Business model is what answers the question about how your business works and how you make money. Explaining this can be difficult if you are not sure where to start.
In one of my recent articles I show how to answer the question “What’s your business model?“. The article can help anyone to give an answer that makes people listen and ask more questions.
But what if your counter partner wants to know what your business model looks like? Or what if YOU want to know what it looks like?
A picture is worth a thousand words.
How can you visualize your business model?
There are several tools and templates for visual illustration of business models. You just need to know which one(s) to use and how. This is what I explain in this article. Why?
Based on my experience, the average entrepreneur is not able to quickly and clearly explain and visualize their business model.
This is a problem for at least three reasons.
1) Maybe you don’t understand your business as well as you thought if you can’t explain it in simple terms.
2) Eeven if you do understand your business but still can’t put it in simple terms, it may come across to others that you don’t know your business very well. And that doesn’t create a feeling of trust in your potential customers and collaborators.
3) Investors, partners, and mentors hear several pitches every week. They (and other people) get bored very easily if they can’t see the point within the first 10 seconds. And if this happens, chances are high for them not to keep listening and just saying “Ok, that’s a cool idea” instead of getting excited and following up with questions.
This article will help you! It answers the question “How to visualize a business model?“. It should help you understand what a business model is, how your own business works, and how you can visualize it to help others understand what you do. And when you know how to visualize your business model, you can explain it much better even when you choose not to visualize it.
In addition, I will show 5 different tools that can be used to visualize a business model. They all have a slightly different focus in terms of the problem and solution, process vs. static framework, and complexity.
5 ways for how to visualize a business model
Business model visualization is an illustrative drawing, table or process graph of how a company’s business works and how it makes money. It is used to provide potential partners, investors and consultants with a quick and clear overview of one’s business.
St. Gallen magic triangle
Oliver Gassmann and colleagues at the
University of St. Gallen developed several useful concepts for business model development. Their magic triangle visualizes their understanding of what a business model is.
It includes four elements: 1) Who is the customer, 2) What is the value proposition, 3) How is the value proposition created, and 4) How does the business create revenue. The customer is located in the middle of this triangle representing their central role in the business model.
When you need to explain your business model to someone, just answering those four questions briefly will provide a nice and clear overview. You can draw it quickly on a piece of paper during a conversation or show a PowerPoint slide when giving a formal presentation. This is a good way to give people a
quick easy-to-understand picture of what you are doing.
The St. Gallen group didn’t only create the magic triangle but a whole methodology for business model development and innovation. Some years ago, they founded a business model innovation lab (more here) that helps entrepreneurs and managers find novel combinations of existing business model patterns. Check out their introduction and tutorial below.
Monetization of Solutions (MoS)
This visualization and thinking of business models is what I developed for my teaching at the university where I have been using it a lot. It has received positive feedback because it clearly asks what problem the business solves and what is its solution to that problem. While most business model templates and tools include only the value proposition (solution), this one includes both the problem and solution.
In addition, the MoS framework asks how the solution is created (input) and how the business makes money (monetization). These are very basic and standard elements of a business model. The input is basically the same as the value chain in the St. Gallen magic triangle. And the monetization is basically the same as the revenue model in the St. Gallen and many other models.
Using this template the business model can be visualized both
as a process and a static framework. You can use the template to describe and visualize any business model by considering the problem, input, solution, and monetization.
The Business Model Canvas
The Business Model Canvas is currently the most popular business model tool. It was developed by Alexander Osterwalder and published later by his company Strategyzer AG. It was explained in the book “Business Model Generation: A Handbook for Visionaries, Game-Changers, and Challengers“, which Osterwalder co-authored with Yves Pigneur. The tool was also explained in a number of
The Business Model Canvas is a template that comprises nine building blocks that are part of a company’s business model. The core of a business model, value proposition, is in the middle, while the front-end elements that relate to the customer are on the right side and the back-end elements that relate to the business infrastructure are on the left side. The financial aspects are at the bottom.
The link above opens the Word version of the template (with instructions and example). You can also get it in PowerPoint or as the original PDF here.
