What is A Business Model Wheel? Business Model Wheel In A Nutshell

A business model wheel provides a structured approach to defining a business model. Each model wheel is broken down into three core components: offering, monetization and sustainability. Each component in turn contributes to a total of eight areas that make up an ideal business model.

Component	Description
Definition	The Business Model Wheel is a strategic framework used to analyze and design business models. It consists of nine building blocks that help organizations visualize and understand how they create, deliver, and capture value in the market.
Purpose	The primary purpose of the Business Model Wheel is to: – Provide a structured framework for exploring and innovating business models. – Identify key components that impact an organization’s value proposition, operations, and profitability. – Facilitate strategic decision-making and planning.
Key Elements	The Business Model Wheel comprises nine key building blocks: – Customer Segments: Identifying target customer groups. – Value Proposition: Defining products or services that solve customer problems. – Channels: Describing how products or services reach customers. – Customer Relationships: Defining interactions and engagement with customers. – Revenue Streams: Identifying sources of income. – Key Resources: Listing critical assets, skills, and technologies. – Key Activities: Describing essential tasks and processes. – Key Partnerships: Identifying external collaborators and resources. – Cost Structure: Outlining the expenses associated with the business model.
Benefits	The Business Model Wheel offers several benefits: – Clarity: Helps organizations gain a clear understanding of their business model components. – Innovation: Encourages creative thinking and exploration of new business opportunities. – Alignment: Ensures alignment between customer needs and the value provided. – Adaptability: Facilitates adaptability to changing market conditions and customer preferences. – Efficiency: Optimizes resource allocation and cost management.
Challenges	Challenges associated with the Business Model Wheel may include: – Complexity: Analyzing and designing all nine building blocks can be complex. – Market Validation: Validating assumptions and hypotheses with real customers. – Implementation: Effectively implementing the chosen business model. – Competition: Staying competitive in a dynamic market.
Use Cases	The Business Model Wheel is applicable in various scenarios, including: – Startups: Developing and fine-tuning business models for new ventures. – Existing Businesses: Reevaluating and innovating established business models. – Market Entry: Planning strategies for entering new markets. – Product Launch: Aligning the value proposition with customer needs. – Digital Transformation: Adapting to digital disruptions and opportunities.
Example	An e-commerce startup may use the Business Model Wheel to define its customer segments (e.g., tech-savvy consumers), value proposition (e.g., unique product selection), channels (e.g., online marketplace), customer relationships (e.g., personalized recommendations), revenue streams (e.g., product sales), key resources (e.g., online platform), key activities (e.g., marketing), key partnerships (e.g., suppliers), and cost structure (e.g., warehousing and logistics).
Best Practices	– Engage cross-functional teams to collectively assess and design business models. – Regularly review and update the business model to adapt to changing market dynamics. – Validate assumptions through customer feedback and market research. – Ensure alignment between the value proposition and customer needs. – Continuously monitor key performance indicators related to revenue, costs, and customer satisfaction.

Understanding a business model wheel

Business models can be created in myriad ways, from the stereotypical back-of-a-napkin approach to a much more structured and formal methodology.

The business model wheel lies somewhere in the middle of these two approaches.

At this point, it is important to make the distinction between a business model and a business plan.

A business model explains the mechanisms for profit generation and explains how the business organizes supplier, client, or partner relationships to generate profits.

Conversely, a business plan translates the important business relationships into an actionable strategy and quantifies their financial impact through projected milestones.

The business model wheel is represented as a segmented circle. In the next section, we will take a closer look at its structure.

The core components of a business model wheel

Each model wheel is broken down into three core components. Each component in turn contributes to a total of eight areas that make up an ideal business model.

Component 1 – Offering

The offering includes two areas:

Market attractiveness

Or the niche, industry, market, or customer segment that will be sold to.

total-addressable-market — A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.

Unique value proposition

In terms of value, how does the offering differentiate itself in the marketplace?

Component 2 – Monetization

revenue-model-patterns — 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.

Monetization also encompasses two areas:

Profit model

income-statement — The income statement, together with the balance sheet and the cash flow statement, is among the key financial statements to understand how companies perform at a fundamental level. The income statement shows the revenues and costs for a period and whether the company runs at profit or loss (also called P&L statement).

