How to Know What Business to Start

This article is an excerpt from the Shortform book guide to "Business Model Generation" by Alexander Osterwalder and Yves Pigneur. Shortform has the world's best summaries and analyses of books you should be reading.

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What is the open business model? How do companies with open business models create value for their customers?

An open business model is where a business creates value through collaboration with external partners. There are two main ways to do that: 1) integrate their internal resources with the partner, or 2) supply their resources for a fee.

We’ll break down both of these principles below.

What Is the Open Business Model?

Businesses with open business models create opportunities for innovation and efficiency by collaborating or co-creating with external partners. For example, NASA collaborated with TopCoder, Harvard Business School, and London Business School to build an algorithm to assist manned missions. 

According to Osterwalder and Pigneur, the authors of Business Model Generation, there are two ways to create value through collaboration—businesses can either receive and integrate external resources to strengthen their own business models, or they can leverage their internal resources by supplying their internal resources for a fee.

Receive ResourcesSupply Resources
Customer GroupsFocus on creating partnerships with organizations that require existing internal resources.
Value OfferValue comes from anything that won’t be used internally such as research results or intellectual property.
Profit SourcesProfit comes from selling off any resources that aren’t required internally.
ResourcesFocus on evaluating external resources and develop methods to work with external networks—these capabilities will become the main resource.
Critical ActionsEvaluate external resources, develop and manage the infrastructure to connect these external resources with existing internal processes.
NetworkFocus on developing partnerships with organizations that can provide value in the form of innovative products and services or research.
ExpensesAcquiring external resources, as well as developing the infrastructure to work with these resources, will incur the highest expenses.

(Shortform note: In addition to identifying physical and intellectual resources, businesses can also create value by leveraging their brand equity. For example, Xiaomi grew to become the world’s leading consumer internet-of-things company by forming alliances with partner firms. Xiaomi offered these partner firms significant value in the form of physical and intellectual resources such as research, development, and manufacturing resources, as well as brand capital—the firms benefited from access to Xiaomi’s millions of existing loyal customers without having to go through the long process of building a customer base and developing trust.)

What Is the Open Business Model?

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Here's what you'll find in our full Business Model Generation summary:

  • The nine elements that make up any successful business model
  • Different ways you can combine these elements to create business model patterns
  • Techniques you can use to generate innovative ideas

Darya Sinusoid

Darya’s love for reading started with fantasy novels (The LOTR trilogy is still her all-time-favorite). Growing up, however, she found herself transitioning to non-fiction, psychological, and self-help books. She has a degree in Psychology and a deep passion for the subject. She likes reading research-informed books that distill the workings of the human brain/mind/consciousness and thinking of ways to apply the insights to her own life. Some of her favorites include Thinking, Fast and Slow, How We Decide, and The Wisdom of the Enneagram.

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