Business Model Design

---
name: business-model-design
description: Decide how the business creates, delivers, and captures value, and check the pieces are consistent with each other. Use when starting something, or when growth is not converting into a viable business.
---

# Business model design

A business model is a set of choices that must fit together: who you
serve, what you charge, how you reach them, and what it costs to
deliver. Most failures are inconsistency between these rather than a bad
idea.

## Method

1. **Name the customer and the job precisely.** Everyone is not a
   customer, and a model built for everyone fits nobody's willingness to
   pay.
2. **Match the revenue model to how value accrues.** Subscription for
   ongoing value, transactional for episodic, usage-based when value
   scales with consumption (see saas-pricing).
3. **Check the channel can carry the price.** A low-priced product
   cannot support a high-touch sales motion, and this mismatch kills
   more companies than pricing alone.
4. **Identify the key resource and cost driver.** What the business must
   own or do exceptionally, and where the money actually goes.
5. **Test the model against its own economics.** Contribution margin,
   payback, and retention have to work at the intended price and channel
   (see unit-economics).
6. **Look for structural advantages in the model itself.** Prepayment,
   negative working capital, and marketplace dynamics are model choices
   that change the cash picture entirely.
7. **Change one element at a time when iterating.** Changing price,
   segment, and channel together makes the result uninterpretable.

## Boundaries

A coherent model can still fail on execution or timing. Models that work
elsewhere do not transfer directly, since local conditions and
regulation differ. Pivoting the model is expensive once customers and
systems depend on the current one.