business model template

A Business Model Template.

Business modelsA business model is a description of how a business makes (or intends to make) money. It is the centerpiece of the business plan. Constructing a business model is the first step in planning to start a business. The purpose of a business model is to insure that all the factors needed to operate a successful business are considered and analyzed to make sure they are reasonable and achievable. Business models describe the products and services offered for sale, the business infrastructure required to produce and sell these products and services, the target customers that the business expects will buy these products and services, and the financial results and profit the business expects to achieve. Following is a template describing the contents of a business model developed by Alex Osterwalder, PhD. There are 4 parts to this business model.

Part 1- The offering – this is what the business produces and sells Value proposition: The value proposition is a description of the products and services the business

offers and why customers will be compelled to buy them. The value proposition describes the problem the customers are experiencing and how the products and services being offered will help solve that problem. It describes how the features and characteristics of the products and services will contribute to the solution of the customers’ problem.

Part 2- Infrastructure– This is the part of the business that creates expenses. This part describes the basic facilities, skills, manpower, partnerships, and production process needed to exploit the business opportunity.

Core capabilities: The capabilities and core competencies necessary to operate the business. This includes land, facilities, equipment, personnel and their required skills needed to produce the products or services described in the value proposition.

Partner network: The business alliances needed to operate the business. Most businesses need alliances, agreements, licenses, or other third party assistance (legal, accounting, insurance, security, etc.) which are usually purchased from specialized service providers.

Value configuration: The process by which the products or services are produced and presented to the customer. The value configuration describes how the materials, supplies, and other required resources will be obtained and transformed into usable products or services and how they will be made available to buyers. It describes the process that will be used to produce the products and services described in the value proposition.

Part 3- Customers– this is the part of the business that generates revenue. Target customer: The demographics, purchasing patterns, and location of the potential buyers of

the products described in the value proposition. Distribution channel: The means by which the business delivers products and services to

customers. This includes the business's marketing and distribution strategy. Customer relationships: The process of interacting with the business’s customers. It includes

communicating, selling, supporting, and assisting customers purchase and use the business’s products or services.

Part 4- Finances – this is the part of the business that determines its financial performance and profit

Investment: The investment needed to obtain the facilities, equipment, and working capital to begin or sustain operations. This should include an itemization of these expenses and sources of financing to obtain these funds and when they will be required.

Cost structure: The expenses required to produce the products or services described in the value proposition. It should include an itemization of the expenses required by expense category and the assumptions made to estimate these expenses.

Revenue: The income a business receives from the sales of its products or services. This includes sales volume and revenue projections and the assumptions and logic used to make these projections.

Profit, return on investment, and cash flow.

Designing a business modelBusiness model designers must identify the competencies required by the business and use these as a basis for designing the business model. The value configuration used to produce and present the products

Copyright 2008, J. Thomas McintireAll rights reserved

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to the customer describes the activities that will be needed to operate the business. These activities indicate the business functions that will be needed. These business functions are tools the manager can use to identify the skills, competencies, and manpower that will be needed to operate the business. The business functions needed to operate the business can also help the manager build an efficient organizational structure by grouping related functions into organizational units for easier supervision and control. For example the purchasing, inventory management, manufacturing, and packaging functions could be grouped together and supervised by a Supervisor of Production. The marketing, sales, and distribution functions could be grouped together under a Supervisor of Marketing. Book keeping and accounting could be combined under a Director of Finance.

Fundamental organizational functions and competencies Business and nonprofit organizations require many competencies covering a range of functional activities (production, marketing, distribution, etc.) in order to function. Certain fundamental competencies are required by all organizations in order to operate effectively and carry out their mission. These competencies are called “table stakes” and define the standard level of competency the organization needs to sustain operations. Some examples of these fundamental competencies and skill sets all organizations require are:

Marketing. All organizations produce a product or service for a client and marketing is the function that creates the paying client. Without some competency in this function the organization would not have any clients. The marketing function includes the following skills:

o Identifying the product characteristics and service attributes to provide the desired client benefit and how to package these into the product or service offering.

