Recently someone showed me a flowchart that tried to explain a new business model for the telecommunications industry. The many different companies involved and the complexity of money flows required quite some time of explaining and discussing until I was finally able to understand the idea.

My opinion on business models: Figure out a way to provide value to someone then they will be willing to pay for it. It helps to keep in mind that your future customers don’t necessarily need to be the users of your product or service. But this is as complicated as it gets. The lower the number of actors the higher the probability of success.

I stumbled on a comment on the EarlyStageVC blog, which summarizes the importance of simplicity of business models (in the context of entrepreneurship and Venture Capital:

“When a VC asks “What is your business model?” He’s really asking “How are you going to make money?” That’s what a business model is.

Simplicity is important. It reveals how well an entrepreneur understands his business. If you understand it well you can explain it simply. Most often it can be simplified. If it can’t then probably the entrepreneur doesn’t yet understand how he/she is going to make money. That’s where the VC works with the entrepreneur to figure it out. So the question is a litmus test in disguise.”

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