Business Modeling Before Business Planning

Guest Blogger: Marilyn Schlake, Extension Educator, University of Nebraska-Lincoln

Every business has a model that they use to generate revenue. According to Alex Osterwalder, founder of the Business Model Canvas, a model is simply how a company creates value for itself while delivering products or services for customers.

Traditionally, when a founder had a business idea, they were first told, write a business plan, get it all down on paper, make sure you do your research, and dot the I’s and cross the T’s! After much time and effort, the founder had one model that maybe, just maybe fits the market. It’s a build it and they will come (or at least you hope they will come) type of process.

But what if the model is not the most profitable or not even viable? Some researchers support the idea that business failures are often a result of the wrong model driving the business.

Business modeling is rapidly gaining popularity as a pre-curser to the rigorous work associated with writing a business plan. Business modeling uses the key components of a business plan in a visually-oriented canvas that focuses founders on the needs of the customer and the value the business will bring to the market. Ideas are quickly generated about customer archetypes, value propositions, revenue streams, channels, resources and other essential segments of the business model. At best, the early canvas iterations are hunches that beg for more information and facts.

The business modeling mantra, “Get of the building and ask!” forces the founders to discover the true needs of the market by talking to targeted customers, understanding their needs, problems and learning how best to solve them. Through the process, multiple models are generated and evaluated. With each canvas iteration founders get closer to the optimal model that will create the most profitable business.

No, business modeling is not glamorous, it is another tool that can make a difference to the long-term viability of the business.

Sources: Alexander Osterwalder & Yves Pigneur (2009), Business Model Generation. Steve Blank & Bob Dorf (2012), The Start-up Owner’s Manual: The Step-by-Step Guide for Building a Great Company.

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