what does a business model look like

Most managers think the key to growth is developing new technologies and products. But often this is not so. To unlock the next wave of growth, companies must embed these innovations in disruptive new business models.

IBM’s Institute for Business Value conducted a study in 2009 and found that 70% of companies are actively engaging in business-model innovation.

They also found that 98% of businesses were continually modifying their model to some extent.

Core Values and Competitive Advantage

You’ve seen examples of this, perhaps without realizing it.

Consider taxis and Uber, which both have essentially the same core value to customers of providing flexible, on-call transportation.

Uber has a drastically different business model. When they started up, their business model was their main competitive advantage .

Fast forward to today, and Uber and other similar businesses have overtaken taxis .

3 Traits of a Good Business Model

Before we look at specific models you may want to consider using, let’s briefly go over the attributes of a solid business model .

1. They Match Up With Company Goals and Values

Your business model comes after you define what your company is trying to do.

Certain models will match up with your goals and values , and some won’t. If you start a diamond shop but try to implement a freemium model, there’s essentially no way you’ll succeed.

Pick a model that complements your mission and the way you want to accomplish it .

2. A Business Model Should be Robust

You don’t want to base your entire business off a model that might not be effective after a year or two.

Your business model needs to consider:

Taking time to think of these when picking a business model may save you from a big mistake.

3. They Leave Opportunity for Innovation

You’re likely not going to get everything in your business model right the first time.

As Osterwalder noted, business models are based on assumptions. Things rarely go as planned.

If your business model depends heavily on all your assumptions being correct, it’s too rigid. Create a business model that you can re-evaluate and improve upon over time.

The 20 Types of Business Models (with Examples)

Mark W. Johnson has a great book called How to Seize the White Space for Transformation .

In it, he covers 20 types of potential business models that you can choose from and their primary method of monetization.

I’ll summarize them here and provide examples of each, but if you’d like more detail, it’s a good book to pick up.

Affinity Club

An affinity club model is based on partnerships with other organizations. By buying or using your products, customers also get special access to other perks, giving them extra incentive.

Of course, you’ll need to provide an incentive to those partners to get them on board.

This is best used in competitive fields where products are all similar.

A great example of this is MBNA, who uses this model with their credit cards. Different cards come with different perks , so they can target a wide audience.

For example, one card is targeted towards football (soccer) fans. If you sign up for a Manchester United card, you get points that can be exchanged for their merchandise.

There are also monthly draws and other perks .

Automation-Enabled Services

This model relies on technological advancement and is tough to use unless you have a good deal of specific technical knowledge yourself.

The goal is to automate services that typically use human labor , so your operating costs are reduced.

For example, instead of going to a financial advisor, you can go to Betterment . It’s an automated online financial advisor that gives you a similar quality of advice as most financial advisors would.

Video: An overview of how Betterment uses technology to provide financial advice.

A broker connects buyers to sellers and gets a small fee for each transaction.

There are many examples of this:

Kickstarter.

Any marketplace that allows others to sell on it, and focuses on bringing in customers for those sellers is using a brokerage model.

A bundling business model packages related products together to make a more convenient and enjoyable experience for customers.

A classic example of this is the fast-food value meal, but that can be replicated fairly easily.

A better example is the combination of iPod and iTunes. You can’t use an iPod without iTunes, so each new iPod customer results in a new iTunes user (and potential customer).

Bundling is very effective when a company is launching a new business and can leverage existing success as Apple has done.

Crowdsourcing

Don’t confuse a crowdsourcing business model with crowdsourcing funding from sites like Kickstarter.

A crowdsourcing business model relies on user-generated content . The business focuses on making contributions easy and providing an incentive for users to contribute (usually money or a charitable goal).

YouTube is one example of a crowdsourcing model, where users upload videos, and most hope to generate revenue from those videos.

Wikipedia is another great example, where all the content on the site has been created for free by willing users who want to spread knowledge.

Data-Into-Assets

The idea behind a data-into-assets is to obtain valuable data that can be sold to willing buyers.

This is one of the few that can run into real ethical dilemmas.

For example, this is the business model that Facebook uses. The site is free for users, but in return, Facebook collects massive amounts of data about users and uses that to generate revenue through advertisers.

The Dangers of Data

They are facing large privacy lawsuits that could set a precedent for other businesses.

It’s hard to know where to draw the line, as Google is another data-into-assets business that most have no big issues with. They scrape data from just about all sites and transform that into search results that users desire.

Then they sell ads to advertisers on the search results.

Digital Platforms

Since the beginning of the Internet, creating a digital platform has been a viable business model for some companies.

For example, OpenTable started in 1998, which is a site that provides an online restaurant-reservation service.

There are still opportunities to be innovative in an industry simply by providing a useful product online.

To use this, you can apply modern technology to outdated industries , or apply new technology to any industries ready for it.

We’re also seeing new digital platforms innovate upon old ones by leveraging new technology like machine learning and blockchain technology. These could almost be considered business models of their own.

Disintermediation

This mouthful simply means directly delivering a service or product instead of through a middleman.

Tesla is a great modern example of this. Instead of selling cars through a dealership, you buy online and skip the salesman. Not only is it more convenient, but it reduces costs for consumers .

Fractionalization

Fractionalization consists of letting customers buy a portion of a product or service.

A good example of this is a time-sharing condo. People buy part of the condo and can use it during a certain time of the year that they purchased it from.

It’s a great model when your target customers only want your product or service part of the time . They get the full benefits but don’t have to pay full price.

Freemium is a modern business model that is often used by software companies.

Because there’s very little overhead in serving data, businesses can choose to provide a portion of their service or product for free, but requiring payment for full access .

Spotify and Dropbox

Dropbox gives you a small amount of free cloud storage and asks you to upgrade to a paid plan if you need more space.

Spotify offers free music but has ads. If a user buys a paid plan, they get rid of the ads.

Freemium lets you reach a wider audience, and often get more referrals, which can lead to a steady stream of customers.

Leasing is nothing new and has been used by car dealerships for many years. It works best for expensive products.

When a customer often can’t afford to pay cash or only needs a product one time, you offer them use of the product for a rental fee .

A low-touch model takes a high-end offering and reduces the cost (and quality) of that product or service.

Competing on cost is a difficult business model to succeed with, but can work if you get enough customer volume.

Walmart is a great example of this, who sell lower-quality products than most competitors, but at a better price.

Negative Operating Cycle

This is a business model popularized by Amazon.

It’s especially popular with online retail businesses and allows businesses to sell products at a low-profit-margin (or even at cost), and still be highly profitable.

How Does It Work?

By maintaining a low inventory and getting payment upfront. Of course, you need a reliable and fast fulfillment process for this to work effectively.

The profits then come from the volume of sales that are attracted through low prices, or by utilizing the money sitting around before having to pay suppliers.

That money generates interest or can be used to fund long-term investments or research and development.

Pay-As-You-Go

This business model is exactly what it sounds like, customers pay as they use your service.

This can only be used in certain industries where customers regularly consume varying amounts.

For example, car2go lets you pay for car rentals by the minute, hour, or day.

Some web hosts , like Cloudways , let’s you pay only for the resources your websites actually use .

Razors and Blades

Razors and blades can be interpreted literally or symbolically.

This business model consists of bundling 2 products together that require each other. Then, you sell the main component (razor) at no profit or even a loss but recoup that because the complementary product has high margins (blades).

