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?

Table of Contents

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:

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:

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
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:

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)

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:

Handpicked business models:

Key Highlights of Components of a Business Model:

Compelling Value Proposition: This is how you want your audience to perceive your brand. It’s the unique value or benefit your product or service offers to your customers.
Unique Brand Positioning: This involves identifying what sets your brand apart from competitors. It’s about defining the aspects that make customers want more from your brand.
10x Goal Setting: This principle suggests aiming to offer a product or service that is significantly better (10 times better) than existing solutions. This drives innovation and differentiation.
Customer Segments: Identifying who your paying customers are, which segments of the population are interested in and willing to pay for your product or service.
Distribution Channels: Determining how you will deliver your product or service to your customers. This could include online platforms, retail stores, partnerships, etc.
Profit Formula: Ensuring the financial sustainability of your business. This involves analyzing costs, revenue streams, and ensuring that your business model is economically viable.

Business Model Tools and Frameworks Highlights:

Business Model Canvas: This tool breaks down a business model into nine key components, including customer segments, value proposition, distribution channels, cost structure, and revenue streams.
Lean Startup Canvas: Adapted from the Business Model Canvas, this framework focuses on problem-solution fit, key metrics, and unfair advantage, among other elements.
Blitzscaling Canvas: Geared towards rapid growth, this framework emphasizes key growth factors like market size, distribution, and network effects, along with growth limiters such as lack of product/market fit.
Sales Navigator Framework: Simplifies the business model into three elements: value proposition, value chain, and revenue model. It emphasizes creating value and understanding profitability.
Four Box Business Model Framework: This framework highlights customer value proposition, key resources and processes, and the profit formula as key components that interact to drive business model innovation.
FourWeekMBA Framework: This framework focuses on simplicity, noise reduction, branding, and profitability. It divides the business model into the people dimension (value proposition, brand positioning, 10x goal) and the financial dimension (customer segments, distribution channels, profit formula).

People Dimension and Financial Dimension Highlights:

People Dimension: This aspect focuses on building a compelling value proposition that resonates with customers, creating a unique brand positioning to attract a loyal following, and setting ambitious 10x goals to drive innovation.
Financial Dimension: In this dimension, identifying customer segments willing to pay for your product or service becomes crucial. Additionally, determining effective distribution channels and ensuring a sustainable profit formula are vital for business success.

Key Takeaway:

An effective business model incorporates both the people dimension (value proposition, brand, goals) and the financial dimension (customer segments, distribution, profitability). Balancing these dimensions helps create a strong brand, innovative product or service, and a viable economic structure for long-term success.

