The Business Model Canvas is probably one of the most needed tools to develop a business, and one that needs to be constantly revisited as the business matures. It also has misconceptions around what each column represents. It is a living document with crucial questions to answer.
This article will help guide you briefly on the different sections of the business model canvas and how to utilize it along your startup journey.
What is the Business Model Canvas?
The business model canvas is a visual strategic management tool, with nine building blocks that represent a business.
It outlines infrastructure, value proposition, customers and finances. The right side of the canvas is all customer oriented. The left side is focused on how you do it; the operational side of the business.
With each of the nine sections of the business model canvas, come certain questions that would guide any founder in their journey.
Below is a simple explanation of some of these terms and some questions that would support you in the process of designing your business model.
The Right Side
The first question to ask here is: Who are your most important customers?
That sounds like an easy question to answer, but it might be more complicated than it looks. Once you have an answer though, you can design customer archetypes, i.e. customer personas.
You can create customer archetypes by answering the below questions:
Who are they? (Position, title, gender, role)
How do they buy? (Name of budget and average amount)
What matters to them and motivates them?
Who/What influences them?
Draw a day in the life of your customer.
Once you have clear customer archetypes, you can outline more easily the Job To Be Done (JTBD). JTBD is a concept from a theory of consumer action. The only thing that motivates a customer to buy something, or try something new, is that they have a job that needs to be done.
The magic of JTBD as a framework of thinking is that it immediately puts you in the customers shoes. To put it bluntly, customers don't care how much hard work you've put into your product, or how much has been invested in it. The only goal of a customer is to find a product that gets the job done for them.
Examples of JTBD include Photoshop and Instagram. Both are used for photo editing, but they have very different JTBD. Instagram is used by amateurs who want to edit and share every day pictures, while Photoshop is used by professional photographers who want to edit high quality shots.
So the simple question to answer is what job do your customers want you to get done for them?
For more examples on JTBD, including the famous Milkshake example by Clay Christensen, click here.
Samuel Hulick, Customers use products to design a "new me"
Value proposition is a promise of the value you will deliver to your customers. It is a clear statement that offers three things:
Relevancy. Explain how your product solves customers’ problems or improves their situation.
Quantified value. Deliver specific benefits.
Differentiation. Tell the ideal customer why they should buy from you and not from the competition.
Your value proposition will include answers to two main questions:
What customer problems are you helping to solve?
What customer needs are you satisfying.
Value propositions could be written following this formula:
Headline. What is the end-benefit you’re offering in one short sentence? It can mention the product and/or customer. Make it an attention grabber.
Sub-headline or a 2–3 sentence paragraph. A specific explanation of what you do/offer, for whom, and why it’s useful.
3 bullet points. List the key benefits or features.
Visual. Images communicate much faster than words. Show the product image, the hero shot, or an image reinforcing your main message.
An example of a strong value proposition would be Slack. They clearly are defining that they make the working lives of their customers simpler, more pleasant and more productive.
Your startup can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company's value proposition in ways that are fast, efficient and cost-effective.
You can reach your customers through your own channels (store front), partner channels (major distributors), or a combination of both. The question to answer here is:
Through which channels do your customers want to be reached?
With existing competitors and new ones able to enter the market at any time, the one aspect of your business that can't be replicated is your customer relationships.
That's why this is such a fundamental block of the business model canvas. Different types of customer relationships include:
Personal Assistance: This comes in the form of employee-customer interaction and it's performed during sales and/or after sales.
Dedicated Personal Assistance: This is the most hand-on personal assistance, because a sales representative is assigned to one customer or customer group.
Self Service: This is the most indirect form of customer interaction with your company. Your company would give the customers the tools they need to serve themselves.
Automated Services: This is similar to self-service, but it's more personalized because it can identify individual customers and their preferences.
Communities: Creating a community gives the space for direct interaction between the customers and your company. This also creates the space where knowledge can be shared and problems solved by the customers, for the customers.
Co-creation: This is perhaps the ultimate customer engagement, as well as delivery channel. Your company creates a personal relationship with the customer and incorporates their direct input into the product.
The questions to answer here are:
How will your business get new customers.
How will your business keep customers purchasing or using your services?
How will your business grow its revenue from your current customers?
Understanding how the company will make money, defining the revenue model, and pricing tactics for the company, based on different customer segments. Different examples of revenue streams are:
Asset Sale – (the most common type) Selling a physical product.
Usage Fee – Revenue generated by selling a service.
Subscription Fees – Money made by subscriptions on a regular basis.
Lending/Leasing/Renting – Giving exclusive access to an asset for a specific time period.
Licensing – Money made from charging for the right to use a protected intellectual property.
Brokerage Fees – Charging for an intermediary service between two other parties.
Advertising – Charging fees for advertising for third parties on your own channels.
You can represent this on the business model canvas by percentages of the total revenue for each revenue stream.
Subscription Fees 50%, Licensing 25%, Partnerships 25%
The Left Side
This block allows you to map out the key partners. Complementary relationships that you have with other business, NGOs or governments, that support your business operations. Main questions here are:
Who are your key partners and key suppliers?
What are you getting from them, and giving to them?
This is the core of your business. What are your main activities that support your business in delivering a profit? Business activities include operations, technology, marketing and administration.
Every business needs resources to deliver it's key activities and value proposition to it's customers. This is where you will outline the different kinds of resources a business needs. Different business models will need different Financial, physical, intellectual property, human resources. So what key resources does your require?
The objective of this block in the canvas is to outline the different costs required to deliver on your business model. Understanding your cost structure will help your team assess if this is a feasible business model or not.
Cost structures can be either:
Value driven: The purpose of value driven cost structures is to deliver a high value product, not to produce it at the lowest possible cost.
Cost driven: Cost driven cost structures that focuses on delivering a product or service at the lowest cost possible.
Questions for you to think about for your business are:
What are the most important costs in your business model?
What are the fixed and variable costs you have?
Similar to revenue model, you can represent the different cost items as percentages on the canvas per cost category.
Do you want to learn more about The Business Model Canvas?
You can read more here: www.strategyzer.com