BUSINESS

MODEL
ASSESSMENT

THE BUSINESS
MODEL ANALYST
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SUPER GUIDE:
BUSINESS
MODEL
ASSESSMENT

BY DANIEL PEREIRA

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 © THE BUSINESS MODEL ANALYST

The Business Model Analyst is a website dedicated to

analyzing business model types, patterns, and innovation
using the business model canvas as its primary tool. The site
o ers a wide variety of free and premium content, including
digital products such as PDF tools, presentations,
spreadsheets, ebooks & guides, and much more. Check it out
here.

Daniel Pereira
The Business Model Analyst
Ottawa, ON, Canada
businessmodelanalyst.com

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TABLE OF CONTENTS
Introduction 1
Why Assess your Business Model? 2
What Makes Strong Business Models? 3
Methodologies for Assessing your Business Model 5
Business Model Canvas and SWOT Analysis 5
Evaluation Criteria from Morris, Schindehutte, Richardson and
Allen, 2006 7
NICE framework from Amit & Zott 8
Hamel 4 Performance Indicators 8
7 Questions by Alexander Osterwalder 9
Assessing the Business Model Space 13
Industry Forces 13
Market Forces 15
Key Trends 16
Macro-Economic Forces 17
Conclusion 19
References 20
About the Author 21

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INTRODUCTION
At least once a year, it is recommended that we see the
doctor and the dentist to check on our health -- even if we
have nothing bothering us. Likewise, we periodically take our
car to a trusted repair shop to ensure everything is in perfect
condition.

For this same reason, it is essential that we evaluate our

business model regularly -- to check the company’s health
and that everything is working as expected. This business
model assessment allows us to nd out when something
needs to be adjusted, reducing the risks and improving the
chances of a bright future.

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WHY ASSESS YOUR BUSINESS
MODEL?
Simply because just creating a reasonable business model at
the beginning of your venture does not mean that it will work
out and keep sustainable forever.

The business world is full of companies that started from a

great idea but failed along the way. Leaders must perform a
business model assessment to:
Get to know business strengths and weaknesses;

- Evaluate the team performance;

- Establish new goals;

- Delegate tasks and responsibilities to the team members

assertively;

- Increase the market share and cash ow;

- Create a plan of action for every weakness or challenge

perceived.

However, it is crucial to de ne an e ective tool to validate

business models, analyze, monitor, and improve them
continuously.

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WHAT MAKES STRONG BUSINESS
MODELS?
First of all, to understand if a business model is strong
enough, it must have its desirability, viability, and feasibility
testing. That means:

- Desirability: Do your customers want your product or

service? You need to test assumptions around your
customers’ pain, and the solution developed. That way,
you may create your customer acquisition and retention
strategy.

- Feasibility: Can you build and implement the solution? You

may check the venture’s sustainability and reduce its risks
by testing the technology and resources available and the
predicted activities and potential partners, thus reducing
risks.

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- Viability: Can you earn more money than you spend on
the solution? You try to predict the nancial aspects of the
solution (prices, costs, pro ts, etc.) to reduce the potential
risks and disclose possible opportunities.

There must be proper tools and metrics to allow this

evaluation and, therefore, assess your business model.

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 METHODOLOGIES FOR ASSESSING
YOUR BUSINESS MODEL
There are a handfull of methodologies to assess your
business model. Let’s see each of them.

BUSINESS MODEL CANVAS AND SWOT

ANALYSIS
Alexander Osterwalder and Pigneur’s Business Model
Canvas is the most famous tool for business modeling in the
world. It is composed of nine building blocks, which can map
every aspect of the business. These building blocks are:

-- Customer Segments
Value Propositions
-- Channels
Customer Relationships
-- Revenue Streams
Key Partners
-- Key Activities
Key Resources
- Cost Structure

After lling out all the nine blocks of the canvas, a SWOT
analysis may be used in conjunction with the Business Model
Canvas to provide the basis for marketing strategy and
decision-making.

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You can assess each of the nine building blocks (with its
particular strengths, weaknesses, opportunities, and threats)
or the whole canvas (with the big picture’s interconnections
and implications). You can also perform both the SWOT
analysis, the speci c and the whole, to have a detailed and
comprehensive assessment.

Analyzing particularly

To analyze the strengths and weaknesses, as well as the

opportunities and threats of each building block, you must:

1. Map the business model using the Business Model

Canvas.
2. Score each block from 1 to 10 (1 for very weak and 10 for
very strong).
3. Score each block again, from 1 to 10 (1 for threat level and
10 for opportunity level).
4. Those blocks classi ed between 1-5 are weaknesses/
threats. And those above ve are potential strengths/
opportunities.

