Business models: the toolkit to design a disruptive company

1. What is business model innovation

Business model innovation is not new. 

When the founders of Diners Club introduced the credit card in 1950, they practised business model innovation. The same goes for Xerox, which introduced photocopier leasing and the per-copy payment system in 1959. 

We might trace business model innovation back to the fifteenth century when Johannes Gutenberg sought applications for the mechanical printing device he had invented.

Ultimately, business model innovation creates value for companies, customers, and society. It is about replacing outdated models with innovative ideas and solutions. 

The starting point for any good discussion, meeting, or workshop on business model innovation should be a shared understanding of what a business model actually is. 

Let’s dive in.

What is a business model?

The term "business model" is often unclear. If you were to ask five people for the definition of the term “business model,” you’re likely to receive varying answers in return. But they all point towards the exact definition:

A business model is a representation of how an organisation creates, delivers, and captures value.”

This is because people in business generally have an intuitive understanding of it.

The term "business model" gained popularity in the late 1990s due to the decreased cost of processing and sharing information. This breakthrough made it more affordable for different business units and customers to communicate with each other. As a result, it opened up new possibilities for how businesses can operate.

However, there must be more than an intuitive understanding of a business model.

The challenge is that we need a business model concept everybody understands: one that facilitates description and discussion. 

At the same time, the concept must also be simple, relevant, and intuitively understandable while not oversimplifying the complexities of how enterprises function. 

To innovate successfully, you need to start from the same point and discuss the same thing. But how? 

Enter your strategy blueprint — The Business Model Canvas.

The 9 building blocks of The Business Model Canvas

Think of your business model as a blueprint, a strategic guide that transforms your organisation's vision into reality through structured processes and systems. 
Your business model can best be described through nine basic building blocks that show the logic of how a company intends to make money. The nine blocks cover the three main areas of a business.

Desirability: Do customers want it?

Customer Segments

Customers comprise the heart of any business model. To satisfy customers better, a company may group them into distinct segments with common needs, behaviours, or other attributes. It helps to ask yourself: For whom are we creating value? Who are our most important customers?

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Value Propositions

Describes the unique product and service bundle that solves customer problems and distinguishes your company from the competition. Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience). Ultimately, it answers the question, ‘Why should customers choose us over our competitors?’

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Channels

Describes how a company communicates with and reaches its customer segments to deliver a value proposition. Through which channels do our Customer Segments want to be reached? How are we reaching them now?

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Customer Relationships

The relationships a company establishes with specific Customer Segments. Relationships can range from personal to automated, to achieve goals like customer acquisition, retention, and up-selling.

Feasibility: Can we deliver it?

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Key Resources

Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues. A microchip manufacturer requires capital-intensive production facilities, whereas a microchip designer focuses more on human resources. Key resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the company or acquired from key partners.

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Key Activities

Your company's crucial actions to operate successfully, aligning with your unique business model. For software maker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chain management. For consultancy McKinsey, Key Activities include problem-solving.

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Key Partnerships

The network of suppliers and partners that make the business model work. Companies create alliances to optimise, reduce risk, or acquire resources. We can distinguish four types of partnerships: Strategic alliances between non-competitors, strategic partnerships between competitors, joint ventures to develop new businesses, and buyer-supplier relationships to ensure reliable supplies.

Embracing innovation through a well-defined business model empowers your organisation to navigate the complexities of the business world successfully. By aligning with the principles of desirability, viability, and feasibility, you enhance customer satisfaction and create a sustainable and profitable future for your company.

The four core benefits of The Business Model Canvas

The Canvas transforms the abstract notion of a business 'model,' as proposed by Peter Drucker, into a tangible and visual tool that aids in considering various facets of a single business model.

Companies benefit from the Canvas by aligning their activities, allowing the comparison of potential trade-offs, and providing a holistic view of the overall business structure. There are four benefits to working in this way:

1. It establishes a shared language

Effectively conveying your business model and value propositions can mean the difference between securing vital resources and fading into obscurity.

Many of us have had our fair share of having to justify repeatedly or even shelf ideas because they weren’t coming across clearly.

The reason is simple. It is difficult to challenge assumptions and innovate successfully without a shared language. If only there were a way to translate seemingly complex ideas into easily understood innovative solutions. A tool like this could be used.

Creating and modifying business models can be a challenging task.