Another good example of this is the personal printer. They’re cheap to buy, but the ink is very expensive and high margin.

Reverse Razors and Blades

This is the same as above, but the two products are split.

You offer the “blades” at a very low cost in order to get people to buy the expensive and high margin “razor.”

One example of this is Amazon Kindle books, which are very cheap, and may tempt consumers into purchasing an expensive Kindle to read the books on.

Product-To-Service

There are many times that people want to use a product, without buying it. A product-to-service model lets people pay a service fee to have access to a product.

A good example of this is Zipcar, which is a car-sharing company. Members pay a monthly or annual fee to have access to car reservations as needed.

Standardization

If you can take something that has a lot of variabilities and create a consistent, standardized product, you stand out from competitors.

Dominos did this with their “30 minutes or it’s free” offer for pizza delivery, which at the time was unheard of.

Subscription Club

A subscription club lets customers buy a product on a regular basis.

Netflix and Dollar Shave Club also would be subscription clubs.

User Communities

Finally, some businesses create paid user communities that generate revenue from fees and possibly advertising.

The most famous example of this is Angie’s List, a home services review community that required payment until a little while ago.

It’s a tough model because most people prefer free forums and other types of communities, but good if people will pay for higher quality information.

How to Design Your Business Model

We can finally get to some practical work on your business model.

As mentioned before, monetization methods are not enough on their own.

There are 2 main approaches that you can take if you would like to create a new business model or refine an existing one.

Business Model Canvas

The Business Model Canvas comes from Alexander Osterwalder.

It’s a chart that includes the 9 important elements of a business model.

9 Sections of The Business Model Canvas

Let’s go through the 9 sections, each one includes questions to prompt you if you get stuck:

Lean Business Model Canvas

The Business Model Canvas is a general model that works well in most cases.

However, the Lean Canvas has been created by Ash Maurya as an adaption that’s more suited to startups and small businesses with lots of uncertainty. You can find an image file to print out here .

Lean Canvas Sections Explained

Again, there are 9 sections, but it’s “easier” to fill out for these types of businesses.

Here’s a brief description of each section:

If you got this far, you understand business models more than most entrepreneurs.

I’d highly recommend spending just another ten minutes or so and quickly work through either the Business Model Canvas or Lean Canvas .

Even if you can’t fill it out completely, you’ll quickly realize which areas of your business models need more attention and strengthening.

What a Big-Data Business Model Looks Like

R “Ray” Wang

There are three main ways to profit from the data revolution.

The rise of big data is an exciting — if in some cases scary — development for business. Together with the complementary technology forces of social, mobile, the cloud, and unified communications, big data brings countless new opportunities for learning about customers and their wants and needs. It also brings the potential for disruption, and realignment. Organizations that truly embrace big data can create new opportunities for strategic differentiation in this era of engagement. Those that don’t fully engage, or that misunderstand the opportunities, can lose out.

There are a number of new business models emerging in the big data world. In my research, I see three main approaches standing out. The first focuses on using data to create differentiated offerings. The second involves brokering this information. The third is about building networks to deliver data where it’s needed, when it’s needed.

Differentiation creates new experiences . For a decade or so now, we’ve seen technology and data bring new levels of personalization and relevance. Google’s AdSense delivers advertising that’s actually related to what users are looking for. Online retailers are able to offer — via FedEx, UPS, and even the U.S. Postal Service — up to the minute tracking of where your packages are. Map services from Google, Microsoft, Yahoo!, and now Apple provide information linked to where you are.

Big data offers opportunities for many more service offerings that will improve customer satisfaction and provide contextual relevance. Imagine package tracking that allows you to change the delivery address as you head from home to office. Or map-based services that link your fuel supply to availability of fueling stations. If you were low on fuel and your car spoke to your maps app, you could not only find the nearest open gas stations within a 10-mile radius, but also receive the price per gallon. I’d personally pay a few dollars a month for a contextual service that delivers the peace of mind of never running out of fuel on the road.

Brokering augments the value of information . Companies such as Bloomberg, Experian, Dun & Bradstreet already sell raw information, provide benchmarking services, and deliver analysis and insights with structured data sources. In a big data world, though, these propriety systems may struggle to keep up. Opportunities will arise for new forms of information brokering and new types of brokers that address new unstructured, often open data sources such as social media, chat streams, and video. Organizations will mash up data to create new revenue streams.

The permutations of available data will explode, leading to sub-sub specialized streams that can tell you the number of left-handed Toyota drivers who drink four cups of coffee every day but are vegan and seek a car wash during their lunch break. New players will emerge to bring these insights together and repackage them to provide relevancy and context.

For example, retailers like Amazon could sell raw information on the hottest purchase categories. Additional data on weather patterns and payment volumes from other partners could help suppliers pinpoint demand signals even more closely. These new analysis and insight streams could be created and maintained by information brokers who could sort by age, location, interest, and other categories. With endless permutations, brokers’ business models would align by industries, geographies, and user roles.

Delivery networks enable the monetization of data . To be truly valuable, all this information has to be delivered into the hands of those who can use it, when they can use it. Content creators — the information providers and brokers — will seek placement and distribution in as many ways as possible.

This means, first, ample opportunities for the arms dealers — the suppliers of the technologies that make all this gathering and exchange of data possible. It also suggests a role for new marketplaces that facilitate the spot trading of insight, and deal room services that allow for private information brokering.

The most intriguing opportunities, though, may be in the creation of delivery networks where information is aggregated, exchanged, and reconstituted into newer and cleaner insight streams. Similar to the cable TV model for content delivery, these delivery networks will be the essential funnel through which information-based offerings will find their markets and be monetized.

Few organizations will have the capital to create end-to-end content delivery networks that can go from cloud to devices. Today, Amazon, Apple, Bloomberg, Google, and Microsoft show such potential, as they own the distribution chain from cloud to device and some starter content. Telecom giants such as AT&T, Verizon, Comcast, and BT have an opportunity to also provide infrastructure, however, we haven’t seen significant movement to move beyond voice and data services. Big data could be their opportunity.

Meanwhile, content creators — the information providers and brokers — will likely seek placement and distribution in as many delivery networks as possible. Content relevancy will emerge as a strategic competency in delivering offers in ad networks based on the context by role, relationship, product ownership, location, time, sentiment, and even intent. For example, large wireless carriers can map traffic flows down to the cell tower. Using this data, carriers could work with display advertisers to optimize advertising rates for the most popular routes on football game days based on digital foot traffic.

There are many possible paths to monetize the big data revolution ahead. What’s crucial is to have an idea of which one you want to follow. Only by understanding which business model (or models) suits your organization best can you make smart decisions on how to build, partner, or acquire your way into the next wave.

R “Ray” Wang is Principal Analyst and CEO at Constellation Research and the author of Disrupting Digital Business: Create an Authentic Experience in the Peer-to-Peer Economy

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The 7 Elements of a Strong Business Model

Envisioning the many moving parts of a functioning business is the first step to success.

By Larry Alton • Apr 22, 2015

Opinions expressed by Entrepreneur contributors are their own.

Creating a business model isn't simply about completing your business plan or determining which products to pursue. It's about mapping out how you will create ongoing value for your customers.

Where will your business idea start, how should it progress, and when will you know you've been successful? How will you create value for customers? Follow these simple steps to securing a strong business model .

