A Simple Business Model Classification System for Every Industry on the Planet

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"There are three business model shapes in every industry on the planet." Rod King

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Millions of businesses and myriad business models exist in the world. However, every business or business model has one of three business model shapespipe, valley, or diamond. The graphic below presents a simple business model classification system that is based on the three shapes of business models: pipes, valleys, and diamonds. Every business model platform has the shape of either a valley or a diamond.

The above morphological business model taxonomy facilitates business model documentation, analysis, improvement, and innovation both within and across industriesTo date, business model classification systems are seldom seen and difficult to use. One reason is that such business model classification systems do not provide simple mutually exclusive categories or criteria for classifying business models. By focusing on the the number of markets (one, two, and multi-sided), the morphological business model taxonomy eliminates the problem of having overlapping classification criteria.

It's important to note that in an industry, the shape of the dominant business model moves from a pipe through a valley to a diamond. Generally, business model pipes focus on vertical integration or centralization while business model diamonds focus on horizontal integration or decentralization. We can see this trend or evolution in the following industries:

  • PUBLISHING Industry: Encyclopedia Britannica vs. Wikipedia
  • TRANSPORTATION Industry: Traditional Taxi vs. Uber
  • HOSPITALITY Industry: Traditional Hotel vs. Airbnb
  • CONSUMER ELECTRONICS Industry: iPod vs. iPhone
  • MANUFACTURING Industry: Nike vs. Nike + Accelerator

So, which business or business model do you most admire? What's the shape of that business model? Does your business have a business model pipe, valley, or diamond?

We'd certainly like to hear your response. In the meantime, have a great day. 

Note: Previously I had described linear models as "chains" and non-linear models as "trees" and "networks (webs)." I recently came across the description of business models as "pipes" and "platforms" in an article by Sangeet Choudary:

http://www.wired.com/2013/10/why-business-models-fail-pipes-vs-plat...

In the above article, I have divided platforms or non-linear models into categories of "valleys" and "diamonds" which are two-sided and multi-sided platforms respectively. All business model shapes - pipes, valleys, and diamonds - can be rapidly visualized conceptually and in detail by using the Business Model Notation System of Business Model Strips: see 

https://www.linkedin.com/pulse/business-model-strips-customer-growt...

ONE MORE THING ...

The above business model taxonomy can be used to categorize improvement projects as well as innovation projects; see Project Portfolio Taxonomy below.

The Project Portfolio Taxonomy indicates that all innovation projects are not equal, all improvement projects are not equal.

Both innovation and improvement projects can be differentiated by the number of customer segments that they serve. Consequently, a 1-sided lean startup project is qualitatively different from a multi-sided (platform) lean startup project. While a 1-sided lean startup project focuses on discovering and solving the main problems of one customer segment, a multi-sided lean startup project focuses on discovering and solving the problems of multiple customer segments. Failure to notice these nuances may be the cause of failure for many multi-sided lean startup projects. The same logic applies to one, two, and multi-sided improvement (Six Sigma) projects.

 

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