Why we should all try Business Model Thinking

This is a story about how business model thinking can help you make clearer choices for what you do at work.

Business models have been around for a long time. The earliest mentions that I can find date back to 1892 when J.C.Fargo, then President of American Express, introduced the concept of the travellers cheque to assist with overseas access to money. Whilst I am sure this is not the earliest example of a business model being explicitly called out, my point is that business models have been around for a long time. It is only recently that the term has found common use within our lexicon.

Today’s use of the term centers chiefly around two interlocking schools of thought. The traditional school of thought sees the business model as one component in a strategy exercise. References from Michael Porter, Peter Drucker, Henry Mintzberg and Joan Magretta tend to reinforce the inter-relatedness of strategy and business models.

In 2009 Alexander Osterwalder, Yves Pigneur and a number of other collaborators published Business Model Generation, which introduced the Business Model Canvas, has been widely adopted with the startup community and spawned an industry of ‘canvas- creators’. The 9-block Business Model Canvas is now well-known and has promoted the concept of business model thinking to a much wider audience. Given the increasing disruption of traditional industries with new startups this is clearly a useful trend.

I regard the popularisation of the business model and the increased adoption of business model thinking as a good thing. In fact I’d like to see more of it across the board within companies. We are all thinking beings and the more we are able to challenge and improve how our organisations work surely benefits those organisations.

A few years ago I introduced the business model canvas to a workshop that sought to introduce a new broadcast network technology into Australia. We struggled to find a profitable business model for the new technology and I believe that this struggle is indicative of the fact that it has taken 6 years since to deploy this new technology. Clearly technology for technologies sake is not always the best way forward. In this case I believe that the business model was ignored in favour of an approach that pushed the technical benefits of the new technology.

A couple of years later and I was working at a startup that had developed some great new technology but was struggling to productise it. With the head of product development we worked on a business model canvas for the technology. I was impressed by the way he interpreted the canvas through a series of pro-con choices. A really good way to use business model thinking. This startup flipped business model a couple of times in their first year of operations and, 2 years later, seem to be heading in the right direction.

Another startup that I worked with in the coaching and mentoring space started with one business model and started to adapt to another mid-development. I see this happen a lot with startups but not with existing businesses.

It is fairly obvious why startups can (and do) change business model in their early years. As Steve Blank is fond of saying the definition of “a startup is an organization formed to search for a repeatable and scalable business model”. By extension it is equally obvious why existing organisations are not so keen to adopt business model thinking. They have an existing business model and it has helped them scale to where they are now. To re-think the business model is not an exercise to be taken lightly. Which is why it tends to rest within the domain of the strategy group or a team with similar responsibilities.

I argue that this is short-sighted.

We are seeing faster and more impactful change in the business environment today than ever before. Almost every aspect of your business is susceptible to disruptive change. If we consider every organisation to be a complex adaptive system (see Leaders Framework for Decision-Making) then it is almost impossible for one single person (the CEO) or even a small group (the strategy department) to know about or understand all the complex interactions within the organisation. Therefore, for an organisation to adapt, I argue that it is important that every part of the organisation be able adapt both independently and inter-dependently, meaning as a part of the whole.

In order to make decisions that increase benefits to the organisation as a whole a framework is needed. The Business Model is an easy-to-understand and approachable framework that can work at many levels.

Hence my argument is that we should encourage and teach business model thinking at all levels of an organisation. This is not something for an “ivory tower” group to own, it is a common good and benefit that may even enhance an individuals engagement within the organisation.

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