When one of the drafted business models encounters the favor of the market that is when a business strategy becomes successful!
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A background story of how I got to business modeling and business strategy
For years I’ve been studying businesses with different emphasis and perspectives.
When I was around seventeen, I got interested in the stock market, so I wanted to understand how companies worked.
Thus, I did what seemed most logical to me. I looked at their stock prices and how they moved over time.
Analysts would call this technical analysis. While the technical analysis does have some usefulness for investing, you might use it without knowing much about the business and look at the price patterns that form over time.
In the years that followed I learned how to look at other aspects of a business, from its organizational structure to its products and how the company invested its money.
Later on, during my MBA I started to have a more strategic understanding of businesses by looking at the way they structured their operations, developed their product or service, and what kind of monetization they used.
However, when I later worked as a financial analyst, my focus went primarily on the company’s balance sheets. I followed the money, how it moved from one account to the other and what logic is followed. I realized I could “extract” a company’s strategy by looking at its financials.
There was still a piece missing though.
While numbers are great to have an understanding of how the company moved and what motivated it in the short-term it was hard to have a long-term vision.
Thus, I looked for other frameworks I could use, and I could integrate them to have a complete theory of firms. That is where business modeling came in handy.
I could look at a few key elements to have a current picture of a business. Business model theories and frameworks are primarily rooted in the digital transformation era.
When companies realized the importance of the web not just as a new channel, but as a business world for its own sake.
I studied several tools, and theories, from the academic to the tools put together by practitioners. Integrating financial analysis with business modeling gave me a better framework to formulate and gain a better understanding of any company. That is how I moved from financial analysis to business strategy.
Today, I built a new discipline, which I like to call Business Engineering, but it has little to do with the way it’s usually conceived.
Business Engineering, combines business modeling, design thinking, and scaling but it brings them to a new level, to be able to map the business context in which you are operating.
Business strategy vs. business modeling
Put shortly; a business model allows you to capture the present picture of an organization. Or it helps you design how you want a company to look in the future.
Thus, to find an analogy a business model is more like a picture or a painting.
A picture in the case of a company that has an existing business model which turned out successfully in the marketplace.
And more like a painting in the case of a company for which you’re designing a whole new business model.
You know where you want to be, you have a mission and a vision, and you crafted a unique value proposition, and a deliberate plan to get where you want to be.
For that matter, a business model is a great tool to apply a business strategy. In this case, the business strategy sets up the value proposition, which is the foundation of any business model.
The Value Proposition Canvas, part of the Business Model Canvas, is a tool used to ensure a product or service is positioned around customer values and needs.
A value proposition can change over time as it needs to adapt to the market and meet the real value for your potential customers.
Thus, where a business model is the painting, the business strategy is the hand that draws that painting.
As an HBR working paper entitled “From Strategy to Business Models and to Tactics” pointed out:
Put succinctly, business model refers to the logic of the firm, the way it operates and how it creates value for its stakeholders. Strategy refers to the choice of business model through which the firm will compete in the marketplace. Tactics refers to the residual choices open to a firm by virtue of the business model that it employs.
Business strategy to reduce noise and set a clear direction
Understanding a company’s framework and how it “behaved” in the marketplace has become critical. I want to remark that companies are not people.
Companies are made of many moving parts. And even though I’m referring to companies as “behaving” in a certain way, I’m not conveying this is a scientific methodology.
I see business strategy more as an art than a science. And it’s not even a technological issue.
Progress in machine learning or artificial intelligence probably won’t do any good to business strategy. Indeed, while machine learning is pretty good in detecting patterns in the real, physical world.
When it comes to the more fluid business world, things get messy.
So messy indeed, that the level of noise might be higher than the actual signal. In that respect what we call instinct or gut feelings might be more suited than a machine learning tool for understanding the future.
That is why I seek straightforward thinking tools to analyze the business world.
It’s important not to get bogged down in too complex analyses, but be very wary of the kind of data or metrics we use to track our business success.
For that matter a useful business strategy thinking tool has to have three main features, I believe:
No frills: for instance, instead of adding complexity it reduced it. Thus, instead of having to have complicated infrastructure anything that you can hold on top of your mind is a great business thinking tool
Profound yet straightforward: in many cases, one page is all we need to make significant decisions
Short but exhaustive: the result of a useful business thinking tool has to come up with a concise insight that can be fitted in maximum of two lines of text summarizing the current scenario
Summary and conclusions
Where a business model is a possible way to get to a desired strategic long-term outcome. A business strategy is what sets things in motion and what keeps a long-term focus.
A good business strategy – in my opinion – has to be straightforward, it has to reduce the noise, and even though a bit simplified it needs to be exhaustive and profound!
Business Engineering is a way to look at the business world, to understand how the context changes and how business playbooks need to adapt to newly formed business contexts.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