Analyzing the bigger picture

After analyzing each of the nine building blocks, you will

notice that all of those blocks are related and connected. For
example, the quantity and quality of your key activities and
key resources will a ect the size of your cost structure.

That’s why it is imperative that you also assess the business

model canvas as a whole, considering overall strengths,
weaknesses, opportunities, and threats, thus lling out an
extra SWOT framework.

Therefore, to have both analyses succeeded, it is necessary

to have a proper tool, like this Business Model Canvas SWOT
Analysis Assessment Spreadsheet, with tabs that help you
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 analyze the strengths, weaknesses, opportunities, and threats
of your business model with a complete dashboard where
your business model canvas needs to improve.

The SWOT analysis will also help put everyone in your team
on the same page, making everybody understand the
business model better, resulting in more e ective
conversions and better strategic outcomes.

EVALUATION CRITERIA FROM MORRIS,

SCHINDEHUTTE, RICHARDSON AND ALLEN,
2006
For Morris, Schindehutte, Richardson, and Allen, the concept
of business model “describe[s] a company’s unique value
proposition (the business concept), how the rm uses its
sustainable competitive advantage to perform better than its
rivals over time (strategy), and whether, as well as how the
rm can make money now and in the future (revenue
model).”

For these authors, the business model assessment must

include:

- Company’s competitive advantage, which is the result of a

company’s unique competencies;
- Value network, i.e., partners, such as suppliers, alliances,
and trade associations, among others;
- Value proposition, since it de nes how the solution
delivers value to the customers;
- Set of internal rules and processes that keep the company
functioning daily;

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 - Cost elements and everything that represents the cost for
the company during the products life cycle;
- Company’s strategy, with its actionable plans and priorities
for the future;
- Revenue and pricing considerations.

NICE FRAMEWORK FROM AMIT & ZOTT

Amit and Zott established four signi cant criteria for analysis.
Their analysis aims at e-businesses primarily, but it can be
applied to brick-and-mortar companies as well. The four
criteria are:

1. Novelty: it is how the company keeps renewing, including

everything the company can do as a new and never-
employed-before approach in the industry.
2. Lock-in: also called switching costs, it is the ability to build
a loyal relationship with customers and partners that
cannot be dissolved in favor of the competition.
3. Complementarities: it is when the company has several
product lines, and they compliment each one in a way that
if the customer buys one, they will want to buy a second
one, making a more meaningful purchase.
4. E ciency: e ciency refers to cost optimization - the
bigger the volume of transactions, the less the cost
incurred per transaction.

HAMEL 4 PERFORMANCE INDICATORS

Hammel also de nes four performance indicators to assess
the business model. His four criteria are:

1. E ciency: unlike Amit and Zott’s, e ciency here refers to

the company’s ability to deliver the value proposition to the
target market.
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 2. Uniqueness: describes how novel and unique the premise
of the company’s existence is.
3. Fit: how the various building blocks connect and
complement each other.
4. Pro t Boosters: how much the company employs “pro t
boosters” may increase its returns over the industry
average.

7 QUESTIONS BY ALEXANDER OSTERWALDER

These are seven questions to assess your business model
design. You must rank your business model’s performance on
a 0 (bad) scale to 10 (excellent) for each question.

1. How di cult/expensive is it for your customer to switch

to the competition?

Switching costs represent the time, energy, or money your

customer needs to spend if they wish to switch from your
product or service to another similar. The higher these costs
are, the smaller is the chance your customer leaves for the
product or service of a competitor.

- Examples: Apple, iPod, Nespresso, games consoles, razor

blades, printers, and cartridges.
- Call to action: Can you increase the switching costs
without annoying your customer?

2. How rapidly and easily can you scale your business

model?

Scalability de nes how easy and quick it is to grow your

business model without increasing the cost base. Software
and web-based business models are naturally more scalable.
Still, any business models already con gured to face a surge
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in customer demand will have a meaningful advantage
compared to those that will need continuous adjustments.

- Examples: Facebook, Zynga (creator of games like

Farmville), Skype, Uber, WhatsApp, franchising.
- Call to action: How can you make your business model (or
parts of it) more scalable?

3. Can your business model produce recurring revenues?

Recurring revenues happen when your customer’s purchases

lead to follow-up sales. The most classic example of recurring
revenue is subscriptions to newspapers and magazines.
Recurring revenues have two signi cant advantages: the cost
of sales is only, and the revenues are repetitive, and you can
predict how much you will earn in the future.

