposition.
It's popular today to begin building a business model by first starting with resources and capabilities. Last century's dot-com boom should serve as a warning against this logic.
Countless firms started with everything from huge sums of money to sophisticated capabilities. Their plans crashed against the shoals of the other two model-building elements.
The numbers included in the graphic at the top of the page emphasize this point.
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