The magic triangle model, developed at the University of St-Gallen, consists of four dimensions, presented in the form of a ‘magic triangle’. The aim is to become clear about your customer segments, your value proposition, your value chain and your profit mechanism, and make your business model comprehensible while at the same time laying the foundation for future innovation.
It’s called a ‘magic’ triangle because an adjustment at one corner automatically necessitates tweaking the other two corners.
While diving deeper into the four dimensions of the model in the next topics, we give here already a short overview.
1. The customers – who are your target customers?
It is important that you understand precisely which customer segments ae relevant for you and which ones you will and won’t address with your business model. Customers are at the heart of every business model – always! There are no exceptions.
2. The value proposition – what do we offer to customers?
This second dimension defines your company’s offerings (products and services) and describes how you cater for your target customers’ needs.
3. The value chain – how do we produce our offerings?
In order to put your value proposition into effect you need to carry through various processes and activities. These processes and activities in conjunction with related resources and capabilities and their coordination along the company’s value chain make up the third dimension of business model design.
4. The profit mechanism – why does it generate profit?
This fourth dimension, which includes aspects such as cost structures and revenue-generating mechanisms, clarifies what it is that makes a business model financially viable. It provides an answer to the central question that every company needs to ask: will we make enough profit to ensure our own survival?
In the next topics we will address each of these elements, give some more information and provide exercise to check your own business idea.