business-model-wheel

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.

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:

  1. Market attractiveness – or the niche, industry, market, or customer segment that will be sold to.
  2. Unique value proposition – in terms of value, how does the offering differentiate itself in the marketplace?

Component 2 – Monetization

Monetization also encompasses two areas:

  1. Profit model – describing potential income streams and their associated profit margins.
  2. Sales performance model – this is the process of converting prospective leads into paying customers through marketing.

Component 3 – Sustainability

The last component, sustainability, details four areas:

  1. Ongoing competitive advantage – this must be created and then maintained through meaningful product differentiation.
  2. Innovation factor – or the ability to balance innovation with remaining competitive.
  3. Pitfall avoidance – how can the business model avoid the pitfalls of litigation, short-lived consumer trends, or regulation?
  4. 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.

Connected strategic frameworks

Porter’s Five Forces

porter-five-forces
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

Blitzscaling Canvas

blitzscaling-business-model-innovation-canvas
The Blitzscaling business model canvas 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.

Business Analysis Framework

business-analysis
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

Gap Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Business Model Canvas

business-model-canvas
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Lean Startup Canvas

lean-startup-canvas
The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.

Digital Marketing Circle

digital-marketing-channels
A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.

Blue Ocean Strategy

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

References: Business Model For Dummies, The Business Model Wheel™, at businessmodelinstitute.com.

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