1. Identify your specific audience.

Targeting a wide audience won't allow your business to hone in on customers who truly need and want your product or service. Instead, when creating your business model, narrow your audience down to two or three detailed buyer personas. Outline each persona's demographics, common challenges and the solutions your company will offer. As an example, Home Depot might appeal to everyone or carry a product the average person needs, but the company's primary target market is homeowners and builders.

2. Establish business processes.

Before your business can go live, you need to have an understanding of the activities required to make your business model work. Determine key business activities by first identifying the core aspect of your business's offering. Are you responsible for providing a service, shipping a product or offering consulting? In the case of Ticketbis , an online ticket exchange marketplace, key business processes include marketing and product delivery management.

3. Record key business resources.

What does your company need to carry out daily processes, find new customers and reach business goals? Document essential business resources to ensure your business model is adequately prepared to sustain the needs of your business. Common resource examples may include a website, capital, warehouses, intellectual property and customer lists.

4. Develop a strong value proposition.

How will your company stand out among the competition? Do you provide an innovative service, revolutionary product or a new twist on an old favorite? Establishing exactly what your business offers and why it's better than competitors is the beginning of a strong value proposition. Once you've got a few value propositions defined, link each one to a service or product delivery system to determine how you will remain valuable to customers over time.

5. Determine key business partners.

No business can function properly (let alone reach established goals) without key partners that contribute to the business's ability to serve customers. When creating a business model, select key partners, like suppliers, strategic alliances or advertising partners. Using the previous example of Home Depot, key business partners may be lumber suppliers, parts wholesalers and logistics companies.

6. Create a demand generation strategy.

Unless you're taking a radical approach to launching your company, you'll need a strategy that builds interest in your business, generates leads and is designed to close sales. How will customers find you? More importantly, what should they do once they become aware of your brand? Developing a demand generation strategy creates a blueprint of the customer's journey while documenting the key motivators for taking action.

7. Leave room for innovation.

When launching a company and developing a business model, your business plan is based on many assumptions. After all, until you begin to welcome paying customers, you don't truly know if your business model will meet their ongoing needs. For this reason, it's important to leave room for future innovations. Don't make a critical mistake by thinking your initial plan is a static document. Instead, review it often and implement changes as needed.

Keeping these seven tips in mind will lead to the creation of a solid business plan capable of fueling your startup's success.

Freelance Writer & Former Entrepreneur

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What Is a SaaS Business Model and How Does It Work?

Software as a Service (SaaS) is the business model of today. According to a study done by Virayo , over 80% of businesses use some type of SaaS application.

SaaS applications run in the cloud, and they are often accessible both through a web interface, as well as through desktop and mobile apps (as needed).

For a recurring monthly fee, people have a powerful online tool at their disposal. SaaS companies benefit from the recurring revenue and can roll out new features as soon as they’re ready.

However, for a novice company that wants to enter the software realm, the SaaS business model can be somewhat difficult to understand than other archetypes. In this article, we hope to clarify what a SaaS business model is and how it works.

How Does a SaaS Company Works?

So, what is SaaS business model? SaaS is software owned, supplied, and managed remotely by one or more of its providers.

SaaS companies maintain servers, databases, and software that enables the product to be used over the internet. Users can also access and use the software from almost any device. Generally, the users pay a recurring subscription fee to have access to the software. The more popular business model for SaaS include:

Check out if your SaaS is a CRM or similar: How Introducing a CRM Helps Your Sales

Why Do Businesses Adopt the SaaS Model?

Because it works! Software installed on a device can undergo harmful interactions with other software and OS errors. In SaaS business model, users don’t have to install anything to access the product features.*

SaaS is cheaper than software sold via other billing models, which convinces users to adopt the product. Developers love SaaS because it is developed consistently and run on the company’s infrastructure. Investors love SaaS revenue because it is recurring, which leads to predictable cash flow.

The Stages of a SaaS Business

For every SaaS business model , there are three primary stages that they go through:

Benefits of the SaaS Business Model

Adopting a SaaS Business model over standard software installations is beneficial to both the product vendor and customer.

Benefits for the Customer

A business model for SaaS favors your target customers. It minimizes costs and increases product usage flexibility. The key benefits of SaaS for your target customers include:

Lower Costs : SaaS platforms are distributed on a subscription basis. That eliminates licensing fees involved in traditional software installs.

It also allows your clients to increase or decrease their expenses based on usage. Additionally, because SaaS solutions are cloud-based, infrastructure costs for customers are eliminated.

Flexibility & Scalability : The SaaS business model offers your customers greater flexibility. If you base your pricing on a usage metric, then your clients will only pay more if they’re using the product more often.

This provides your customers with the opportunity to grow their business with your software . It also eliminates the risk of paying a hefty fee in advance for a product that might not suit their needs.

Quick Benefits : Because SaaS tools are cloud-based, clients see immediate gains. In most cases, it is as easy as signing up with a name and email address to instantly access product functions.

Higher Adoption : The ability to use SaaS tools anywhere in the world has increased their adoption. If users experience immediate benefits from the software, the chances of sticking with the product are much higher.

Free Upgrades : For many companies, downtime can be costly. In most cases, it happens during product upgrades. SaaS software upgrades are generally done without experiencing user downtime or with shorter maintenance windows.

Benefits of The SaaS Business Model Vendors

The benefits of the SaaS business model for vendors include:

No Sales Friction : Most of the SaaS solutions are priced per user or per month. This price allows the end-users to calculate software costs easily. It eliminates the sales friction that can come as a result of IT budget approval.

Recurring Revenue : One of the greatest benefits of the SaaS business model is that it allows a recurring stream of revenue which helps you control churn.

Pivoting & Improvements : With SaaS, you can continuously update your product. That will help fine-tune your product so that you can increase retention and attract new customers in the process.

Easier Free Trial Support : On-premise software support can be lengthy and tedious. With SaaS, you can provide support to users immediately as well as a free 7, 14 or 30-day trials. Thereupon, the user can continue with the free trial or upgrade to a paid level when they can.

Easier to Update and Support : As a SaaS company owner, you control the system and the environment that the product is being developed in.

Easier to Update and Support: As a SaaS company owner, you have to know how to value a SaaS company, and that includes controlling the system and the environment that the product is being developed.

For example, if you build a product that needs to be installed on multiple devices, it will need to support edge cases and different OSs, etc. With a browser-related SaaS (e.g. Asana ), you control the infrastructure on which it is being used .

SaaS Sales Approaches

There are two major ways to sell SaaS: Low-touch and high-touch sales. The sales approach defines whether you sell to B2C or B2B customers.

Low-Touch SaaS Sales

SaaS is a product that can sell itself. The main sales channels are the SaaS website , email, and in many cases, a free trial optimized for onboarding from the start. In general, low-touch SaaS is sold on a monthly subscription.

Basecamp is an excellent example of a low-touch SaaS business.

High-Touch SaaS Sales

Some prospective users need further persuasion in deciding whether to use a particular product. High-touch SaaS is all about using human staff to convince your potential clients to adopt the software or continue using it.

In SaaS, most of the high-touch sales are B2B focused. The key to the success of this sales model are the sales teams. More specifically, sales development representatives (SDRs), account executives (AEs), and account managers (AMs).

