What is a business model?

A business model describes how you create, deliver, and capture value back from your customers.

Ash Maurya avatar
Written by Ash Maurya
Updated over a week ago

Two of the more popular ways for capturing a business model are with a Business Model Canvas or a Lean Canvas. (See the differences

No matter which format you use, make sure your business model story communicates these 3 core jobs: value creation, value delivery, and value capture. 

Here's how you visualize them on a Lean Canvas:

Customer Value Creation

You create value for your customers with your unique value proposition (UVP). In order to create an effective UVP, you have to first deeply understand your customers and their problems. You are then in the best position to design a solution from which you derive your UVP. (See how to craft an effective UVP)

Customer Value Delivery

You deliver value to your customers through your solution -- which customers find through your channels. The cost of value delivery is captured on your cost structure box. 

When taking a lean approach, the emphasis is on racing to deliver customer value because demonstrating value creation is the riskiest assumption at the outset of any project. If you don't create value for your customers, you won't be able to capture any value back (aka get paid). 

This is why it is prudent to start with a minimum viable product (MVP) versus your fully realized vision of your finished solution. (See what is a minimum viable product)

Customer Value Capture

You capture value back from your customers through your revenue streams. For business modeling purposes, it is important to list both your sources of revenue and specific pricing. If you aren't sure about specific pricing yet, ballparks are okay.

The mistake a lot of entrepreneurs make is pricing their products against their solutions by slapping a small margin over what it costs them to deliver value. This is a mistake because your customers don't care about your costs, they care about the value they capture from your product. By anchoring your pricing model against customer value creation, you not only make it easier for customers to buy from you, but you often are also able to charge more for your products with a value-based versus cost-based approach. 

How long does it take to create a business model?

There are 2 parts to creating a business model: business model design, and business model development. You can sketch your initial business model in 20-30 mins. Unlike a traditional business plan, the goal isn't seeking perfection, but a snapshot of your current understanding. You then identify and prioritize your riskiest assumptions and formulate a validation strategy which you then test with small and fast additive experiments. 

The learning generated from the experiments guides your understanding of risks and helps continually refine your business model from your initial sketch to a repeatable and scalable business model. This is the business model development process.

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Capture Your Business Model with a Lean Canvas
Lean Canvas is a 1-page business planning tool that gets your idea across.

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