What Is A Business Model Essence And Why It Matters

A Business Model Essence according to FourWeekMBA is a way to find the critical characteristics of any business to have a clear understanding of that business in a few sentences. That can be used to analyze existing businesses. Or to draft your Business Model and keep a strategic and execution focus on the key elements to be implemented in the short-medium term.

What is and why a Business Model Essence is important

Not all businesses are born equal. We can categorize them based on several characteristics and based on the level of granularity we can find more or fewer differences.

A solo business isn’t as complex as a ten-person business, which in turn isn’t as complex as a hundred person business. And the matter is complexity isn’t a simple game.

It works on exponential grounds. A group of ten people isn’t the same creature compared to a group of a hundred people. In short, in business, we have a problem with scaling, due to the dynamics of complex systems.

Therefore, the system that I’m using here tries to reduce complexity by trying to find the essence of any business, which by per se is a herculean task.

That essence might be useful for several reasons. For instance, as FourWeekMBA is followed by business students, professors, executives and entrepreneurs, each of those people will use a business model essence with a different aim in mind.

At the core, a business model essence wants to be a snapshot, yet it is essential not to take it too seriously otherwise the risk is to make it become a cartoon.

A student or a professor of business will use it to summarize what she thinks a business is made of. An entrepreneur might use it to focus on how to grow its own business or how to compete with existing organizations in a specific industry.

Business models and their essence are made of assumptions. Assumptions need to be tested in the real world. And this is the whole point of business strategy.

A triad to find the business model essence of any company

Having specified the limitations of this approach, we can now turn to it and see what elements allow us to extract a business model essence. In particular, I argue that there are three key elements any business will need to master to generate a successful business model:

  • Core product or service: the whole process of finding product/market fit is about “being in a good market with a product that can satisfy that market,” (quote by Marc Andreessen). You can have the best distribution strategy or sales team in the world, but without a product or service that the market need (unless you have unlimited investors’ money) your company will go bankrupt
  • Core distribution strategy: while the product and the service matters. Once you do have a good product or service, the remaining success of the organization’s growth is a distribution strategy that allows an organization to grow over time
  • Core monetization strategy: what’s the part of the business that makes more money at higher margins? And who’s the customer (not the user) of a service/product? Thinking about the core monetization strategy emphasizes the customer rather than the user

I use the term “core” as many companies (especially large ones) have a business model that is made of many products or services, delivered through several distribution channels, and where each of those might have a separate monetization strategy.

For the matter of finding the essence, we’ll look at the core product/service, distribution channel, and monetization strategy as this is a good starting point to have a snapshot of a company.

Once we have figured the essence of that company, we can understand what’s next and how the resources that are getting unlocked by their main products, distribution channels, and monetizations strategies are getting used to creating new ones!

In the infographic that accompanies this article you can see three key examples and how we can extract their essence.

Resources for your business

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