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Introduction

Business Model Generation is a guide to the highly influential business model canvas. This canvas was co-created by 470 practitioners from 45 countries. The book features practical innovation techniques used by leading consultants and companies worldwide. It is currently used by P&G, Amazon and Tesla to improve business efficiency. The book features a highly visual, 4-color design that simplifies powerful strategic ideas and tools.

Business Model Building Blocks

“A business model describes the rationale of how an organization creates, delivers, and captures value” - Alexander Osterwalder

The foundation of business models should always be what the authors call a Business Model Canvas. This canvas should provide a visual prompt for participants to focus on the crucial criteria. The aim of a business model canvas is to focus the discussion on strategic thinking rather than being distracted by small operational details. The building blocks that form this canvas make it dynamic. This means some options in certain sections will impose limits on or amplify other sections.

The authors provide nine different building blocks that every business should incorporate into their business model canvas:

1. Key Partners - You can start to control more market share simply by working together with other businesses. This cooperation can lead to a superior product and better supplier links.
2. Key Activities - Your company will have its own key activities that lead to profit. 
3. Value Propositions - These are groups of benefits which incentivize clients to work with you over your competitors. You can improve this category by innovating new products or optimizing them to fit client needs.
4. Customer Relationships: Different industries and customers require different types of assistance.
5. Customer Segments - Try to target specific groups of customers to gain competitive advantage in a few key areas. These groups are called customer segments.
6. Key Resources - These resources can be used to gain a competitive advantage. This includes superior talent or land.
7. Channels - You must develop communication channels other than advertising. Every product must be able to be scrutinized.
8. Cost Structure - Your cost structure will determine your business structure. This is because your cost structure will place constraints on other parts of the business. 
9. Revenue Streams - The authors describe the revenue streams as the arteries of the business model. This is because they obtain income but impose certain constraints on operations.

Business Model Patterns

While reviewing your business model building blocks and the model they create you are likely to notice patterns. There will be some patterns unique to your business but there are also five patterns that are extremely common across all business sectors. The authors argue that understanding these patterns will help you to understand the synergy and tradeoffs associated with certain building blocks.

Unbundled Models

This is where an organization splits three aspects into their own discrete identities. This is most common in businesses where they are actually offering multiple different services, like telephone companies who also offer broadband. Unbundling these services will prevent decisions in one area leading to limitations for the other areas. The authors offer an example of banking to explain the importance of unbundling services:

• The bank simultaneously advises wealthy clients and sells financial instruments. The former is a long-term business.
• The bank wants to sell its financial instruments to competing banks for extra revenue. But, this could hurt their competitive position.
• There is a clash between the advisory division and the product division. The former was to offer the best advice while the latter wants to sell as much of their product as possible. 
• So, to remain efficient in both arms of the business, unbundling is required.

Long Tail

Long tail businesses aim to diversify their products rather than focusing on one best selling. As these niche products will likely ebb and flow in popularity, it is crucial that a wide variety of products are chosen. Long tail models like this can be effective but they require a few key features:

1. Efficient operation
2. Low inventory costs
3. Access to or control of a mass market platform

An industry that has often neglected the long tail approach is book publishing. This sector would traditionally focus solely on editing, marketing, design and printing of books. They could only offer this service to a finite number of writers, so they spent lots of time and money on screening books. The authors offer the example of Lulu.com to challenge this traditional approach. They wanted to serve a large number of authors who may not have had opportunities with other book publishers. Rather than spending their resources on screening, they spent it on a platform that allowed authors to essentially do all the publishing work themselves. So, Lulu.com is not worried about finding the needle in the haystack of best sellers. They have an economy of scale whereby they have so many authors they are guaranteed some success. Lulu.com is an example of effectively combining a multi-sided platform with a long tail model.