o Determining the price for the products and services offered including discounts, sliding scale fees, etc. and how payment will be accepted.

o Determining how and where the products and services will be offered and by whom.o Promoting the products and services, communicating with the prospective clients, and

selling. Production or operations. This function includes all the skills required to produce the product or

service to the requirements and specifications determined by the organization’s marketing effort and making them available for purchase or delivery. This function requires skills in the design, testing, and production of the product or the development, testing, and presentation of the services being offered.

o In service organizations this function consists of the development and delivery of the service to the client.

o For organizations that produce or sell a product this function may include purchasing and inventory management skills. Depending upon the scope of purchasing required these activities may be separated into separate functions.

o For distribution, retail, and food service type organizations this function should include procurement and inventory management skills.

Human resources. The work of the organization is accomplished by people and competency in hiring and training employees is needed by all organizations employing more than one person. This function includes the following skills.

o Interviewing prospective employees and managers.o Hiring and indoctrinating employees and managers.o Determining the compensation for employees and managers and establishing the

process to pay employees and managers.o Determining the employee and manager training requirements needed to perform their

jobs and providing or making arrangements to provide this training.o Reviewing employee and manager performance and discharging ineffective personnel.

Administrative. This is a catch all function that includes customer service, invoicing and bill paying, answering the phones, facility maintenance and repair, etc. Since these functions tend to be relatively routine they are not likely to be a source of core competence unless their facilities and customer service make a significant contribution to customer perceived benefits. Examples are hospitals, schools, and marketing organizations. In these cases these activities may be expanded into separate functions.

Accounting and Bookkeeping. All organizations must record and monitor the organization’s income and expenses and most must prepare financial reports periodically. As a minimum all organizations must be able to record and categorize these transactions consistently. It is common for nonprofit organizations to contract these tasks to specialists and these competencies are not likely to be a source of core competency.


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Payroll. Businesses need people to do the work and these people must be paid. All businesses must record the hours that workers provide to the business, the wages they are entitled to receive for their work and the salaries due to the salaried workers. This function includes paying these wages and salaries and the payroll taxes that are required by law. Usually nonprofit organizations contract this function to specialists and it is not likely to be a source of core competency.

All non profit organizations need to raise funds and require an additional function to do this. This function includes skills in developing the Case for Giving, cultivating prospective donors and contributors, making “the ask”, planning and implementing fund raising events, donor recognition, etc. Generic business models Generic business models reflect the different ways that businesses can produce and sell their products and services. This is a listing of some common business models and the competencies required. These generic models describe the value configuration used to produce and sell the product or service to the customer.

Manufacturing business model- These businesses produce a product from basic materials using labor and equipment and deliver or ship these products to their customers. Their competency is the ability to efficiently produce the product they sell at a price their customers are willing to pay. Examples are businesses that manufacture parts and components for assembly businesses or OEM’s.

Manufacturing distribution model- These businesses produce a product from basic materials using labor and equipment and sell their products through an independent distribution channel. This distribution channel can either purchase the product and resell it (wholesaler distributors) or sell it directly to the customer and receive a commission for the sale (manufacturer’s representatives). Competencies are the ability to efficiently produce the product they sell at a price their customers are willing to pay and an efficient distribution network with strong relationships with its customers. Examples are businesses that manufacture clothing, food, or parts that are sold to Wal-Mart or Sears Roebuck.

Assembly business model- These businesses receive parts, components, and sub assemblies and assemble them into a finished product and deliver or ship these products to their customers. Competencies are a reliable, efficient network of suppliers of parts, components, and subassemblies and the ability to efficiently assemble the product they sell at a price their customers are willing to pay. Examples are major aircraft businesses such as Boeing and Airbus.

Assembly distribution model- These businesses receive parts, components, and sub assemblies and assemble them into a finished product and sell their products through an internal or independent distribution channel. This distribution channel can either purchase the product and resell it (wholesaler distributors) or sell it directly to the customer and receive a commission for the sale (manufacturer’s representatives). Competencies are a reliable, efficient network of suppliers of parts, components, and subassemblies, the ability to efficiently assemble the product they sell at a price their customers are willing to pay and an efficient distribution network with strong relationships with its customers.. Examples are car makers such as General Motors and Toyota.