Sales teams are usually strengthened by marketers that keep the lead pipeline full for the sales team to assess and close. Salesforce is a typical example of a high-touch SaaS business.

Key SaaS Metrics

Metrics are the indication for the health of any business model, not only SaaS. However, among the abundance of things that you can measure when growing your software business, some metrics are more important than others, and you need to keep a close eye on:

The churn rate points to the number of customers that left or unsubscribed within a specified period. A SaaS business model without churn does not exist. Products evolve all the time, and users leave one company for another in a flash.

The churn rate can tell you exactly how satisfied the users are. However, if it’s on a constant rise, it’s a sign that things are going downhill in your business. For SaaS, 5-7% of churn rate is the acceptable level.

For calculating churn rate, you can use the following formula:

The # of Churned Customers (for a given period) / Total # of Customers

Customer Acquisition Cost (CAC)

Knowing how much time and money you need to invest to acquire a new user is one of the best ways to determine whether your SaaS company is profitable. To calculate it, use the following formula:

Total Investment in Sales & Marketing / # of Acquired Clients

Monthly Recurring Revenue (MRR)

MRR is the anticipated revenue that can be expected per month. Measuring MRR can help you understand the month-to-month variations in your income. To calculate it, you can use the following formula:

MRR = # of Customers X Average Revenue

Average Revenue Per Account (ARPA)

The average revenue per account (ARPA) is a metric that shows how much revenue is derived from one client, in most cases, per month, quarterly, or yearly. To calculate it, use the following formula:

Total MRR / Total # of Customers

Customer Lifetime Value (CLV)

Customer lifetime value (CLV) is the average revenue that you can get from users during the period that they’re subscribed to for the software. It can be calculated according to the following formula:

CLV = (ARPA x Gross Margin %) / Churn Rate

Customer Retention Rate (CRR)

Customer retention is a metric that shows you the percentage of customers who have continued to pay for using your software. To calculate the retention rate for a given period, you can use the following formula:

(# of Customers that Continue to use the Software / Total # of Customers at the Start of the Time Period) x 100

WordPress SaaS Considerations

WordPress is no longer a blogging platform . As the most powerful CMS in the marketplace, today, you can practically build anything, including software-as-a-service. It allows SaaS businesses to use a cohesive platform and technology, with a higher product focus and flexibility than any other CMS.

Furthermore, WordPress provides SaaS companies with ready-made plugins that can be used as a foundation for the software. For example, on top of WordPress, we’ve built DX Sales CRM , a high-end CRM plugin:

With WordPress, customization is much smoother, and you can install various plugins and add more functionalities to your layouts. The development process is modular, and you can extend your SaaS according to the requirements.

However, along with the benefits that WordPress provides, there ought to be a few challenges along the way when building SaaS on top of the CMS.

Our CEO, Mario Peshev, throughout the years of developing high-scale WordPress SaaS platforms, learned about and shared some of the biggest infrastructural hurdles that any SaaS business needs to expect on his blog , namely:

Wrapping Up

The SaaS business model provides you with endless business opportunities. It’s widely accepted, and its adoption will continue to rise. Coupled with the market demand and competition, you need to pay attention to the SaaS industry dynamics and work to provide unique solutions and value to your customers.

*This depends on the SaaS product and if there are any apps provided for accessing/using the software on desktop, mobile, and in a web interface.

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We have built from scratch or developed components for various Software as a Service solutions built on WordPress.

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The SaaS business model can track many metrics that other businesses cannot track on a monthly scale, such as MRR, efficiency, and churn, among others. This opportunity allows SaaS owners to constantly develop new versions and updates, offer new programs, and work out bugs in systems to provide seamless service.

Starbucks Chain Business Model In A Nutshell

Starbucks origin story.

In 1983, Howard was a young man walking through the streets of Milan and Verona.

As Howard Schultz would put it, he became “enamored” by people’s coffee experience in the Italian bars.

Places where the Barista knew the name of each person entering it, and the coffee experience was about more than just a cup of coffee; it was about creating this sense of community.

That’s how Howard Schultz set out to bring that same experience back to the US.

At that time in 1983, Starbucks had three stores in Seattle.

However, it wasn’t serving any beverage, but only coffee to bring home.

When Howard looked at the way he experienced Italian coffee, he understood the real segment of the business that could have made Starbucks truly successful was serving coffee directly to consumers.

The objective was to replicate the Italian experience back in the US. Thus, making Starbucks – in the words of its founder – the third place between work and home.

What’s Starbucks’ mission?

starbucks-mission-statement-vision-statement:.png

Starbucks’ mission is to provide the so-called Starbucks Experience, consisting of “superior customer service and a seamless digital experience as well as clean and well-maintained stores that reflect the personalities of the communities in which they operate, thereby building a high degree of customer loyalty. “

What are the primary segments of the business?

The main Starbucks segments can be broken down in:

At the geographical level instead, Starbucks operates in four main regions:

Is Starbucks a chain or franchising? Understanding Starbucks’ business strategy

The answer is both if we look at the mix of operated vs. licensed stores.

However, in revenue generation, company-operated stores made up more than 80% of the company’s revenues in 2022.

As specified by Starbucks in its annual reports:

The mix of company-operated versus licensed stores in a given market will vary based on several factors, including our ability to access desirable local retail space, the complexity and expected ultimate size of the market for Starbucks, and our ability to leverage the support infrastructure within a geographic region.

As the company further highlighted:

Our retail objective is to be the leading retailer and brand of coffee and tea in each of our target markets by selling the finest quality coffee, tea, and related products, as well as complementary food offerings, and by providing each customer with a unique Starbucks Experience.

To understand why Starbucks chose to increase its company-owned stores substantially, we need to look at the customer experience:

The Starbucks Experience is built upon superior customer service and a seamless digital experience as well as clean and well-maintained stores that reflect the personalities of the communities in which they operate, thereby building a high degree of customer loyalty

Thus, Starbucks wants to keep as much control over its customer experience by operating most of its stores.

In the case, for instance, of a business model like McDonald’s , the company has been able to control the look and feel of its franchised restaurants thanks to the fact it operates a commercial real estate business .

Indeed, McDonald’s leases and buys the land where franchised restaurants are operated, thus keeping tight control over their operational activities.

This formula worked for McDonald’s as the company built a multi-billion commercial real estate empire .

Starbucks, instead, picked the opposite route where the properties are primarily bought to operate its company’s owned stores and keep as much control over the experience through this business strategy .

Where do most of Starbucks’ revenues come from?

As of 2022, company-operated stores accounted for over 80% of total net revenues. At the same time, the rest came from licensed stores and other revenue.

As specified in the Starbucks annual reports, “ In our licensed store operations, we leverage the expertise of our local partners and share our operating and store development experience. Licensees provide improved and at times, the only access to desirable retail space. “

It is important to remark that even though company-operated stores have higher gross margins . They also have a lower operating margin compared to licensed stores.

What are the most sold Starbucks products?

As specified in its annual reports:

Starbucks is committed to selling the finest whole bean coffees and coffee beverages. To ensure compliance with our rigorous coffee standards, we control coffee purchasing, roasting and packaging and the global distribution of coffee used in our operations. We purchase green coffee beans from multiple coffee-producing regions around the world and custom roasts them to our exacting standards for our many blends and single-origin coffees.

Regarding revenue generation, beverages represented most of the company’s net sales in 2022. Followed by food and other products.

