A business model wheel provides a structured approach to defining a businessmodel. 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:
Market attractiveness
Or the niche, industry, market, or customer segment that will be sold to.
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
Your UVP is the exclusive feature or benefit you offer to your customers. It could be anything at all. If you offer a service, it could be “100% pay after satisfaction”. It could be a time factor offers. Say you provide a service that reviews CV. Your UVP could be “Get a revamped résumé in 24 hours”. This makes you stand out from every other person offering that service, as your unique offering is the ability to deliver in 24 hours. Your slogan could also be your UVP, as it automatically gives your audience what to expect from you.
In terms of value, how does the offering differentiate itself in the marketplace?
Component 2 – Monetization
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
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 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 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.
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 profitmodel 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.
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
You can use the Ansoff Matrix as a strategic framework to understand what growthstrategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growthstrategy can be derived by whether the market is new or existing, and the product is new or existing.
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 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.
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.
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.
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.
A digital channel is a marketing channel, part of a distributionstrategy, 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.
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 valueinnovation, 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.
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.