Distribution model- These businesses purchase products from manufacturers or assemblers and sell them to other businesses for resale to their customers. Sometimes they are called wholesalers because they charge a discounted (wholesale) price for their products so their customers can mark it up to a selling (retail) price. Their core competency is their network of manufacturers and assemblers that provide the products their customers want to buy, inventory management, and strong marketing relationships with its customers. Examples are auto parts distributors.

Retail model- These businesses purchase finished goods from manufacturers or wholesale distributors and resell them to customers who come to the business location to purchase them. Their competency is their knowledge of their customer’s needs, buying skill to acquire the products that their customers like and want to buy, and inventory management. Since customers purchase at the business facility, the location is very important to the success of these businesses. Examples are Wall Mart, clothing stores and supermarkets.

Internet model- These businesses buy and sell their products over the internet. Their core competencies are knowledge of internet and website technology and a relationship with a bank or credit card company to take orders and receive payments. Examples are Amazon and Yahoo.

Food service model- These businesses purchase basic food and beverage and prepare it for consumption by their customers. The food consumption can take place on or off the business


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property. These businesses differ in the manner and process used to prepare and serve the customer. Competencies are food preparation, inventory management, and customer service. Since customers purchase at the business facility, the location is very important to the success of these businesses. Examples are restaurants and fast food businesses such as McDonalds.

Non profit business model- These organizations provide a product or service to customers who cannot pay the full cost of these products or services. These organizations require voluntary contributions and donations to cover this expenses shortfall. Competencies are the ability to provide the services their customers need, outcomes measurement, and the ability to raise money from donations and contributions. Examples are private schools, orphanages, and hospitals.

Government business model- These businesses are supported by involuntary contributions such as taxes or service fees to finance their operations. They provide products and services that benefit all of society. Competencies are the ability to provide the products and services needed and public support. Examples are government organizations.

Micro business model- This business model is very common in developing countries. It consists of vendors selling products made or acquired by the individual vendor. They have extremely low overhead expenses because the locations where they offer their products are free or very cheap and they have few of the expenses associated with an established business location such as utilities and rent. In many cases the locations of these micro businesses are obtained on a first come first served basis. These micro businesses usually support an individual or family from the money they receive from the sale of their products. They usually do not employ non family members or individuals they do not know. Their only competency is their ability to provide the product or service they offer at a location readily accessible to their customers. Since customers purchase at the business facility, the location is very important to the success of these businesses. Examples are the food and product vendors along the streets in developing countries.

These are some standard business models that are used. They reflect the diverse value configurations that can be used to produce and sell a product or service. There can be many variations and combinations of these models to address the specific needs of the particular business. Business models should be designed to exploit what makes the business opportunity unique. In some cases the innovation rests not in the product or service offered but in the business model itself, for example the model may present financing options or distribution channels that are different from those used by their competition.

The business model and the business planThe business model is the centerpiece of the business plan but is not the entire business plan. The business plan should include additional information such as:

Administrative informationo Company name and address o Company phone number including area codeo Email address, URL, and Logo if applicableo Names, titles, addresses, and phone numbers of the owners or corporate officerso Month and year in which this business plan is issuedo Name of the business plan preparero Date when business was started or estimated start date

Purpose of the business and why it should be successful. Business objectives – what the company wants to accomplish (market share, sales volume,

revenue, return on investment, etc.). The marketing plan. The competitive strategy describing how a sustainable competitive advantage will be obtained. Management, the people who will manage the company and their experience. Personnel plan describing the number and skills of the employees and how they will be hired and

compensated. A schedule describing when investment funds will be needed and for what purpose, the sources of

these funds and how they will be repaid. Annual revenue, expense, and cash flow projections and assumptions upon which they are based,

and critical milestones that will define progress and results. Three year pro forma income statements, balance sheets, and cash flow statements.


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