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6 Functions of a Business Model

May 19, 2008

The six functions of a business model are to:

  1. Articulate the value proposition—that is, the value created for users by the offering.

  2. Identify a market segment—that is, the users to whom the offering and its purpose are useful.

  3. Define the structure of the value chain required by the firm to create and distribute the offering, and determine the complementary assets needed to support the firm’s position in this chain.

  4. Specify the revenue generation mechanisms for the firm, and estimate the cost structure and profit potential of producing the offering, given the value proposition and value-chain structure chosen.

  5. Describe the position of the firm within the value network, linking suppliers and customers, including identification of potential complementors and competitors.

  6. Formulate the competitive strategy by which the innovating firm will gain and hold an advantage over rivals.

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