A Business Model Template

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Business models
A 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 reuired to produce and sell these products and services, the target customers that the
business e!pects will buy these products and services, and the financial results and profit the business
e!pects to achieve. "ollowing is a template describing the contents of a business model developed by Ale!
#sterwalder, $h%. &here are ' parts to this business model.
Part 1- The offering this is !hat the business produces and sells
(alue proposition) &he value proposition is a description of the products and services the business
offers and why customers will be compelled to buy them. &he value proposition describes the
problem the customers are e!periencing and how the products and services being offered will help
solve that problem. It describes how the features and characteristics of the products and services
will contribute to the solution of the customers* problem.
Part "- #nfrastructure This is the part of the business that creates e$penses. This part describes
the basic facilities% skills% manpo!er% partnerships% and production process needed to e$ploit the
business opportunity.
Core capabilities) &he capabilities and core competencies necessary to operate the business. &his
includes land, facilities, euipment, personnel and their reuired skills needed to produce the
products or services described in the value proposition.
$artner network) &he business alliances needed to operate the business. +ost businesses need
alliances, agreements, licenses, or other third party assistance (legal, accounting, insurance,
security, etc.) which are usually purchased from speciali,ed service providers.
(alue configuration) &he process by which the products or services are produced and presented to
the customer. &he value configuration describes how the materials, supplies, and other reuired
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 &- 'ustomers this is the part of the business that generates revenue.
&arget customer) &he demographics, purchasing patterns, and location of the potential buyers of
the products described in the value proposition.
%istribution channel) &he means by which the business delivers products and services to
customers. &his includes the business-s marketing and distribution strategy.
Customer relationships) &he 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 (- )inances this is the part of the business that determines its financial performance and
profit
Investment) &he investment needed to obtain the facilities, euipment, and working capital to
begin or sustain operations. &his should include an itemi,ation of these e!penses and sources of
financing to obtain these funds and when they will be reuired.
Cost structure) &he e!penses reuired to produce the products or services described in the value
proposition. It should include an itemi,ation of the e!penses reuired by e!pense category and the
assumptions made to estimate these e!penses.
.evenue) &he income a business receives from the sales of its products or services. &his includes
sales volume and revenue pro/ections and the assumptions and logic used to make these
pro/ections.
$rofit, return on investment, and cash flow.
*esigning a business model
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Business model designers must identify the competencies reuired by the business and use these as a
basis for designing the business model. &he value configuration used to produce and present the products
to the customer describes the activities that will be needed to operate the business. &hese activities
indicate the business functions that will be needed. &hese business functions are tools the manager can
use to identify the skills, competencies, and manpower that will be needed to operate the business. &he
business functions needed to operate the business can also help the manager build an efficient
organi,ational structure by grouping related functions into organi,ational units for easier supervision and
control. "or e!ample the purchasing, inventory management, manufacturing, and packaging functions
could be grouped together and supervised by a 4upervisor of $roduction. &he marketing, sales, and
distribution functions could be grouped together under a 4upervisor of +arketing. Book keeping and
accounting could be combined under a %irector of "inance.
)undamental organizational functions and competencies
Business and nonprofit organi,ations reuire many competencies covering a range of functional activities
(production, marketing, distribution, etc.) in order to function. Certain fundamental competencies are
reuired by all organi,ations in order to operate effectively and carry out their mission. &hese
competencies are called 5table stakes6 and define the standard level of competency the organi,ation needs
to sustain operations. 4ome e!amples of these fundamental competencies and skill sets all organi,ations
reuire are)
+arketing. All organi,ations produce a product or service for a client and marketing is the
function that creates the paying client. 7ithout some competency in this function the
organi,ation would not have any clients. &he 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 %etermining the price for the products and services offered including discounts, sliding
scale fees, etc. and how payment will be accepted.
o %etermining how and where the products and services will be offered and by whom.
o $romoting the products and services, communicating with the prospective clients, and
selling.
$roduction or operations. &his function includes all the skills reuired to produce the product or
service to the reuirements and specifications determined by the organi,ation*s marketing
effort and making them available for purchase or delivery. &his function reuires skills in the
design, testing, and production of the product or the development, testing, and presentation of
the services being offered.
o In service organi,ations this function consists of the development and delivery of the
service to the client.
o "or organi,ations that produce or sell a product this function may include purchasing
and inventory management skills. %epending upon the scope of purchasing reuired
these activities may be separated into separate functions.
o "or distribution, retail, and food service type organi,ations this function should include
procurement and inventory management skills.
8uman resources. &he work of the organi,ation is accomplished by people and competency in
hiring and training employees is needed by all organi,ations employing more than one person.
&his function includes the following skills.
o Interviewing prospective employees and managers.
o 8iring and indoctrinating employees and managers.
o %etermining the compensation for employees and managers and establishing the
process to pay employees and managers.
o %etermining the employee and manager training reuirements needed to perform their
/obs and providing or making arrangements to provide this training.
o .eviewing employee and manager performance and discharging ineffective personnel.
Administrative. &his is a catch all function that includes customer service, invoicing and bill
paying, answering the phones, facility maintenance and repair, etc. 4ince 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.
9!amples are hospitals, schools, and marketing organi,ations. In these cases these activities
may be e!panded into separate functions.
