Why Apply Business Models to Startups?

business-model-innovationAt Columbia Business School, many of us have adopted Alexander Osterwalder and Yves Pigneur’s Business Model Canvas (BMC) as a template to guide students through the business model development process. Over the past couple of years as we teach and discuss how to best apply the BMC to numerous new venture ideas, we have developed tools and approaches to support the testing and refinement of your business model. We will discuss our and others’ methods over a few posts.
 
To get us started, let’s discuss the reasons for developing a business model for your new venture. Business models have been part of management best practices for many years, helping business leaders articulate how they provide value to the customer over a sustained period of time. Business models help define all the business activities and operations required to support the delivery of product and services to customers. Modeling your business in this way helps to ensure that all the elements of your business work together in the service of the customer.
 
In large part due to the lean startup movement, the application of business models have become common in the startup environment. Entrepreneurs can use a logical framework to design their new venture as an interrelated set of business activities.  Business modeling helps the entrepreneur to identify all the elements of the business required to bring value to the customer. We see many aspiring entrepreneurs focusing on one or two elements of the business, such as product development and marketing, with little thought into customer engagement or supply chain management or strategic partnerships. Using a structured business model helps the entrepreneur to think holistically about the new enterprise.
 
For entrepreneurs, there are key reasons to apply a business model to their planning and strategic choices. Successful new ventures are defined as having a repeatable and scalable business. In order for this to occur, the entrepreneur must ensure that all the elements of the business work together, in an integrated fashion. Many new entrepreneurs focus on one aspect of the business, usually the product offering itself. You can have the most unique and high quality product, but if the customer does not see the value, you don’t have the business. So you will have to focus on the alignment of your product offering and customer needs and value expectations. Even with a strong alignment between your product and the customer, your business will not succeed if you don’t have a strong process for distributing your product to the market or serving the customer with the the proper quality. We will spend more time on this in future posts, but the point is that all the elements of the business must work together in order to provide value to the customer.
 
OsterwalderBusinessModelFrom the perspective of lean start up practices, most experts believe that the main focus for the entrepreneur and team is to validate assumptions made throughout the business model, learning what the optimal combination of elements will result in a repeatable and sustainable business. We will spend more time with this concept after taking a look at the Alexander Osterwalder and Yves Pigneur’s Business Model Canvas (BMC). 
There are number of templates on the internet that you can download to help you think about each element of your business. Here is the common one found on many sites . In our next post, we will review each of the nine elements.
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