What is a Business Concept?

A business concept explains in abstract terms how a business works, how it can compete, create value (and earn money) and survive over time.

Definition Business Concept:

A business concept is a tool used to describe a business and
enable assessment of its functionality, competitiveness, intrinsic value and viability.

In this context, it is irrelevant whether it is an existing business or just an idea for a future business.

The definition contains four core concepts:

1. Functionality, 
2. Competitiveness, 
3. Value and 
4. Viability.

The first term “functionality” refers directly to the core of a business according to our definition: the completion of a task or fulfillment of a function for a third party. How you actually want to do something is what the question of “functionality” is all about.

The second concept of "competitiveness" is about how tasks are performed and functions fulfilled in comparison to available alternatives. This is from the perspective of all those involved, directly or indirectly.

The third concept of “value” contains the essential distinction from the widely established concept of “business model” (see below). The concept of „value" extends the typical description of the content of a business in a "business model" to include additional key aspects of value beyond simply considering money. The business model is originally simply a question of explaining to a third party “how to make money”. However, this term is too narrow for a general definition for analyzing business or explaining business concepts. After all, there are business concepts that work without money. A barter transaction can serve as a very simple example of this. If the definition only referred to “earning money”, then business concepts that involve a barter transaction would simply not be included in the definition and could not be described. After all, the core of the barter business is that it does not involve money. Nevertheless, it is clearly a business.

Additionally, there are notable business concepts in which essential components of the product are not compensated with money. This is exemplified by Wikipedia, where the authors of the articles are not compensated financially. Additionally, a considerable number of the moderators are not compensated financially for their contributions. Neither have users to pay for using Wikipedia. The costs associated with maintaining the servers and the software development team are financed through donations. The advent of the "Wikipedia" business model has forced all major encyclopedia publishers to either adapt their existing business concepts or cease operations. Even in many businesses that collect and market data, significant parts of the business are not remunerated with money, as those whose data is marketed generally do not see a single cent. This is particularly evident in the case of Google and Facebook. A business description that only explains how money is earned therefore does not cover all relevant aspects of a business. Therefore, the definition of the business concept used here does not focus simply on the money earned, but on the broader concept of "value."

The question of whether a business concept can “endure over time” was described in the definition with the term “viability” and thus also generalized. Do you remember “Tamagotchi” or “Loomen”? Both were extremely successful businesses, as long as the fashion for them lasted. But precisely because the sales they generated were based on a fashion effect, they could not survive over time. Their viability as a business was limited. But a business concept does not necessarily have to be built to last in order to be successful. Therefore, this question should be asked before investing large sums in production facilities for Tamagotchis or Looms, which will no longer be needed after a few years. The question of viability is therefore a very important perspective on a business concept in its own right. And the standard answer: “It has to last in the long term to be valid” is not correct. There are other ways.

Why are business concepts needed?

Those who succeed in developing a more nuanced understanding of the design and functioning of their business concept through systematic analysis may gain a competitive advantage. This enables the individual to plan and prioritize their own steps more effectively, thereby utilizing limited resources in a more targeted and therefore more effective manner. Furthermore, it is possible to anticipate potential moves by competitors. Even if all other conditions remain constant, this differentiation in the capacity to comprehend business concepts will maintain a competitive advantage. This advantage can then be transformed into a multitude of benefits. For instance, David can emerge victorious against Goliath, a start-up can prevail over an established large company, or a more attractive return on investment can be generated.

In contrast, those who only use an incomplete thought model are exposed to considerable risks. In other words, since the thought model is incomplete, it contains gaps. A gap can be harmless because nothing relevant happens there. In most cases, however, this is not the case. Sooner or later, the gap not being recognized due to the poor thinking model will hide an aspect that has a significant impact on the further development of one's business. The gap can disrupt schedules, explode costs and give competitors options to differentiate or attack. In the worst-case scenario, if problems arise as a result of the gap, the causes are not addressed. The gap is neither recognized nor eliminated, but only the symptoms caused by the gap, the secondary problems, are tackled. This can lead to a considerable waste of scarce resources. Ultimately, every bankruptcy of a company and a previously valid business is based on such a misjudgment of a component of the business concept.

A thought model and analysis approach to enable a better understanding of one's own and other people's business concepts is therefore of paramount importance. It is precisely the presentation of such a thinking model and analysis approach for business concepts that is at issue here.