Beverages comprise f resh-brewed coffee, hot and iced espresso beverages, Iced Coffee, Cold Brew, Nitro, Frappuccino® coffee and non-coffee blended beverages, Starbucks Refreshers® beverages, and Teavana® teas.

How does Starbucks protect itself from the sudden change in the price of raw coffee?

As specified in its annual reports Starbucks “ buys coffee using fixed-price and price-to-be-fixed purchase commitments, depending on market conditions, to secure an adequate supply of quality green coffee. “

Thus, the company leverages large orders to guarantee supply at a fixed price. And as specified, “ price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. “

As the company further explains, “ for most contracts, either Starbucks or the seller has the option to “fix” the base “C” coffee commodity price prior to the delivery date. For other contracts, Starbucks and the seller may agree upon pricing parameters determined by the base “C” coffee commodity price. “

How much revenue does Starbucks make?

The US still represents the most critical geographic area in terms of revenues.

Starbucks’ transition toward a heavy company-owned business model

Starting in 2015, Starbucks completed the acquisition of a good chunk of former licensed stores, then became the company’s operated stores.

At the same time, Starbucks is unloading some of its previously operated stores to the licensee in some other geographic areas. More precisely

In short, in the last 3-5 years, Starbucks has gone through a substantial business model change.

As of 2018 skewed more toward company-operated stores.

Starbucks’ business model highlights

Visual Stories Contained In The Starbucks Business Model Analysis

Starbucks Business Model

Starbucks Revenue

Starbucks Strategy

Starbucks Store Strategy

Starbucks Revenue By Product

Starbucks Mission Statement

Starbucks Competitors

Starbucks Organizational Structure

Starbucks SWOT Analysis

More Resources

What Is Critical Chain Project Management? The Critical Chain Project Management In A Nutshell

About The Author

Gennaro Cuofano

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Thumbtack’s Business Model: How to Build a Billion-Dollar Marketplace

How did Thumbtack build a billion-dollar marketplace? Here’s what you need to know about Thumbtack’s business model and how it works.

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Want to know how Thumbtack succeeded in creating a successful, billion-dollar marketplace startup?

Today, you’ll learn all about Thumbtack’s business model, growth strategies and more and how to use this to grow your own marketplace business.

Want to learn more? Read on!

Source: Pexel

What does Thumbtack’s business model look like?

The way Thumbtack works is that service providers offer their services on the platform (the list of services is long and they include services like cleaning and house repairs). Customers post jobs, choose from bids by service providers and contract the business that is the most suitable for their needs.

Today, Thumbtack’s valuation is $1.7 billion. (However, Thumbtack has seen its revenues drop due to the COVID-19 crisis. It’s too early to say how this will affect the company in the long-term.)

And why is it valued so high? Thumbtack’s revenues have grown 125% year-over-year. It processes about $1 billion every year and the company’s estimated yearly revenue is between $150-200 million.

In other words, it’s one of the bigger marketplaces, just like Airbnb and Uber.

Of course, this was not always the case.

The company, founded in 2009, was launched as a marketplace for services. Thumbtack’s value proposition has been the same since day one: To provide all types of services all over the US. Initially, it didn’t attract many investors and it had to pivot several times to create a revenue model that worked.

And what does this revenue model look like? Here’s what you need to know.

How Thumbtack makes money

Today, Thumbtack makes money by selling leads to service providers. So, when someone opts to work with a service provider on the platform, Thumbtack will charge a fee from the service provider.

The cost per lead depends on the project size, market, and how many other available vendors there are.

Thumbtack vs TaskRabbit

When Thumbtack was founded, there weren’t that many similar marketplaces around. However, one of its main competitors, TaskRabbit, had already opened its doors in 2008. Today, TaskRabbit has been acquired by IKEA, while Thumbtack is still an independent business.

The main difference between TaskRabbit’s and Thumbtack’s business models is that Thumbtack works with professional service providers, whereas TaskRabbit’s service providers can be people who earn a side income from their services.

TaskRabbit is also present in fewer states and Thumbtack offers bidding for projects, which TaskRabbit doesn’t.

Now you know what Thumbtack’s business model looks like. But how did initially start growing -- and how did it grow so fast it got a billion-dollar valuation? That's what we’ll look at next.

How did Thumbtack grow its business?

When Thumbtack was founded , it got started in an economy that was in a recession. That made it so much harder to find funding (as is usual for similar, San Francisco-based companies), which forced the company to quickly come up with a profitable business model.

Different pricing models and markets

First, it tried a commission model where the vendors pay a percentage of their earnings to the platform. As this didn’t work out, the company went for a subscription model where vendors pay a certain amount for leads that they generate off of Thumbtack. This revenue model proved to be much more successful.

The other factor that helped the business get traction fast was that it focused on different “pockets” of the market that were lucrative (such as events). This meant that it could grow with scale in several different areas all at once.

Different ways to scale

Thumbtack used a few different ways to grow and scale its business early on.

For example, it created a tool that allowed providers to post a good-looking listing to Craigslist. That way, it was able to scrape Craigslist users to start using its own services.

Also, one of the ways Thumbtack retained its users was to upsell them to different services (for example, a user who had used a carpet cleaning service might try a moving service).

So, now you know what it took for Thumbtack to grow. Can you do the same? Let’s have a look.

Can you copy Thumbtack’s growth strategies?

The question you might be asking yourself right now is:

“Can I use these strategies to grow my own business?”

Every startup story has lessons to learn from. And so does Thumbtack -- you can certainly get inspired by its growth strategies.

Growing your business just like Thumbtack probably isn’t the best idea.

The company was founded in 2009 and marketplace businesses were not a huge deal back then. There were few competitors doing the exact same thing as Thumbtack.

In other words, Thumbtack had completely different challenges to solve when it started then you probably have now.

Here’s how to grow YOUR marketplace in the conditions that are prevalent today.

Find a niche!

First, Thumbtack didn’t really have a niche when it launched. It offered all types of services to everyone.

We always recommend you to choose a niche ( here and here ).

The reason is simple. With a niche, you stand out. The people you target understand why they should use your platform instead of another platform.

For example, if your platform connects pet sitters with pet owners, it will be much easier to get users to sign up than if your marketplace offers all kinds of services to everyone.

To get inspired, take a look at our customers Clik Trip , a curated photography marketplace connecting customers to recommended local photographers and high-quality photo experiences around the world, and Ellect , a marketplace that connects microenterprises with corporate and government procurement buyers.

Market your marketplace scalably

Thumbtack got early traction by scraping Craigslist. While that might have worked in 2009, it was already then against Craigslist’s terms and conditions. And today, it would be hard to pull off something similar.

Instead, use proven strategies to grow your marketplace. Yes, finding strategies that help you scale while being easy to execute is never easy. But to get started, you can engage with people in social media groups (Facebook, Reddit, and other online forums) and use this to grow a loyal audience. And once you have your first users, the list of things you can do to grow your marketplace is long:

Read our full marketing guide here.

Use a commission pricing model

Depending a bit on the type of marketplace you start, the most profitable pricing model is probably going to be a commission pricing model. Thumbtack, on the other hand, opted for a lead-based pricing model because commissions didn’t work for it.

If you’re unsure, try a few pricing models and see which one gets you the most users and profits. Read more about pricing here.

