Although it dates back further, the expression “Business Model” became popular with the appearance of Internet start-ups, firms created to exploit the new media that was becoming accessible to so many people. It even became what one might term a “Buzzword”.
Who used the word for the first time in this context is not known but one cannot deny that it has spread. One must admit that it is full of common sense.
When the Internet first became available, it was not in the slightest bit easy to present its possible business uses. The technology was new for the great majority of potential users, much of the vocabulary was unprecedented and its actors too were new on the scene. They were mostly young entrepreneurs stuffed with information, playing at being captains of industry – a role which some of them have in fact fulfilled, to some extent. The business aspect was not immediately understandable …
For example, investors grasped the potential of the Internet but found it hard to grasp how to make money from it. The scenarios struck them as complex. To raise funds, project leaders had to make an extra effort, to make something intelligible that in fact was not, all the while indicating how they thought their intended business would evolve. In short, they needed to give meaning, that is to say intelligibility (sens in the original French), and they needed to give direction (also sens in the original French), that is to say the right way to head for success. (As the Greek philosopher Senecus says to his disciple, Lucilius: no wind is favorable for those who do not know where they want to go).
It proves true that to explain objects of knowledge (here, business but the argument can be generalized to any object), the person spreading the knowledge will end up using models. A model is used to make an object intelligible, notably when it is complex (as systems theory specialists know well). Let us imagine that in an astrophysics lesson, the teacher evokes the trajectory of a planet around a star from a different solar system. It is impossible for him to incite the student to use his own experience, as in to live the empirical experience. One would need to build a rocket and take one’s place in it to live the experience of a revolution around that foreign sun. The teacher must find a way of explaining the trajectory, as it is a matter of “making visible”, and generating a mental representation of the object in the mind of the apprentice.
In the first place, the person teaching (be they a lecturer, advisor, schoolmaster, etc.) should use a language that his listener can understand. In some situations, if the listener understands the language of mathematics, he will be able to use it to produce (or use) what one calls a “model” which, in the form of a formula, describes or explains that trajectory.
But mathematics is not the only way of enabling modeling; that is to say of proposing an abstraction (or a theory, or sometimes an artifact) of an object of knowledge to make it comprehensible, to update it, to make it visible (as in, to generate a mental representation in the mind of the person learning).
Other languages may be used. To illustrate this point, let’s take the theory proposed by Abraham Maslow. In it, the types of human needs are hierarchized (first come physiological needs, then the need for security, then the need to belong, etc.) It is not unusual to represent this theory graphically in a pyramid (called, by the way, “Maslow’s pyramid”) to explain the motivations of individuals. One really is in a modelization, this time a graphical one. Having said which, Maslow did not draw this pyramid, and to understand his model (or his theory), it is his written tract that one should read. In other words, a model can also be communicated in a written or oral form.
And so, a model can take a mathematical form, a graphical form, a narrative form, etc. Many examples can be found in all we have been taught since childhood, but also in professional life (representations of programming languages to understand software functions; drawn representations on printed circuit boards used by electronics engineers, knowledge maps and mental maps for modeling cognitive structures or the creativity of individuals, etc.)
A modelization corresponds, therefore, to a theoretical representation, which can be communicated in different ways (orally and visually), enabling the person receiving it to understand the object of knowledge presented. The word “theoretical” is not reserved here for academics. It concerns any actor likely to teach without being able to provide a live experience for their apprentices, due to lack of time, resources, etc.
A business creator builds, in a certain way, a theory of his business as he goes along. He will not, for example, bring his financial partner with him to re-live all he has been through, to make him understand the business. He will communicate a modelization of this Business to him. He must modelize his business. Business Model in English, “modèle d’affaires” in French, the expression is common sense. There is little chance that the partner will be convinced if he does not understand it.
Going back to the arrival of the Internet, investors demanded an extra effort from the creator to make his business project intelligible. The investor wanted to understand the business and the creator had to make the effort to modelize it. This also means not drowning one’s listener in the details. Depending on its maturity, the project takes on various elements that it organizes; and it becomes complex. The model therefore sticks to the essentials; all the more so because one often has very little time in which to convince others. It is not unusual for the creator to be offered just ten minutes to present his project, rarely more and sometimes less, the remainder of the time being devoted to questions and answers, and discussion.
If there is one universal language that has permitted us to communicate for thousands of years, and to develop some exceptional cognitive capacities, it is spoken and written language. It is hence natural to incite a project leader to write down his Business Model (although this is certainly not the only way of making it visible; web users can consult other examples in the GRP Stories menu of GRP Lab). This is strongly advisable for at least two reasons.
The first is to do with the “emancipatory” character of writing and reading. This rather intellectual term means that writing helps one think about the object one is writing about, likewise when reading what one has written. Who has not realized this, on editing or re-reading a report or a file to be sent to a partner, a boss or a teacher? The corrections make the object more precise, because the writer makes an effort to be understood; incidentally, he does this above all for himself.
The second reason is to do with the demands made by certain partners. For example, a financier almost always demands a written document. Experts in business plans will perhaps consider, therefore, that the written form of a Business Model is no other than the Business Plan. This would ignore the nature of the Business Model (beyond its abstraction and the conciseness). To find out more, the reader should consult the presentation page of the GRP model, or another posting on this blog.