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.
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
Component 1 – Offering
The offering includes two areas:
- Market attractiveness – or the niche, industry, market, or customer segment that will be sold to.
- Unique value proposition – in terms of value, how does the offering differentiate itself in the marketplace?
Component 2 – Monetization
Monetization also encompasses two areas:
- Profit model – 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.
Component 3 – Sustainability
The last component, sustainability, details four areas:
- Ongoing competitive advantage – this must be created and then maintained through meaningful product differentiation.
- Innovation factor – or the ability to balance innovation with remaining competitive.
- 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
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.
- 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.
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