Get started faster

You have one clear advantage over Thumbtack:

Many of the tools that make it extremely easy to start a marketplace didn’t exist in 2009.

Today it’s easier than ever to create, market, and grow your marketplace.

Take Kreezalid, our own business.

We offer a no-code marketplace website SaaS that lets you set up your own marketplace website with a few clicks.

By tapping into these types of tools, you can start your own marketplace right away.

Want to learn more?

There you have it. Now you know what Thumbtack’s business model looks like. You also know how the company grew… And if you should use its growth strategies. The short answer: Probably not, even if there are always things to learn from every growth story.

Are you looking to build your marketplace business?

Then, try Kreezalid for 14 days for free. (No credit card required.)

After 5 years helping companies to develop their online marketplace, I saw success stories as well as failures. Today I share my experience and my clients feedbacks through useful resources that will allow you to focus on what really matters for the success of your online marketplace. Because believe me, the secret isn't in the code ...

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A Lean Business Model Focuses on What Works

Many business owners would like to embrace a lean business model, but aren't sure how to do it. Having an agile mindset is a key component.

Lloyed Lobo's company Boast Capital helps North American businesses recover research and development costs from the government, and automates the R&D tax claim process.

—Deep Chakraborty, CEO, Enact Systems

“To be lean, you need to make it a part of your company's DNA to prioritize ideas based on ROI as well as continuously test your assumptions and make adjustments based on the results," Lobo says.

“For example, when we started out, we used several marketing channels," he continues, "but eventually zeroed in on direct sales and in-house events based on our hypothesis of the potential ROI. Hosting large events has not only allowed us to generate new clients, it has also generated revenue via ticket sales and sponsors and helped us barter for business services with several vendors."

A lean business model often rewards experimentation and can be more cost-effective because they avoid lengthy implementations of unproven strategies and investments.

“Although the road to success with a lean business model might take longer, it beats spending on growth frivolously while you lose time and money planning. As the saying goes, 'nail it before you scale it,'" says Lobo.

A Lean Business Model Puts Value at the Center

Another advantage of the lean business model is its emphasis on delivering customer value.

Deep Chakraborty is CEO of Enact Systems , a San Ramon, California-based company that hosts a software platform for solar project management. Due to complex sales and delivery processes in the solar industry, a lean business model has been critical in effectively addressing operating challenges that could diminish value.

“A typical solar transaction requires multiple stakeholders to dance together: customer, installer, financier and the local utility, with multiple steps, dozens of information exchanges and lots of documents," says Chakraborty. “A lean business model lets us develop a seamless flow for these interactions so we don't waste time and the customer doesn't either."

Technology is often at the heart of a lean business model, facilitating complicated processes and automating more tedious, manual ones; measuring what's working ; and adopting new and more sophisticated applications as they become available.

But Chakraborty is quick to point out that software alone can't drive a lean approach.

“The secret to lean business model success involves business professionals leveraging the right software in daily business processes, perfecting business process flows, creating market pull and scaling to grow the business ."

A lean business model can help streamline processes so businesses can address market changes quickly. Incorporating such a model into your business may help you start addressing your customer's needs in real time.

Photo: Getty Images

What does a good operating model look like?

We explore how to define and measure the best operating model for your business

This is a common question, or should be if you’re in the business of designing operating models. And we are. At Sionic we spend a lot of time with clients designing operating models for their businesses.

In truth there are many answers to this question but before I dive in I should point out that the question is not ‘What does a good operating model document or diagram look like’? That’s also a valid question and one I’ve addressed before (and will probably do so again). Fundamentally the answer to that though is one of communication, clarity and completeness of information.

Anyway back to the question of what makes an operating model ‘good’?

This often depends on the objectives of the business. Does the business want to be able to extend or flex their model in response to a changing product strategy or client strategy? Does the business need to reduce overall operating costs? Or do they seek to operate in different markets (location or jurisdictions). Occasionally they do just want to understand what they’re doing today – maybe they’ve been through M&A activity, but that’s back to the documentation question, understanding what they do now before they change the model.

I’ve listed below several key measures that define a good operating model.

Coverage of essential capabilities

Fundamentally an operating model should enable the business to run. I appreciate that this is a relatively obvious and vague statement but if the operating model does not support the business then it’s not doing its job. Consider an investment management business operating model that does not include the capability to make investments, or more specifically to make investments in a specific asset class. The operating model must cover all essential functions for the business it pertains to.

Knowing what those capabilities are is key. At Sionic we carefully maintain a number of reference models depending on a number of key factors, cascading from the type of business e.g. investment manager, fund manager, pension scheme, wealth manager etc but also based on asset class coverage e.g. private market investments; investment strategy, client type and jurisdiction to name but a few.

Capability alignment

A good operating model carefully matches the capabilities of the teams, companies or business groups to the functions of the business. It may be easy to consolidate functions within a single team and tempting to do so because the functions may sound the same. However understanding the true nature of the functions, the systems employed, the processes involved is key to ensuring that the model is efficient.

Operational efficiency

This is effectively keeping operating costs to a minimum, whilst also ensuring that the model is not overly sensitive to expected changes in volume, up or down. This is a much more difficult measure to determine. An efficient model clearly keeps operating costs low – automating where necessary, removing redundant processes, centralising or capabilities where appropriate.

Scalability

Providing scalability in an operating model is very closely linked to operational efficiency. It is ensuring headroom in the model as well as enabling the model to add further capacity without changing it’s structure. Technology often plays a part in the solution here and a good model deploys it appropriately without over complicating the architecture.

Flexibility

A strategic-level operating model tends to ‘live’ for a long time; or least the basic structure does. Changing technology or responsibilities can be expensive. However the drivers of an operating model do not tend to stand still; businesses launch new products; they use new suppliers; adjust to client demands, or branch out into new markets for example.

Consequently an operating model must be flexible but building in flexibility that will never be used can be costly. Over-engineering an operating model is always a possibility. The art is to determine the amount of change up front that the target business anticipates and precisely where that change might be. Using this information flexibility can be built into the operating model to accommodate the future change.

For example flexibility might be ensuring that a system is able to cope with particular capability in the future that is not required right now – that’s a relatively simple solution. Considering investing in asset classes again, it is ensuring that a system can manage future asset classes that are not managed today.

More difficult is providing an ‘extension point’ in the operating model; providing extensibility without compromising the overall model itself. A good method involves separating functions ‘horizontally’ so that components can be delegated to individual specialist groups or systems. In the Investments industry this might be acknowledging that financial asset classes are managed differently but must be combined elsewhere in the model to provide a consolidated view. However, there is a trade-off here – introducing a boundary between functions (and associated teams or systems) that may not be necessary and that may compromise efficiency.

In many cases the priority of each of the above measures is dependent on the situation and strategy of the business.

This is a short essay on a complex topic; the headline measures by which we critique our own operating model designs. There are many more drivers and objectives that our clients expect us to cover – and we do. If you would like to find out more, please contact us .

About the author

Jonathan hammond.

I specialise in asset management operating models; application and data strategies; and enterprise architectures.

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What Is A Business Capability Model?

By Betsy Burton

After last week’s blog ( How Do You Model Business Transformation? ), I received several questions about a business capability model, and what one really looks like.

The reality is, I could do a whole years’ worth of notes, blogs, and presentations just on this topic. But let me try to give you a bit of an overview in this blog.