It lets you easily visualise and manipulate different business model components and create new strategic alternatives without anyone needing to brush up on business lingo.

Read: 5 tips on how to best present your ideas

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2. It is simple, visual, and practical

Your team needs a concept everybody understands: one that facilitates description and discussion. But here’s the challenge.

The concept in question must strike a delicate balance. It needs to be simple and intuitive enough for everyone in the organisation to grasp—regardless of their role or expertise level—while not oversimplifying the complexities of how enterprises function.

It should be visual because visual tools help to bring clarity and alignment in understanding the relationship between the building blocks of your business model. The human brain processes visuals 60,000 times faster than text.

It should be practical to enable it to drive tangible, actionable insights that drive the company forward.

In such an environment, the business model becomes a living document—a tool for continuous adaptation and disruption

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3. It allows you to discover opportunities

Missed opportunities often stem from hesitation, lack of information, or fear of failure. They are the roads not taken, the ideas not pursued, and the ventures not started. 

The cost of missed opportunities can sometimes be substantial in financial gains, innovation, and competitive edge.

Ultimately, having the courage to recognise and seize market opportunities requires a blend of insight and the willingness to take calculated risks. But how do you ensure you’re not miscalculating the risks? 

By listing your business into nine fundamental building blocks on the canvas, you can begin to visualise and understand their relationship to each other. 

This approach lets you quickly identify insights and opportunities for improvement and innovation in various areas. It also ensures all aspects of the business are aligned and working towards the same goals.

Read: 14 practical ways to apply the Business Model Canvas

4. It allows you to iterate quickly

Imagine you are exploring a new city on foot and trying to get to a restaurant your friend recommended. According to your friend, you must try their lobster bisque. Unfortunately, on your way, you encountered a road closure. What would you do in such a situation?

Chances are, you’ll pivot. You’ll either:

• Find a different route to the restaurant.
• Have it delivered to your hotel. But lower your expectations on the quality of the food.
• Decide you’ll go there some other day, depending on your remaining time in the city.  
• Give up on it entirely. It wasn’t worth the effort, based on the online reviews.

This scenario mirrors the process of iterating on a business model—with different tools.

In business, as in city exploration, we're iterating constantly and adjusting based on new information and circumstances to reach our desired outcomes.

Whether using sticky notes on a real-life Business Model Canvas or designing your business model on the Strategyzer Innovation Platform, you get to sketch out an initial business model and then keep iterating until you’ve tested enough ideas to find your product-market fit.

Related reads:

• What is a business model?
• The Business Model Canvas tool
• The Business Model Canvas - Instruction Manual
• Designing crystal clear business model canvases
• Business Model Generation book
• 14 ways to apply The Business Model Canvas
• IMD Business School interview: the origins of The Business Model Canvas
• Ways to present the business model canvas
• 5 tips to tell your business model as a story

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Will your organisation lead or follow?

As we have seen, the business landscape is increasingly fluid, and so should the agility and adaptiveness of your business model. The pathway to innovation is a complex line. It is a continuous cycle of ideation, validation, iteration, and evolution.

As you stand at the edge of potential business model innovation, remember the words of Alex Osterwalder, "To thrive, a company must design, and prototype business models like an architect designs buildings."

This analogy is a powerful reminder of the meticulous, creative, and iterative process of building something enduring and impactful.

The examples of Tesla, IKEA, Dollar Shave Club, Apple, and Netflix inspire each narrative, showcasing the power of strategic innovation and the courage to redefine industries.

Innovation tools like the Business Model Canvas are pivotal in offering a structured yet flexible framework for mapping out and scrutinising every facet of your business. Understanding your business model in depth is the first step toward innovation.

The question is no longer whether we should adapt and innovate but how fast and efficiently we can do it.

You have the tools and knowledge at your fingertips; the rest is up to you. After all, the future is not predetermined. Our daily decisions craft it — and the time for innovation is now.

3. Further innovation tools to help you ideate, test and design

Strategyzer training programs

Train yourself or your team to design, test, and master innovation with our renowned tools and methods.

• Master workshop: Building invincible companies
• Master workshop: Testing business ideas
• Learn more about our self-paced training courses and our guided team training

Strategyzer tools

• The Business Model Canvas template
• The Value Proposition Canvas template
• The Portfolio Map template
• Business Model Generation book
• Value Proposition Design book
• Testing Business Ideas book
• The Invincible Company book