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:
- 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
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.
- 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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