The Business Model Canvas is “A shared language for describing, visualizing, assessing, and changing business models.” – Business Model Generation by Alexander Osterwalder. This brilliant model replaced the antiquated business model tools with a disruptive way to describe, challenge, and pivot your business model. Not sure where to start with your next idea? The steps and resources found here will guide you through.
Absolute Must Read for Modern Business Model Creation
What’s a Business Model?
First off, lets define a business model: A business model describes the rationale of how an organization creates, delivers, and captures value. When embarking on a new business venture or idea, it is important to create a shared understanding of what the value proposition is – meaning why are we doing this, what are we doing, how will we do it, who are we doing it for, and so what?
What is the Business Model Canvas?
The business model canvas describes the value proposition in nine building blocks to show how this new venture is expected to make money. The canvas is a great tool used by many organizations, large and small, around the globe to think through a describe the business model for your idea or a competing idea.
The 9 Building Blocks
The Business Model Canvas is broken into 9 segments that form a sort of artistic map to your proposition. Whether your new concept is an improvement to an existing idea, or an entirely new business proposition, this model is a great tool to help you make a successful launch!
- Customer Segments: Who are you selling to?
- Value Propositions: What and how are you solving your customer’s problems and needs
- Channels: How do you reach your customers
- Customer Relationships: What methods will you use to acquire new customers, retain existing customers, and boost sales
- Revenue Streams: How the value proposition makes money.
- Key Resources: What assets are required to make this business model work (like buildings, intelligence, patents, etc)
- Key Activities: What things must you preform in order to deliver your business model? (Producing a product, solving problems)
- Key Partnerships: Network of strategic and competitive partners needed to establish and grow business model.
- Cost Structure: All of the costs of this business model including variable and fixed costs.
For whom are you creating value?
Who are your most important customers?
- Mass Market: Focus is on one large group
- Niche Market: Catering to specific needs of a specific customer group
- Segmented: Breaking up a group based on measurable factors (income, age, location, gender) – each segment has similar, but varying needs and problems.
- Diversified: Serving more than one customer segment – each with very different needs and problems.
- Multi-sided Platform: A model requiring multiple markets to be successful (E.G. a blog needs both readers and advertisers for the model to work)
What value is delivered to the customer?
Which of our customer’s problems are we help to solve and what needs are being satisfied?
What bundles of products and services are being offered to each customer segment? (Good to look both internally and at competitors)
- Newness: A new set of needs not previously known by the customer
- Performance: An increase in a product or service performance(Efficiency/Effectiveness)
- Customization: Tailored solutions to niche customer needs (both individual customers and segments)
- Getting the Job Done: A product that helps the customer get their job done
- Design: A product recognized for superior design and aesthetics (Necessary for fashion and electronics)
- Price: Business model that competes with other products offering similar value by offering a lower cost. Satisfies needs of price sensitive customers.
- Cost Reduction: A product or service that helps a customer reduce their costs.
- Risk Reduction: A product or service that reduces the target customer’s risk (warranty or service plans)
- Accessibility: Making the product or service available to customer segments that previously lacked access.
- Convenience/Usability: Makes things more convenient for the customer
Through which channels do the customers want to be reached?
How are they being reached now, how are these channels integrated, and which one(s) work best? (Compare Internally & Externally)
What channels are the most cost efficient?
How do our channels integrate with customer routines?
- Awareness: How do we raise awareness of our products and services?
- Evaluation: How do customer’s evaluate our value proposition?
- Purchase: How are our products and services purchased?
- Delivery: How are our products and services delivered?
- After Sales: How are our products and services supported?
What types of relationships are expected to be established and how should they be maintained for each customer segment?
Which methods have been established, what is their cost, and how are they integrated? (Internally & Externally)
- Personal Assistance: Human interactions
- Dedicated Personal Assistance: Dedicated representative catering to a client’s needs
- Self-Service: No direct relationship maintained with customer
- Automated Service: Simulated personal relationship, can provide information related to previous data
- Communities: Forums. Rely on other users to answer questions and problem solve instead of company representative
- Co-Creation: Engage customers to design new products
Revenue streams is the cash generated through each customer segment. There are recurring revenues and one-time payments.
- Asset Sale: Selling the permanent rights for a customer to own a physical product.
- Usage Fee: Revenue generated through the use of a service – often times, the more the customer uses or the more features are added, the greater the earnings.
- Subscription Fee: Customers are provided with continuous access to a product or service for a specific time period (E.G. gym membership)
- Lending, Leasing, or Renting: granting temporary rights for a customer to utilize a product.
- Licensing: Generating revenue through selling rights to access intellectual property (E.G. patents, software, copyrights)
- Brokerage Fee: Revenue generated by connecting a supplier with a customer – acting as an intermediary.
- Advertising: Promoting a product on behalf of another business for a fee.
The key resources are the most important things needed to make a business work
- Physical: Vehicle, Manufacturing equipment, buildings, inventory
- Intellectual: Patents, Copyrights, trademarks, trade secrets
- Human: Critical in knowledge based enter[rises employing scientists, engineers, skilled labor, etc.
- Financial: Providing credit, loans, and/r financial guarantees. (Banks)
The most important actions the business must take
- Production: Design, make, and deliver product
- Problem Solving: Developing new solutions for customers’ need (E.G. Hospitals, consultants)
- Platform/Network: Non-tangible asset like software or the IT system supporting the product (E.G. Website, system network)
Network of relationships, suppliers and partners, that are necessary to make the business model work.
- Optimization & Economy of Scale: Outsource or buying product, materials, or service from a supplier. With enough volume, this purchase method could result in lower costs.
- Reduction of Risk & Uncertainty: Partnerships to form a consortium or strategic alliance to develop a new capability or push the market a certain direction.
- Acquisition of Particular Resources & Activities: Method of expanding a company’s own capabilities by acquiring or hiring a third party company o provide service. Different than outsourcing, as this method may bring the partner in house.
All of the costs a business incurred, including direct and indirect, that are needed to execute your business model. The cost structure may be understood after defining the required key resources, activities, and partnerships.
- Cost-Driven: this type of model focuses on driving down costs wherever possible. Likely operating in a highly competitive environment with multiple substitutes.
- Value-Driven: models where companies focus on creating and delivering value to the key customers and less on the cost implications.
- Fixed Costs: costs that remains fixed regardless of sales volume.
- Variable Costs: Costs that change with product volume
- Economies of Scale: Cost advantages that come with with larger output volume.
- Economies of Scope: Cost advantages that come when a business an scale its operations to adjacent sectors. This means the organization has overcome the barriers to entry for the market, and can now expand to additional products within that market.
So next time you have a brilliant idea to improve your organization or have a concept to spawn a new business proposition, test out the business model canvas!
For More Information,
See the two excellent resources below filled with detailed case studies and examples on how to use the business model canvas and other tools to ensure the most effective launch!
|Value Proposition Design: How to Create Products and Services Customers Want (Strategyzer)||Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers||Testing Business Ideas|