Describing potential income streams and their associated profit margins.

Sales performance model

This is the process of converting prospective leads into paying customers through marketing.

business-development — Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing, and distribution. While marketing usually relies on automation to reach a wider audience, and sales typically leverage on a one-to-one approach. The business development’s role is that of generating distribution.

Component 3 – Sustainability

The last component, sustainability, details four areas:

Ongoing competitive advantage

This must be created and then maintained through meaningful product differentiation.

sustainable-competitive-advantage — Sustainable competitive advantage describes company assets, abilities, or attributes that are difficult to duplicate or exceed. The qualities of these attributes mean the company that possesses them can enjoy a superior and long-term position in its market or industry. In business theory, sustainable competitive advantage is associated with cost leadership, differentiation, or cost focus.

Innovation factor

Or the ability to balance innovation with remaining competitive.

innovation-theory — 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.

Pitfall avoidance

How can the business model avoid the pitfalls of litigation, short-lived consumer trends, or regulation?

Graceful exit

How can the business model be structured in such a way that the business itself can be sold for a profit?

Scoring a business model wheel

Businesses can score model wheels to highlight the strengths or weaknesses of their particular model and distribute resources accordingly.

Weighted scores are given according to how well the business can satisfy each area, giving a total score out of 100 for each of the three components.

Following is a breakdown of the scoring that should be used:

Offering (maximum of 34 points)

Or 17 points each for market attractiveness and unique value proposition.

Monetization (33 points)

Or 17 points for the profit model and 16 points for the sales performance model.

Sustainability (33 points)

Or 11 points for ongoing competitive advantage, 9 points for innovation factor, 7 points for pitfall avoidance, and 6 points for a graceful exit.

Key takeaways

A business model wheel provides a structured, evaluative approach to creating a business model.
A business model wheel is divided into three segments that represent core components: offering, monetization, and sustainability. Each component has several focus areas.
A business model wheel can be used to score the potential or actual effectiveness of an organization. Weighted scores are assigned to each area for a total score out of 100.

Key Highlights:

Purpose and Components: The Business Model Wheel is a strategic framework comprising nine building blocks, categorized into three core components: Offering, Monetization, and Sustainability. It aims to provide a structured approach to understanding and designing business models, facilitating strategic decision-making and innovation.
Key Elements: The nine building blocks include Customer Segments, Value Proposition, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships, and Cost Structure. These elements collectively contribute to the creation, delivery, and capture of value in the market.
Benefits and Challenges: The Business Model Wheel offers benefits such as clarity, innovation, alignment, adaptability, and efficiency. However, challenges include complexity in analyzing all components, validating assumptions, implementing chosen models, and staying competitive in dynamic markets.
Use Cases: The framework is applicable across various scenarios, including startups, existing businesses, market entry, product launches, and digital transformation initiatives. It helps in developing, fine-tuning, or reevaluating business models to align with market needs and opportunities.
Example: An e-commerce startup may utilize the Business Model Wheel to define its customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure, enabling a comprehensive understanding of its business model.
Best Practices: Engaging cross-functional teams, regularly reviewing and updating the model, validating assumptions through customer feedback, ensuring alignment with customer needs, and monitoring key performance indicators are recommended practices for effectively utilizing the Business Model Wheel.
Understanding the Business Model Wheel: The framework lies between informal and structured approaches to creating business models. It distinguishes between a business model (profit generation mechanisms) and a business plan (actionable strategy translating important relationships into financial impact).
Core Components: Each business model wheel consists of three core components: Offering, Monetization, and Sustainability. Offering encompasses market attractiveness and unique value proposition, while Monetization includes profit model and sales performance model. Sustainability covers ongoing competitive advantage, innovation factor, pitfall avoidance, and graceful exit.
Scoring: Businesses can score model wheels to assess strengths and weaknesses. Weighted scores are assigned to each area within the three components, providing a total score out of 100, helping prioritize resource allocation and strategic decisions.
Key Takeaways: The Business Model Wheel offers a structured, evaluative approach to creating and assessing business models, enabling organizations to understand, innovate, and adapt to market dynamics effectively.