Accounting and Bookkeeping. All organi,ations must record and monitor the organi,ation*s
income and e!penses and most must prepare financial reports periodically. As a minimum all
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organi,ations must be able to record and categori,e these transactions consistently. It is
common for nonprofit organi,ations to contract these tasks to specialists and these
competencies are not likely to be a source of core competency.
$ayroll. 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. &his function
includes paying these wages and salaries and the payroll ta!es that are reuired by law.
:sually nonprofit organi,ations contract this function to specialists and it is not likely to be a
source of core competency.
All non profit organi,ations need to raise funds and reuire an additional function to do this. &his function
includes skills in developing the Case for ;iving, cultivating prospective donors and contributors, making
5the ask6, planning and implementing fund raising events, donor recognition, etc.

+eneric business models
;eneric business models reflect the different ways that businesses can produce and sell their products and
services. &his is a listing of some common business models and the competencies reuired. &hese
generic models describe the value configuration used to produce and sell the product or service to the
customer.
+anufacturing business model< &hese businesses produce a product from basic materials using
labor and euipment and deliver or ship these products to their customers. &heir competency is
the ability to efficiently produce the product they sell at a price their customers are willing to pay.
9!amples are businesses that manufacture parts and components for assembly businesses or
#9+*s.
+anufacturing distribution model< &hese businesses produce a product from basic materials using
labor and euipment and sell their products through an independent distribution channel. &his
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.
9!amples are businesses that manufacture clothing, food, or parts that are sold to 7al<+art or
4ears .oebuck.
Assembly business model< &hese 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. 9!amples are ma/or aircraft businesses such as Boeing and Airbus.
Assembly distribution model< &hese 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. &his 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.. 9!amples are car makers such as ;eneral +otors and &oyota.
%istribution model< &hese businesses purchase products from manufacturers or assemblers and
sell them to other businesses for resale to their customers. 4ometimes 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. &heir 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. 9!amples are auto parts
distributors.
.etail model< &hese businesses purchase finished goods from manufacturers or wholesale
distributors and resell them to customers who come to the business location to purchase them.
&heir competency is their knowledge of their customer*s needs, buying skill to acuire the products
that their customers like and want to buy, and inventory management. 4ince customers purchase
at the business facility, the location is very important to the success of these businesses.
9!amples are 7all +art, clothing stores and supermarkets.
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Internet model< &hese businesses buy and sell their products over the internet. &heir 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. 9!amples are Ama,on and =ahoo.
"ood service model< &hese businesses purchase basic food and beverage and prepare it for
consumption by their customers. &he food consumption can take place on or off the business
property. &hese businesses differ in the manner and process used to prepare and serve the
customer. Competencies are food preparation, inventory management, and customer service.
4ince customers purchase at the business facility, the location is very important to the success of
these businesses. 9!amples are restaurants and fast food businesses such as +c%onalds.
>on profit business model< &hese organi,ations provide a product or service to customers who
cannot pay the full cost of these products or services. &hese organi,ations reuire voluntary
contributions and donations to cover this e!penses shortfall. Competencies are the ability to
provide the services their customers need, outcomes measurement, and the ability to raise money
from donations and contributions. 9!amples are private schools, orphanages, and hospitals.
;overnment business model< &hese businesses are supported by involuntary contributions such
as ta!es or service fees to finance their operations. &hey provide products and services that
benefit all of society. Competencies are the ability to provide the products and services needed
and public support. 9!amples are government organi,ations.
+icro business model< &his business model is very common in developing countries. It consists of
vendors selling products made or acuired by the individual vendor. &hey have e!tremely low
overhead e!penses because the locations where they offer their products are free or very cheap
and they have few of the e!penses 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. &hese micro businesses usually support an individual or family from the
money they receive from the sale of their products. &hey usually do not employ non family
members or individuals they do not know. &heir only competency is their ability to provide the
product or service they offer at a location readily accessible to their customers. 4ince customers
purchase at the business facility, the location is very important to the success of these businesses.
9!amples are the food and product vendors along the streets in developing countries.
&hese are some standard business models that are used. &hey reflect the diverse value configurations
that can be used to produce and sell a product or service. &here can be many variations and combinations
of these models to address the specific needs of the particular business. Business models should be
designed to e!ploit what makes the business opportunity uniue. In some cases the innovation rests not in
the product or service offered but in the business model itself, for e!ample the model may present financing
options or distribution channels that are different from those used by their competition.
The business model and the business plan
&he business model is the centerpiece of the business plan but is not the entire business plan. &he
business plan should include additional information such as)
Administrative information
o Company name and address
o Company phone number including area code
o 9mail address, :.?, and ?ogo if applicable
o >ames, titles, addresses, and phone numbers of the owners or corporate officers
o +onth and year in which this business plan is issued
o >ame of the business plan preparer
o %ate when business was started or estimated start date
$urpose of the business and why it should be successful.
Business ob/ectives @ what the company wants to accomplish (market share, sales volume,
revenue, return on investment, etc.).
&he marketing plan.
&he competitive strategy describing how a sustainable competitive advantage will be obtained.
+anagement, the people who will manage the company and their e!perience.
$ersonnel 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.
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Annual revenue, e!pense, and cash flow pro/ections and assumptions upon which they are based,
and critical milestones that will define progress and results.
&hree year pro forma income statements, balance sheets, and cash flow statements.
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