There are essentially two economic models for a company today. The first is a conventional consumerist approach, offering goods and services with no engagement other than producing and marketing. This consumerist model has encouraged a passive relationship with consumers; people expect products and services to be delivered, purely in exchange for money, with no effort or engagement on the individual’s part.

But the most attractive products and services require active engagement. I call the second model the “participation economy” in my book — it’s an economy based on people engaging, seeking influence, and taking part far more assertively in their consumption. Companies need to provide platforms that support this — by letting people more actively participate in the outcomes that they’re looking for, which are a healthy and productive society and reasonably healthy and long lives.

“Good revenue,” is the kind that’s predictable and profitable, and holds possibilities for further expansion. Bad revenue, in contrast, comes from customers that don’t value your core business proposition, requiring excessive customization, complexity or discounting, and causing the sales management team to lose strategic focus. Tempting though it may be, no company can afford bad revenue with its explicit and hidden costs.

In essence, a business model performs two important functions: It creates value and it captures a portion of that value. The first function requires defining a series of activities (from raw materials through to the final customer) that will yield a new product or service, with value being added throughout the various activities. The second function requires the establishing of a unique resource, asset or position within that series of activities in which the firm enjoys a competitive advantage.

There are at least a dozen major design variables in a business. How you go to market, which competencies you use, how you put together your value web, what is your core mission, where do you look for differentiation, and so on. And most people Don't see those as design variables after a while. They just start accepting them for what they are. ...I'm trying to get people to think about the entire business concept as being malleable and open to redesign.

I believe that business concepts can be changed all at once in a big way and I believe they can be changed more slowly over time. But I think the challenge for organizations is to recognize that all of those design variables need to be open to question all the time. Because if they're not, someone else is going to come along and take some dimension of that that you never regarded as important, and they're going to use it in a very interesting way.

By business design, we mean the fingerprint of the (hopefully) unique way a company does business--which customers it chooses to serve, which unique value proposition it offers to customers, which profit models it employs, which scope of activities it engages in, which forms of strategic control it develops to protect profits and customer relationships, and which organizational architecture it uses to implement these decisions.

A business model should enhance a company's special strengths and core competencies: how it wins customers, attracts and deploys economic and human capital, leverages the capabilities of suppliers and business partners, and earns profits. Effective business models are rich and detailed; their components reinforce each other. Change any one thing and you have a different model.

Often the term "business model" is used more or less synonymously with "business strategy." For example, Adrian Slywotzky describes it as "the totality of how a company selects its customers, defines and differentiates its offerings (or response), defines the tasks it will perform itself and those it will outsource, configures its resources, goes to market, creates utility for customers, and captures profits. It is the entire system for delivering utility to customers and earning a profit from that activity."

Our view is narrower than this. Quite simply, a business model refers to the core architecture of a firm, specifically how it deploys all relevant resources (not just those within its corporate boundaries) to create differentiated value for customers.

If you build a better mousetrap, the world will only beat a path to your door if people are interested in catching mice.

We divide business plans into three categories: candy, vitamins, and painkillers. We throw away the candy. We look at vitamins. We really like painkillers. We especially like addictive painkillers!

A business plan should be used as an opportunity to sell your company, not your product.

What are the facts? Again and again and again--what are the facts? Shun wishful thinking, ignore divine revelation, forget what "the stars foretell"--what are the facts and to how many decimal places?