There isn’t a single way to define a business model, and any tool that helps identify it from a different perspective – I argue – is useful for an entrepreneur building a different kind of business.
In this article, I’ll focus on the Blitzscaling business model canvas. This is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.
Among the three key ingredients to Blitzscaling, there is business model innovation (actually the most critical element).
According to this framework, business model innovation can be achieved based on a few vital components made of four growth factors and two growth limiters.
A glance at the four key growth factors
The four growth factors are:
- market size
- high gross margins
- network effects
How large is the market you’re targeting when Blitzscaling? Is it really reachable?
A big market is a critical ingredient for a Blitzscaling business model. This market has to be large enough and reachable. A large market has to be taken into account based on the context. Indeed, launching and scaling a startup in Silicon Valley is not the same as doing it in Italy or Spain.
In general, as pointed out in the book (Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies) venture capitalists are usually looking for investments that are returning many times over and can achieve a venture scale. This often implies to target a market which often is as large as a billion dollar in annual sales.
Are there existing networks you can leverage on? What viral loops can you create to spread your product/service quickly and at scale?
Often, when you are the incumbent in a new space those who already have an established brand and network, are probably your best option to start.
This concept known in growth hacking as other people’s network is the perfect place to start. One classic example is how Airbnb leveraged on Craiglist to gain initial traction.
Another critical ingredient is about virality and how you can instill it in your product. Usually, virality is achieved via a freemium pattern where a product or part of it are given for free to allow a cheaper and quicker distribution.
High gross margins
When you grow your revenues, do you generate larger amounts of cash available to finance growth?
A gross margin or gross profit is merely the revenues left after subtracting the cost of sales (or the costs you have to sustain to generate the sale).
This metric is fundamental when looking at tech companies as it determines their cost structure and whether they can be financially viable in the long run.
A high gross margin implies that the company will have enough resources to invest even further in the scale of the business. If you look at the Google cost structure and Google business model, you realize how it is engineered to have high gross margins.
Facebook is even a better example with higher gross margins than Google; given the Facebook low cost of traffic acquisition, this social network is a money-making machine. That money is used to keep growing at a fast pace.
Is each additional user joining in bringing a positive effect to the whole platform?
A critical element of an innovative business model built on technological products and services is based on the network effect. This principle is simple yet powerful.
For each user that joins and uses a product or service, the value of the same product or service will improve for the other users on the platform.
The two growth limiters are:
- lack of product/market fit
- operational scalability
Lack of product/market fit
Is the market satisfied with your product/service? If not what is that it’s missing?
Product/market fit is a well-known concept by anyone who has a minimum of experience in the startup world, and yet that is often misunderstood.
For instance, in general, the product/market fit aims at coming up with a minimum viable product (MVP) that solves a need for a group of people. That MVP will allow an organization to gather more and more feedback about the product and improve it over time.
Another school of thought wants the product/market fit more focus on achieving an EVP (exceptional viable product). In short, according to this way of thinking of product/market fit, you have achieved that once you have an exceptional product that leaves your audience extremely happy.
While this is a great alternative to traditional MVP, probably not the best suited for the Blitzscaling business model canvas, in the Blitzscaling business model canvas, a “good enough” product might do the job. Indeed, that product, together with distribution will allow to scale up.
Are your operations sustainable at meeting the demand for your product/service? Are you revenues growing faster than your expenses?
When you keep growing at a fast pace, often profitability becomes hard to manage. Indeed, focusing too much attention on growth and revenue, but not having enough margins to cover up for infrastructural cost and human resources might be a big problem and cause of failure for the business.
That is why a business model that doesn’t make sense from the operational standpoint is doomed to collapse overtime!
In short, this is a one-page framework I put together, inspired by the book Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies which gives an alternative way to define a business model.
More precisely that is – in my own words – a process of massive growth under uncertainty and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.
This business model can be engineered and designed or figured out along the way.
Ideally designing it would be best as it allows to integrate within it four key growth factors (market size, distribution, high gross margins, and network effects) and avoid the two key growth limiters (lack of product/market fit and lack of operational scalability).
Tools and resources for your business:
- What Is a Business Model? 30 Successful Types of Business Models You Need to Know
- What Is a Business Model Canvas? Business Model Canvas Explained
- Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
- What Is Business Development? The Complete Guide To Business Development
Learn how tech companies business models work and the lessons you can learn to scale up your own company:
- How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained
- How Amazon Makes Money: Amazon Business Model in a Nutshell
- The Trillion Dollar Company: Apple Business Model In A Nutshell
- How Does Netflix Make Money? Netflix Business Model Explained
- How Does Google Make Money? It’s Not Just Advertising!