Business Capability

I first heard about a business capability model when I was working with a number of clients several years ago. When I started doing research on the topic, I started finding a couple of definitions that I thought were interesting.

The strongest that I’ve seen so far from an external source is from a professor at Boston University:

I have since tried to clarify that definition a bit on my own:

The real nut of these definitions is that business capability modeling is a way of modeling the future state of your business and your business strategy in a way that’s abstracted from all the details of how you operate your business.

The benefit of business capability modeling is that you can explore your future state in a way that is unencumbered by political issues related to domains, organizational structure, processes, or functions.

What Does a Business Capability Model Look Like?

I’ve created this semi fictitious business capability model to illustrate what a business capability model could look like. In this case I’m using a very large regional health care provider organization as my example.

In this case study example, the organization’s business strategy is to increase quality of care and decrease costs by promoting hyper-local preventative care, dynamic incident and research scrums, end-to-end patient care and regionalized partners.

Screen Shot 2022 09 27 at 1.44.41 PM 300x125 - What Is A Business Capability Model?

The key is that the business capability model must be driven by the business strategy and must reflect the future-state capabilities needed to support that strategy.

How to Use Business Capability Model to Guide Business Transformation

By themselves, business capability modeling can be interesting to strategic planners and business architects, and (honestly) probably few others.

However, business capability modeling can be very interesting if used to address the specific questions of senior executives, and business and IT leaders.

Say for example, your senior executive would like to understand where your business needs to make investments.

You could use a business capability model to illustrate what future-state capabilities are commodity, differentiated or innovative.

Screen Shot 2022 09 27 at 2.04.11 PM 300x123 - What Is A Business Capability Model?

Then you can start to have some interesting discussions.

Do we really need to invest in modernizing or transforming applications that are supporting commodity capabilities in the future? Probably not.

We do need to invest in innovative solutions and business models that enable innovative capabilities in the future.

Bottom Line

This is honestly a quick overview of business capability modeling, intended to give you an idea of the potential value and impact of this technique.

If you are interested in this topic, please let us know by dropping a note to [email protected] . If there is interest, we are happy to write, blog and present more on this topic.

The key about business capability modeling is that it is an organization-, domain-, and function-neutral way for exploring, understanding and communicating about your future-state business with the goal of informing investment decisions.

I personally get excited about it because it is an opportunity for executives, leaders and architects to think creatively about their potential future without the political infighting that can occur.

P.S. If you ever have questions about this or need a business capability model reviewed, please feel free to schedule an inquiry with me:

Copy of Blog Banners 2 300x150 - What Is A Business Capability Model?

This blog is a part of the Business Transformation blog series by Aragon Research’s VP of Research, Betsy Burton .

Missed the previous installments? Catch up here:

Blog 1: Betsy Burton Brings You a New Blog Series on Business Transformation

Blog 2: what are the benefits of supporting business architecture, blog 3: how do business architects gain and retain management support, blog 4: how do we find and recruit great business architects, blog 5: is a charter necessary to start a business architecture discipline, blog 6: product managers can make great business architects, blog 7: 4 necessary steps to successfully start a business transformation effort, blog 8: 5 best practices: developing an executive business case presentation for business transformation, blog 9: how do you model business transformation, stay tuned we publish a new blog every week., about paula quiroz, have a comment on this cancel reply.

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HR strategies and guidance for 2021

What does a great HR Business Partner look like?

The HR business partner role has been around since the mid 90s, but a lot has changed since then. How does truly strategic business partnering work in organisations today? And what impact can be made when we get this role right?

HR business partnering is more than a role – it’s an attitude, an ambition and a driving force to raise the level at which HR operates. It transforms how HR interacts with stakeholders, which leads to transforming what HR can deliver, and how they’re regarded.

If you want to ensure that HR outcomes are driven by business needs, then a robust partnership between HR and the business is crucial. But how do you ensure that the HR business partner responds effectively to business needs? How can you achieve a higher level of strategic impact?

Expecting more from the HR professional in the role is unfair – and won’t deliver – if the conditions are not created for them to succeed.

HR business partners must be spearheaded by the C-Suite

A good HR business partner can be a powerful conduit to understanding business reality and deploying HR’s resources effectively. But only if there is proactive leadership from the Chief Human Resources Officer (CHRO).

Business partnering has to be led from the top. What is the business rationale? How will it work as a strategic principle as well as an operational relationship?

Let’s start with the big picture, the why , and then we’ll come back to the operational implications and the daily life of the HR business partner.

In what way will the introduction of the HR business partner role – for it has to involve more than a different job title – contribute towards strategic goals?

All senior leaders need to be on board with the why. “It has to be more than the CHRO saying ‘I want this model’ – there has to be a business rationale”, says Asad Husain, 4 x CHRO in leading global organisations. “The CHRO needs to have fully imagined how it will play out and work, how it will be different and what their role will be – how things will be different.”

HR business partnering is one element in a strategic rethink for HR

As always, context is key. What else is changing? Is this part of an organisational transformation, where the business rationale is clear? To what extent are the HR systems and processes geared up to support a more client-driven way of working? Expecting more from the HR professional in the role is unfair – and won’t deliver – if the conditions are not created for them to succeed.

That comes down to the relationship between the CHRO and CEO. This plays out at every level, right down to the HR business partner. They won’t be able to deliver unless they are supported by leadership across the organisation. “In this,” says Asad Husain, “the size of the company doesn’t matter.”

How well equipped is your existing HR talent to fundamentally shift their stakeholder relationships?

Let’s look now at the individual HR business partner and how they shift the relationship so that they are able to add value at a higher level. Moving towards business partnering is achieved conversation by conversation – explaining and advocating the benefits of deploying the HR business partner’s expertise more strategically.

If we assume that the strategic rationale is clear and supported, then the HR business partner still needs to explain to their stakeholders what this responsibility means in practice. Often the individual moving into this role can no longer take on as much from their line manager, who has to be more self-sufficient in some areas to leave time and space to engage with the business partner more strategically in others.

Where this isn’t handled well, or where trust isn’t in place, the line manager can feel disappointed and frustrated that they can no longer ‘dump’ issues on the HR professional. They may even take this issue to their own boss. ‘HR are being unhelpful’, is a complaint I’ve heard made. The way the line manager’s boss deals with this is pivotal. Do they say ‘yes, I understand why the HR business partner is saying that, let me explain the rationale …’ or do they say ‘that’s not right, I’ll sort it,’ and head off to complain to HR at their level.

Performance management quality is the acid test for HR business partners

To see how this plays out, let’s look at a typical scenario faced by the HR business partner. The line manager – we’ll call them ‘Jan’ – has a performance issue in their team. For the busy HR business partner as well as the stressed line manager, the most time-effective solution in the short term might be to ‘sort this out for me’ as requested by Jan.

It’s at this point that the HR business partner makes a critical decision. This may take more of their time in the short term but will deliver more in the long term. Will they take the time right now to explain how they can add more value if they handle this differently? If they do this successfully, they can coach the line manager and achieve a better long-term solution.

A great HR business partner shows a genuine curiosity and appetite for getting under the skin of what drives business success.

The HR business partner and line manager relationship

The change in the way the HR business partner and line manager work together has to be explained within the business context – the benefits that it will deliver.