Comparison’s Table	Business Model Wheel	Business Model Canvas	Lean Canvas
Type	Business model assessment tool focusing on key components and relationships of a business model.	Visual tool for designing, assessing, and refining business models by mapping out key elements and relationships.	Simplified version of the Business Model Canvas, tailored for startups and small businesses, emphasizing problem-solution fit and minimal viable product (MVP).
Purpose	To analyze and evaluate the components, interactions, and viability of a business model to identify strengths, weaknesses, and areas for improvement.	To visualize and articulate a business model, explore alternative strategies, and communicate the value proposition to stakeholders.	To define, test, and iterate on a startup’s business model by identifying key elements, validating assumptions, and focusing on essential features.
Key Components	– Value Proposition: Products or services offered to address customer needs or solve problems. – Customer Segments: Target market segments or customer groups with distinct needs and characteristics. – Revenue Streams: Sources of revenue generated from delivering value to customers. – Channels: Channels or pathways used to reach and interact with customers. – Key Activities: Core activities and processes required to deliver value to customers. – Key Resources: Critical assets, resources, and capabilities needed to operate the business. – Key Partnerships: Collaborations or partnerships with external entities to leverage resources and capabilities. – Cost Structure: Costs and expenses incurred to operate the business and deliver value to customers.	– Customer Segments: Different groups of customers or market segments targeted by the business. – Value Proposition: Products or services that address customer needs and provide value. – Channels: Distribution channels or pathways used to reach and interact with customers. – Customer Relationships: Strategies for acquiring, retaining, and growing customer relationships. – Revenue Streams: Sources of revenue generated from delivering value to customers. – Key Resources: Critical assets, resources, and capabilities required to operate the business. – Key Activities: Core activities and processes needed to deliver the value proposition. – Key Partnerships: Collaborations or alliances with external partners to leverage resources and capabilities. – Cost Structure: Costs and expenses associated with operating the business.	– Problem: Customer pain points or needs that the business seeks to address with its solution. – Solution: Products or services offered to solve customer problems or meet needs. – Key Metrics: Key performance indicators (KPIs) used to measure business success and validate assumptions. – Unique Value Proposition: Differentiated features or benefits that set the business apart from competitors. – Unfair Advantage: Competitive advantages or barriers to entry that provide a unique edge in the market. – Channels: Distribution channels or pathways used to reach and acquire customers. – Customer Segments: Target market segments or customer groups with distinct needs and characteristics. – Cost Structure: Costs and expenses incurred to operate the business and deliver value to customers. – Revenue Streams: Sources of revenue generated from delivering value to customers.
Application	Utilized in business model analysis, strategic planning, innovation, and entrepreneurship to assess, design, or refine business models for success.	Applied in startup development, business planning, product development, and innovation management to visualize and iterate on business models.	Employed in lean startup methodology, agile development, and iterative testing to validate assumptions, identify product-market fit, and iterate on business models.
Focus	Focuses on analyzing the key components, interactions, and dynamics of a business model to evaluate its viability, sustainability, and potential for success.	Focuses on visualizing and articulating the core elements, value proposition, and customer relationships of a business model to drive strategy and innovation.	Focuses on defining, testing, and iterating on the problem-solution fit, value proposition, and revenue model of a startup to achieve product-market fit and sustainable growth.
Benefits	– Provides a comprehensive framework for analyzing, designing, and refining business models to enhance competitiveness and sustainability. – Facilitates strategic decision-making, innovation, and value creation by identifying opportunities and challenges in the business model. – Enhances communication and collaboration among stakeholders by visualizing key elements and relationships of the business model.	– Simplifies the process of business model design and analysis, making it accessible to entrepreneurs, startups, and small businesses. – Enables rapid iteration, experimentation, and adaptation of business models based on customer feedback and market insights. – Fosters alignment and shared understanding among team members, investors, and partners by visualizing the value proposition and revenue model.	– Streamlines the validation process for startup ideas, minimizing time and resources spent on unproven assumptions or features. – Focuses on the essential elements of the business model, ensuring alignment with customer needs and market demand. – Encourages agility, flexibility, and responsiveness to changing market conditions through iterative testing and learning.