Related Frameworks, Models, or Concepts	Description	When to Apply
Business Model Canvas	The Business Model Canvas is a strategic management tool that provides a visual framework for describing, analyzing, and designing business models. It consists of nine building blocks that represent key elements of a business model, including customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure. The Business Model Canvas enables entrepreneurs and managers to map out and assess the components of their business model, identify opportunities for innovation and improvement, and communicate their business strategy and value proposition effectively.	Apply the Business Model Canvas to conceptualize, analyze, and refine business models. Use it to map out the key components of a business model, explore relationships and dependencies between different elements, identify strengths, weaknesses, and gaps in the business model, and iterate on business model design to align with market needs and opportunities. Implement the Business Model Canvas as a tool for strategic planning, business development, and innovation to drive sustainable growth and competitive advantage in dynamic and evolving markets.
Value Proposition Canvas	The Value Proposition Canvas is a tool for designing and analyzing value propositions that address the needs, pains, and gains of target customer segments. It complements the Business Model Canvas by focusing specifically on the value creation and delivery aspects of a business model. The Value Proposition Canvas consists of two main sections: the customer profile, which describes the characteristics, needs, and aspirations of target customers, and the value map, which outlines the products, services, and benefits that address customer needs and provide solutions to their problems. The Value Proposition Canvas helps businesses understand customer preferences and tailor value propositions to meet customer needs effectively.	Apply the Value Proposition Canvas to develop and refine value propositions that resonate with target customer segments. Use it to gain insights into customer needs, pains, and gains, identify opportunities to create unique value and differentiation, and design products, services, and solutions that address customer priorities and preferences. Implement the Value Proposition Canvas as a tool for customer-centric innovation, product development, and marketing to enhance customer satisfaction, loyalty, and engagement and drive revenue growth and profitability.
Lean Startup Methodology	The Lean Startup Methodology is an approach to building and launching new ventures that emphasizes rapid experimentation, iterative product development, and validated learning. Developed by Eric Ries, the Lean Startup Methodology advocates for a hypothesis-driven approach to entrepreneurship, where entrepreneurs test assumptions and hypotheses about their business model through small-scale experiments and feedback loops with customers. The Lean Startup Methodology aims to reduce the time and cost of bringing new products to market, minimize risk and uncertainty, and increase the likelihood of success by focusing on creating value for customers and responding to market feedback iteratively.	Apply the Lean Startup Methodology to validate business ideas and test assumptions quickly and cost-effectively. Use it to develop minimum viable products (MVPs) and prototypes to gather feedback from early adopters, conduct lean experiments to validate product-market fit and key business hypotheses, and pivot or persevere based on validated learning and customer insights. Implement the Lean Startup Methodology as a framework for entrepreneurial innovation, agility, and resilience to navigate uncertainty and complexity in startup and corporate environments and increase the chances of building successful and sustainable businesses.
Platform Business Model	The Platform Business Model is a business model that facilitates the exchange of value between two or more distinct groups of users, typically producers and consumers, through a digital or physical platform. Platform businesses create and curate ecosystems where participants can interact, transact, and create value for each other. Platforms generate revenue through various monetization strategies, such as transaction fees, subscription fees, advertising, or licensing. Platform business models enable scalable and network effects-driven growth, where the value of the platform increases as more users join and participate in the ecosystem.	Apply the Platform Business Model to build and scale businesses that facilitate value exchange and interactions between multiple user groups. Use it to create digital or physical platforms that connect producers and consumers, providers and users, or creators and audiences, and enable them to transact, collaborate, or interact with each other. Implement the Platform Business Model as a framework for building multi-sided marketplaces, social networks, content platforms, and other digital platforms that leverage network effects and economies of scale to drive growth, engagement, and monetization opportunities.
Disruptive Innovation	Disruptive Innovation is a concept introduced by Clayton Christensen that describes the process by which new technologies or business models disrupt existing markets and create new value networks, often displacing established incumbents. Disruptive innovations typically start in niche markets or lower-end segments where they offer simpler, cheaper, or more accessible solutions to underserved customer needs. Over time, disruptive innovations may evolve and improve, eventually challenging incumbents and reshaping entire industries.	Apply Disruptive Innovation principles to identify emerging trends and opportunities for disruptive change in markets and industries. Use it to anticipate and respond to disruptive threats and opportunities, explore new business models and technologies that have the potential to disrupt existing markets or create new value networks, and adapt organizational strategies and capabilities to embrace disruptive change and drive innovation and growth in dynamic and uncertain environments. Implement Disruptive Innovation strategies to stay ahead of competitors, capitalize on new market opportunities, and create sustainable competitive advantages in rapidly evolving industries.
Blue Ocean Strategy	Blue Ocean Strategy is a strategic framework that encourages companies to create uncontested market space and make competition irrelevant by innovating and creating new market categories or value propositions. Blue ocean strategy focuses on finding new opportunities for growth and differentiation by offering unique value to customers, rather than competing in crowded and competitive market spaces. Blue ocean strategy advocates for creating “blue oceans” of uncontested market space where companies can capture new demand, generate higher margins, and create sustainable competitive advantages.	Apply Blue Ocean Strategy to identify new market opportunities and drive innovation and growth. Use it to explore untapped customer needs and pain points, develop unique value propositions and business models that differentiate from competitors, and create new market categories or product niches that offer significant value to customers. Implement Blue Ocean Strategy principles to shift focus from competition to value creation, drive industry innovation, and achieve market leadership and profitability in uncontested market spaces.
Open Innovation	Open Innovation is a collaborative approach to innovation that involves leveraging external ideas, technologies, and partnerships to complement and enhance internal capabilities. Open innovation encourages companies to collaborate with customers, suppliers, partners, and external stakeholders to co-create value and drive innovation across the value chain. Open innovation enables companies to tap into a broader ecosystem of expertise and resources, accelerate product development cycles, and bring innovative solutions to market more efficiently.	Apply Open Innovation principles to leverage external expertise and resources in product development and innovation processes. Use it to engage with customers, partners, and stakeholders to co-create value, source innovative ideas and technologies from external sources, and collaborate on joint R&D projects and initiatives. Implement Open Innovation strategies to foster collaboration, creativity, and knowledge sharing across organizational boundaries, and accelerate innovation and time-to-market for new products and services.
Porter’s Five Forces	Porter’s Five Forces is a framework developed by Michael Porter that analyzes the competitive forces within an industry and their impact on industry profitability and attractiveness. The five forces include the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products or services, and the intensity of competitive rivalry. Porter’s Five Forces framework helps companies assess the competitive dynamics and attractiveness of an industry and develop strategies to position themselves effectively within the market.	Apply Porter’s Five Forces analysis to evaluate the competitive dynamics and attractiveness of an industry. Use it to assess the threats and opportunities posed by competitive forces, identify sources of competitive advantage and differentiation, and develop strategies to mitigate competitive threats and capitalize on market opportunities. Implement Porter’s Five Forces analysis as a tool for industry analysis, strategic planning, and decision-making to inform market entry strategies, competitive positioning, and resource allocation decisions in dynamic and competitive markets.
SWOT Analysis	SWOT Analysis is a strategic planning tool that helps companies identify their strengths, weaknesses, opportunities, and threats. SWOT analysis involves assessing internal factors, such as organizational capabilities and resources (strengths and weaknesses), and external factors, such as market trends and competitive dynamics (opportunities and threats). SWOT analysis enables companies to gain insights into their strategic position and environment, identify strategic priorities and challenges, and develop strategies to leverage strengths, mitigate weaknesses, capitalize on opportunities, and address threats.	Apply SWOT Analysis to assess internal capabilities and external market conditions. Use it to identify key strengths and weaknesses of the organization, opportunities for growth and expansion, and threats to business sustainability and competitiveness. Implement SWOT Analysis as a framework for strategic planning, business development, and decision-making to align organizational strategies and resources with market opportunities and challenges and drive sustainable growth and performance in dynamic and uncertain environments.