To see how The Business Model Canvas can be used, check out the tutorial below. The first part explains what the template does and how it works while the second half (starting at 1:40) involves an interesting example; low cost airlines.
Similar to the St. Gallen model, the Business Model Canvas has become a central part of a whole system of business tools. Strategyzer AG offers a number of different types of business development seminars alongside several books and software-based tools.
Lean Canvas is basically a 1-page business plan and a version of the Business Model Canvas. It was developed by Ash Maurya and introduced in his book “Running Lean: Iterate from Plan A to a Plan That Works” in 2010. This tool is not as widely used as the Business Model Canvas but it has gained a lot of attention especially among user-focused startups.
While applying and teaching the use of these tools, I have noticed that some of the elements of the Business Model Canvas don’t either change or surprise much across different business models. They are relatively standard and often as expected. These elements – partners, customer relationships, key resources and activities – are replaced in the Lean Canvas by problem and solution, unique value proposition, key metrics, and unfair advantage. These adaptations provide, in my opinion, a more interesting and unique picture of a startup’s business (model).
The link above opens the Word version of the template (with instructions and example). You can also get it in PowerPoint or as a PDF here.
Watch below how the Lean Canvas is applied to Uber’s business model.
Value network is a description or illustration of how a company creates value for its customers and how the different steps and other companies or entities including customers contribute to that value creation. It is the value chain of a service company and typically applied to a platform.
There are no definite rules for how to draw a value network or what exactly to include and what not. In my opinion, the best way to make it explain the business model is to include all main organizations involved (your business, buyers, sellers, advertisers, maybe manufacturers, distributors or retailers if applicable), what value they contribute (activities), and how money moves within the network.
Adding more details on the different steps and elements is of course possible too. They can be briefly written next to the actors and arrows. Yet, too much detail will make your visualization unnecessary complex. This doesn’t serve the purpose. Keep it simple.
Which one to use
no strict rules for which one of these tools/templates to use. However, considering that some of them may be a bit more difficult to draw and take more time to fill out, you might have a preference depending on the situation. The situation in turn depends on who you are talking to, how much time you have, and where you are.
1) If you have very little time and/or drawing your business model on a piece of paper could be considered too much, just explain it briefly as I advise in my recent blog article.
2) If you are in an informal conversation and have at least 5 minutes, you might want to use the St. Gallen magic triangle or the monetization of solutions (MoS) framework. Which one exactly depends on whether you want to focus on customers and value creation (St. Gallen) or more on the problem and solution (MoS).
3) If you are going to give a formal PowerPoint presentation, I would encourage you to use one of the simple frameworks, probably the MoS. Showing a filled Business Model Canvas in a presentation and explaining all the components can be a bit too much.
4) If you are developing a new business model, especially within a large company, and want a more strategic overview of the whole business model including partners and resources, use the Business Model Canvas.
5) If you are developing a new business model, especially for a startup that follows the Lean Startup Method, and want to focus on the problem and solution, use the Lean Canvas. You can also include this (or the Business Model Canvas, but not both) in your official documents such as business plan.
6) If you are explaining a platform business model, you can basically always use the value network, either as the main visualization tool or just as an additional illustration. The value network tool is one of my favorites because it actually explains what happens, who is involved and where money goes instead of just describing what is.
In formal presentations, you don’t have to fit the whole framework (regardless of which one) on one slide. In fact, the larger and less text on your slides, the better. However, in the end it all depends on what you are expected to do and present. If there are no clear expectations, then I encourage you to follow the recommendations given above.
There’s a number of other tools available, both as a PDF and software version (just like the Business Model Canvas). I introduced five of them here and I think those five are currently the most useful ones.
Whatever approach you decide to take to explain and illustrate your business model, you should keep it simple. Most people don’t know much about your industry or the type of business, so you should be brief and clear. Like always, if your counter partner doesn’t understand what you say, they will lose their interest and stop listening.
Before you explain the business model parts that are relatively standard (and therefore not needed to be explained first), you might want to
start with what problem you solve and what is so novel and exciting about your business model. That’s what sparks people’s interest! That’s what makes them listen. That’s what leads to follow-up questions.
And that’s what makes them like your idea.