The Business Partnering Matrix, below, clarifies how the HR business partner can move the conversation forwards. All four modes have value at the appropriate time, but it’s important for the HR business partner to ask themself two key questions about where the conversation is going:

These two factors will build outcomes that deliver greater value, alongside more trusting and robust relationships.

What does a great HR business partner look like?

Let’s go back to Jan and the performance issue. A business-savvy HR business partner will use experience and data to provide a deeper analysis of the impact of performance issues. For example, they might say: ‘Jan, I reckon that you’re having to spend a day a week dealing with team members who aren’t meeting the required standards.’ That will get Jan’s attention to the broader issue and the need to improve their own skills.

The HR business partner can take this logic to Jan’s boss, and point out ‘You’ve got 10 Jan’s struggling to get the performance they need from their teams. When we add up all that time, it’s a significant waste of resource – and big numbers get senior leaders’ attention. We could spend that on training them and increase productivity as well as reducing attrition.’

Leading business partnering from the top is the best route to ensuring that HR deliver what the business needs.

What are the results of great HR business partnering?

The rewards come when the operational outcomes turn the strategic vision into reality.

This example applies at every level of the organisation, and across every function, whether you’re focused on productivity, performance, wellbeing , engagement or customer experience. It’s the small things that add up to the big numbers.

The maturity of leaders and how they view their responsibility in leading and managing performance is another important element. “The CHRO has to lead the entire company,” says Husain. “You have the reach and the breadth of exposure and the power to ensure that leaders follow the process that was agreed by the business.”

HR business partners require strategic support to deliver strategic value

Too often, as I hear from many HR business partners in our workshops, senior leaders expect the HR business partner to achieve some kind of magical transformation on their own. Good HR people, whatever their role title, will always seek to understand the business, raise the level of the conversation, and coach and challenge the line manager to manage their people well.

The business partner has to use examples in the moment to explain the rationale behind the bigger picture. The performance issue that’s happening right now, for example, is an opportunity to explain how HR can add more value if they work on the cause rather than the repeated effect.

Achieving true HR business partnering takes work

Whatever the HR business partner is facing at the front line with the line manager, and how well they can deliver the transformation in how HR relates to the business, depends on the level of understanding and commitment that exists at the most senior level of the organisation.

The true power to make it work comes from strategic business alignment – a clearly articulated business case that can be shared at every level of the organisation.

Enable HR’s new Business Partnering programmes recognise the new demands of the role. Please register your interest .

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Attracting talent: the built environment sector

Deborah Wilkes FCIPD has worked with leaders and managers for 25 years running development workshops and as a coach. Clients have included global, national and local organisations, private and public sector. She has worked with many HR leaders and teams, and in HR strategy and OD. Prior to that, she worked her way up in HR and set up and led...

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What Is A Business Model? Definition, Explanation & 30+ Examples
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What is a Business Model with Types and Examples
A business model is a company's core strategy for profitably doing business. Models generally include information like products or services the business plans to sell, target markets, and...
How to build a business model
A business model is a framework for how a company will create value. Business models distill the potential of a business down to its essence. A business model answers fundamental questions about the problem you are going to solve, how you will solve it, and the growth opportunity within a given market. Business model vs. business plan
Business Models: Types, Examples and How to Design One
A business model is an outline for how your company plans to make money. In general, a business model explains four things: What product or service a company will sell. How it intends to market...
What is a Business Model? Components, Types and Examples
A business model includes product types, financial plans and other information that, taken together, outline a path toward operational success. Existing companies should update business models regularly in anticipation of any changes in customer behaviors or market trends.
Business Model
A business model is a high-level plan of how your company sells and operates. In practice, it includes baseline aspects of each and every business, such as value proposition, processes, target audience, offers, strategies, organizational structure, operational and political processes.
20 Business Model Examples (And How To Pick The Right One)
3 Traits of a Good Business Model Before we look at specific models you may want to consider using, let's briefly go over the attributes of a solid business model. 1. They Match Up With Company Goals and Values Your business model comes after you define what your company is trying to do.
What a Big-Data Business Model Looks Like
What a Big-Data Business Model Looks Like. The rise of big data is an exciting — if in some cases scary — development for business. Together with the complementary technology forces of social ...
The 7 Elements of a Strong Business Model
When creating a business model, select key partners, like suppliers, strategic alliances or advertising partners. Using the previous example of Home Depot, key business partners may be lumber...
Write your business plan
Most business plans fall into one of two common categories: traditional or lean startup. Traditional business plans are more common, use a standard structure, and encourage you to go into detail in each section. They tend to require more work upfront and can be dozens of pages long.
What Is an Operating Model? (And What To Include ...
What is an operating model? An operating model is a visualization of how a company plans to execute its strategy. It uses elements such as charts, graphics, tables and maps to show how the organization operates and the value it brings to customers and stakeholders.
What does a successful business model look like, or what should it look
Answer: According to Eric Ries, a successful business model is one that is designed to continuously test and refine assumptions about the market, the product, and the business. In other words, a successful business model is one that is built on the principles of the Lean Startup methodology, whic...
What does an influencer business model canvas look like?
Answer (1 of 2): This should be a discussion, not an answer, but I'll try to respond. I will first presume you see the influencer as being a target customer segment. If so, then you need a value proposition for them. Influencers sell their "reputation, reach, network, brand, etc". What is it you...
What Is a SaaS Business Model and How Does It Work?
A business model for SaaS favors your target customers. It minimizes costs and increases product usage flexibility. The key benefits of SaaS for your target customers include: Lower Costs: SaaS platforms are distributed on a subscription basis. That eliminates licensing fees involved in traditional software installs.
Starbucks Chain Business Model In A Nutshell
In the case, for instance, of a business model like McDonald's, the company has been able to control the look and feel of its franchised restaurants thanks to the fact it operates a commercial real estate business. McDonald's is a heavy-franchised business model. In 2021, over 56% of the total revenues came from franchised restaurants.
Thumbtack's Business Model: How to Build a Billion-Dollar ...
What does Thumbtack's business model look like? The way Thumbtack works is that service providers offer their services on the platform (the list of services is long and they include services like cleaning and house repairs). Customers post jobs, choose from bids by service providers and contract the business that is the most suitable for ...
What is a Lean Business Model?
Many business owners would like to embrace a lean business model, but aren't sure how to do it. Having an agile mindset is a key component. Lloyed Lobo's company Boast Capital helps North American businesses recover research and development costs from the government, and automates the R&D tax claim process.
What does a good operating model look like?
A good operating model carefully matches the capabilities of the teams, companies or business groups to the functions of the business. It may be easy to consolidate functions within a single team and tempting to do so because the functions may sound the same.
What Is A Business Capability Model?
Business capability modeling is a technique for illustrating/representing an organization's future-focused business strategy, independent of the org structure, processes, people or domains. Its purpose is to inform and guide decision-making. Source: Betsy Burton, Aragon Research
What does the future of business look like in five years?
A business model is an incentive structure that attracts talent, gets them to focus on a particular problem and then provides them with the resources they need to solve it. In five years, the ...
What does a great HR Business Partner look like?
HR business partnering is more than a role - it's an attitude, an ambition and a driving force to raise the level at which HR operates. It transforms how HR interacts with stakeholders, which leads to transforming what HR can deliver, and how they're regarded. If you want to ensure that HR outcomes are driven by business needs, then a ...