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It may not be what you think.

BY FAISAL HOQUE

Vivek Wadhwa, entrepreneur turned academic writes in one of his blogs:

“Everyone talks about business models. But I’ll bet that if you quizzed a random sample of these people, you’d find that they really don’t know what a business model is.”

I couldn’t agree more. In essence the technology-driven transformation in today’s business environment puts a premium on the model we adopt. Not only are entirely new business models possible, they are also necessary for survival. And they must be so designed that they can morph into something new on the fly when the environment changes. A lesson being learned by far too many organizations, and a little too late, today.

How NOT to Define a Business Model

“Business model” is one of those terms that takes on the meaning of its user, and we should begin with a clear understanding of what it is and isn’t. We can’t always be sure that one person’s “business model” isn’t another’s “value proposition,” “business case,” “revenue model,” “strategy,” and so on. Before explaining what I think the term ought to mean, let me point out a few of the ways people use it that have little bearing on reality:

The Cocktail Napkin One-Liner – The first way that “business model” is used mistakenly is when people associate it with a convenient one-liner about what a company does. The proverbial business idea scribbled on a cocktail napkin, for example, falls squarely into this camp. Although this gross simplification is too shallow, it does, perhaps inadvertently, echo one of the crucial attributes of a proper business model: It represents a big picture of the business.

The Financial Model in Disguise – Ironically, the second way that people misapply the term is almost exactly the opposite of the cocktail napkin mistake: Rather than oversimplify to the point of jingoism, they dive in at a level of complexity that precludes a big-picture view. This happens when a business model is equated with a financial model.

Before we can build even the most basic financial model, we have to first make some important assumptions (which industry to compete in, who the customers are, etc.) that preclude the unbiased, big picture that is integral to our purposes. When I use the term “business model,” I mean something different from both the cocktail napkin one-liner and the financial model in disguise. In my view, a business model is a big picture that captures a snapshot of the enterprise and communicates direction and goals to all stakeholders.

Read the full article @FastCompany.

[Image: Flickr user Garreth Wilcock]