- Examples: Redhat, Microsoft, Kindle, Amazon Prime,

Xiaomi, SaaS, printer and cartridges, game consoles.
- Call to action: How can you increase your recurring
revenues and maybe even entirely replace transactional
revenues?

4. Do you earn before you spend?

The more revenues the company can generate before

incurring the costs of producing and delivering value, the
better. Dell was the pioneer of this business model back in
1990. Typically, PC manufacturers would make them and then
sell through retailers, where PCs would wait on the shelves
and lose value.

Dell started assembling orders after selling directly, thus not

having to spend a lot of money before earning and escaping
the hardware industry’s terrible inventory depreciation costs.

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- Examples: Dell, Vistaprint, Ministry of Supply, NikeID,
Warby Parker.
- Call to action: Could you earn more before spending?

5. How much do you get customers or third parties to do

the work (for free)?

Nothing can be more powerful than getting others to do the

work while you earn money. It is what happens, for example,
when IKEA sells furniture and gets the customers to assemble
it. Or when Facebook, Instagram, and Twitter get users to
post content while simply providing the platform.

- Examples: IKEA, Twitter, Facebook, Instagram, LinkedIn,

Tupperware, credit card companies.
- Call to action: How could you get others to do more work
for you?

6. How much does your business model protect you from

the competition?

A great business model can provide you with longer-term

protection from competition. A famous example is Apple’s
iPhone. There may even be better smartphones out there.
But Apple’s robust business model has its app store with
thousands of apps. This ecosystem is hard to copy, much
harder than the brand’s technology.

-- Examples: Apple, Amazon Web Services

Call to action: Could you redesign your business model in
a way that creates built-in protection?

7. Is your cost structure better than your competitors?

Cutting costs is a widespread practice in the business game.

Nevertheless, whenever possible, it is more gainful to create
value based on your cost structure. Skype, for example, can
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provide calls for free or very low cost. Because, while a
telecom provider needs a considerable infrastructure, Skype
is a software company, and its essential resources are mainly
people.

- Examples: Skype, Bharti Airtel (one of the world’s largest

mobile network providers), Nike’s Flyknit shoes, Redhat
- Call to action: Can you transform your cost structure
rather than simply trimming it?

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ASSESSING THE BUSINESS MODEL
SPACE
Besides assessing your business model design, you must
evaluate your business model space, i.e., the whole
environment, with its Market Forces, Key Trends, Industry
Forces, and Macroeconomic Forces.

Only by mapping out markets, trends, customer needs,

competitors, and more, will you be able to make your
business prepared for innovations, such as new associations,
new patterns and processes, and ultimately new business
model ideas.

INDUSTRY FORCES
Competitors (Incumbents) - To identify your competitors and
their strengths, ask yourself:
-- Who are my competitors?
Who are the dominant players in my particular sector?
--What are their competitive advantages or disadvantages?
Which Customer Segments are they focusing on?
--
What is their Cost Structure?
How much in uence do they exert on my Customer
Segments, Revenue Streams, and margins?

New Entrants (Insurgents) - To identify new insurgent players

and check if they compete with your business model, ask
yourself:
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-- Who are the new entrants in my market?
How are they di erent?
- What competitive advantages or disadvantages do they
have?
-- Which barriers must they overcome?
What are their Value Propositions?
-- Which Customer Segments are they focused on?
What is their cost structure?
- To what extent do they in uence my Customer Segments,
Revenue Streams, and margins?

Substitute Products and Services - To identify potential

substitutes for your o ers, ask yourself:
--Which products or services could replace mine?
How much do they cost compared to mine?
--
How easy is it for customers to switch to these substitutes?
What business model traditions do these substitute
products stem from (e.g., Skype versus long-distance
telephone companies)?

Stakeholders - To identify which actors may in uence your

organization and business model, ask yourself:
-- Which stakeholders might in uence my business model?
How in uential are shareholders? Workers? The
government? Lobbyists?

Suppliers and other Value Chain Actors - To identify

essential partners for your business and how dependent you
are on them, ask yourself:
-- Who are the key players in my industry value chain?
To what extent does my business model depend on other
players?
--Are peripheral players emerging?
Which are most pro table?

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MARKET FORCES
Market Issues - To identify critical issues driving and
transforming your market from Customer and O er
perspectives, ask yourself:
- What are the crucial issues a ecting the customer
landscape?
-- Which shifts are underway?
Where is the market heading

Market Segments - To identify the major market segments,

their attractiveness, and to spot new segments, ask yourself:
-- What are the essential Customer Segments?
Where is the most signi cant growth potential?
--Which segments are declining?
Which peripheral segments deserve attention?

Needs & Demands - To identify market needs and how well

they are served, ask yourself:
-- What do customers need?
Where are the most signi cant unsatis ed customer
needs?
--What do customers want to get done?
Where is demand increasing and declining?

Switching Costs - To identify the elements related to

customers switching business to competitors, ask yourself:
--What binds customers to a company and its o er?
What switching costs prevent customers from defecting to
competitors?
--
Is it easy for customers to nd and purchase similar o ers?
How important is the brand?

Revenue Attractiveness - To identify elements related to

revenue attractiveness and pricing power, ask yourself:
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-- What are customers willing to pay for?
Where can the most signi cant margins be achieved?
- Can customers easily nd and purchase cheaper products
and services?

KEY TRENDS
Technology Trends - To identify technology trends that could
threaten or improve your business model, ask yourself:
- What are the major technology trends both inside and
outside my market?
- Which technologies represent signi cant opportunities or
disruptive threats?
- Which emerging technologies are peripheral customers
adopting?

Regulatory Trends - To identify regulations and regulatory

trends that in uence your business model, ask yourself:
-- Which regulatory trends in uence my market?
What rules may a ect my business model?
- Which regulations and taxes a ect customer demand?

Socioeconomic Trends - To identify major socioeconomic

trends which are relevant to your business model, ask
yourself:
-- What are the key demographic trends?
How would I characterize income and wealth distribution
in my market?
--How high are disposable incomes?
What are the spending patterns in my market (e.g.,
housing, healthcare, entertainment, etc.)?
-What portion of the population lives in urban areas as
opposed to rural settings?

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Societal and Cultural Trends - To identify major societal
trends that may in uence your business model, ask yourself:
- Which shifts in cultural or societal values a ect my
business model?
- Which trends might in uence buyer behavior?

MACRO-ECONOMIC FORCES
Global Market Conditions - To identify current overall
conditions from a macroeconomic perspective, ask yourself:
--Is the economy in a boom or bust phase?
How is general market sentiment?
--
What is the GDP growth rate?
How high is the unemployment rate?

Capital Markets - To identify current capital market

conditions and relate to your capital needs, ask yourself:
--What is the state of the capital markets?
How easy is it to obtain funding in my particular market?
-Is seed capital, venture capital, public funding, market
capital or credit readily available?
-How costly is it to procure funds?

Commodities and Other Resources - To identify current

prices and price trends for resources required for your
business model, ask yourself:
- What is the current status of markets for commodities and
other resources essential to my business?
- How easy is it to obtain the resources needed to execute
my business model?
-- How costly are they?
Where are prices headed?

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Economic Infrastructure - To identify the economic
infrastructure of the market in which your business operates,
ask yourself:
-- How good is the (public) infrastructure in my market?
How would I characterize transportation, trade, school
quality, and access to suppliers and customers?
-- How high are individual and corporate taxes?
How good are public services for organizations?
- How would I rate the quality of life?

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CONCLUSION
Although we must be realistic when assessing our business
model, it is good to keep in mind that no business model will
ever score a perfect 10 for every aspect.

By asking yourself the questions above and by seeking to

improve your business model’s score on at least some of its
elements, you are very likely to increase the long-term
success of your business.

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REFERENCES

The following references were consulted to create this Super

Guide:

- https://www.cleverism.com/how-to-assess-quality-of-
business-model/

- https://www.strategyzer.com/blog/posts/2017/12/6/how-to-
systematically-reduce-the-risk-uncertainty-of-new-ideas

- https://www.brucey.com.au/industrial-marketing/blog/swot-
analysis-how-to-use-e ectively

- http://businessmodelalchemist.com/blog/2011/09/7-
questions-to-assess-your-business-model-design.html

- https://www.strategyzer.com/blog/posts/2015/4/7/why-are-
some-business-models-better-than-others

- https://assets.strategyzer.com/assets/resources/the-
business-model-design-space-card-deck.pdf

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ABOUT THE AUTHOR

Daniel Pereira is a Brazilian-Canadian entrepreneur that has

been designing and analyzing business models for over 15
years. You can read more about his journey as a Business
Model Analyst here.

E-mail Daniel if you have any questions at:

[email protected]

You can connect with Daniel at Linkedin:

THE BUSINESS
https://www.linkedin.com/in/dpereirabr/
MODEL ANALYST
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