Although you may have heard many times about the Business Model Canvas before, it won’t harm to fresh up your know-how about this model. This way, you’ll better understand how to utilise the value of using this model for your business.
Why use the Business Model Canvas?
The Business Model Canvas is developed by Alexander Osterwalder. It’s a simple tool for visualising a company’s value proposition and the key activities that create that value. It helps you visualise your business in a way that’s easy to understand. This can help you see where new opportunities might exist within your current business. It quickly brings the strengths (like a valuable partner) and weaknesses (like an unclear proposition) of your business to the surface. They say the chain is as strong as the weakest link. For that reason, you want to focus on each of the 9 building blocks of your business.
How is the Business Model Canvas build up?
Before we cover each building block, it’s good to know that the canvas can be divided into three main parts. The desirability (green part in the right), the feasibility (blue part in the left), and the viability (pink part in the bottom). You ideally want to start with desirability. Because if your business (initiative) isn’t desired by anyone, it obviously wouldn’t matter if it’s possible to create or make profitable. For this reason, the first 4 steps are all connected to the part of desirability. After this, you want to go through the feasibility part (step 5 to 7) and finally go through the viability.
Side-note: The steps for filling in this canvas doesn’t matter much. But the sequence of these steps does matter in case you’re determining your next experiment. If you got a big question mark regarding both the customer segment and revenue stream, you first want to validate your assumption connected to the customer segment.
STEP 1. Customer segments: Who pays for my product and/or service?
Some general examples for customer segments:
- Teams at SaaS-companies
- Starting solopreneurs
The customer segments are groups of customers who have similar needs and are similar in how they behave. They can be defined by the customer’s demographic characteristics, such as age, gender, income level, location, or occupation. Customer segments can also be defined by their behaviour characteristics: interests, needs or buying behaviours. Certain product usage patterns can also be taken into account when defining the customer segment.
Although it’s a good practice to delineate your customer segment based on specific pain points, you don’t do it here. That’s because the pain points are already included in the value proposition block. So you just limit yourself to the demographic and buying behaviours mainly.
STEP 2. Value proposition: Why do customers choose me over my competitors?
Some general examples for value propositions:
- Being a certified sparring partner for infopreneurs (connected to the first example of a customer segment)
- Being an integral growth manager for teams (connected to the second example of a customer segment)
- Being an experienced business coach for starting solopreneurs (connected to the third example of a customer segment)
A value proposition is how you’re going to deliver value to your customers. The Business Model Canvas defines the value proposition as “the unique and compelling reason a company offers its solution.” It’s what defines why people will want to use your product over a competitor’s.
It differs from other business models because it focuses on how you deliver value, not how you make money. It also differs from the value chain because it focuses on what outcomes your customer gets from using your product or service. Instead of their experience interacting with all parts of delivering that product or service.
The key elements of a strong value proposition are:
- The customer archetype (or segment) that will be targeted by your solution
- The specific pain point(s) that drives customers to seek out your solution
- Your approach for solving their pain point and creating value for them
STEP 3. Channels: How do I find (potential) customers for my business?
Some general examples for channels:
- Content marketing (videos, blogs) combined with SEO
- Cold-calling prospects from LinkedIn (existing platform)
- Going to network events and network with prospects
Channels are the means by which you deliver your value proposition to your customer. They include the way that you get your product or service to both your potential and existing customers. The channels also include the way in which you interact with them.
It includes your distribution channels (for example through Udemy, EventBrite, or Zoom), marketing channels (like content marketing, SEO, and social advertising), and communications channels (such as WhatsApp, Twitter, Slack). There are many channels that can be used for a business model canvas; channels can be physical (such as a physical training location), digital (such as an online learning environment), or both.
STEP 4. Customer relations: How do I maintain contact with my customers?
Some general examples for customer relation channels:
- WhatsApp group app
- Mail which is mostly automated
- Facebook Groups with moderators
Your customers are the most important asset of your business. They are the raison d’être of your business. Meaning, it’s crucial to understand who they are and what they value. A customer can be an individual, group or organisation that buys products and services from you. You want to build strong relationships with these customers and create long-term value for them. Therefore, you need a strategy for managing their relationship with your company (Customer Relationship Management). In this building block you want to include your most important tools and platforms related to your CRM.
A CRM will help you to understand why your customers interacted with your company, whether they were satisfied with their experience and what will motivate them to re-engage in future interactions. How does a CRM system give insight about these matters? By collecting data about your customers, monitoring how they interact with your company, and taking action in response to their behaviour. As such, it provides an effective way for entrepreneurs to understand how customers use products or services over time so that they can get better at delivering what those customers want.
STEP 5. Key partnerships: With which individuals & companies do I work together?
Some general examples for key partnerships:
- Your business coach
- Your financial advisor
- Your accountability partner
- Your affiliate partner
No business is an island. Partnerships are essential for success. It’s useful to frequently think about which partnerships brings value to the table. Because they can help you grow and succeed. They can even change the way you do business.
Partnerships can help you grow your business way faster. They can also open up doors to new markets that would otherwise be closed to you. Partners can give you the chance to work with people you may not have had access to otherwise. These people can, in turn, give you the opportunity to build something larger than what you could have done on your own.
Partnerships can give you access to new customers and markets (through affiliate partners or satisfied ambassadors). It can save you a lot of money (by combining resources such as an office space of web hosting). And it can provide access to new technologies that would otherwise be out of reach for small businesses (such as machine learning).
STEP 6. Key resources: What are my most important business resources?
Some general examples for key resources:
- Trademark certificate
- Personal working space
- Powerful computer
- Recording equipment
When thinking about a key resource, it’s important to ask yourself: what is the type of resource? For example, if you are selling software, then your key resources may be your codebase and app store listing. It is also important to consider whether a resource is a tangible or intangible asset. Tangible assets can be easily seen by people and include things such as equipment and inventory. Intangible assets are those that have value but cannot be seen such as intellectual property.
The resources that are most important to your business are the ones you can’t do without. Resources include anything that your company needs to operate, such as a computer and some physical workspace. Some resources may be obvious (like good WiFi and reliable hosting), while others will be less so (like customer information and copyrights). The key resources of a business model canvas are the things that make it work, such as revenue streams or channels of distribution.
STEP 7. Key activities: What are my most important business activities?
Some general examples for key activities:
- Giving workshops
- Producing video content
- Doing your book keeping
- Setting up experiments
The Key Activities element is a simple list of the main activities that take place in your business. While this building block may seem obvious, this is actually one of the most important elements. Because it sets up everything else you’re going to do for your Business Model Canvas. For example, if you want to sell products online, you have to have an online store or website where people can find those products and make purchases.
You usually want to include the activities which are related to creating the product/service, delivering your value proposition, promoting and selling the product/service, and giving customer service. Try to make these fields of activities as specific as possible for your business.
STEP 8. Cost structure: Which main business investments do I have to make?
Some general examples for business expenses:
- CRM software membership
- Depreciation expenses for your recording equipment
- Hosting and maintenance costs for your website
The cost structure includes the biggest costs associated with your business. It is a critical component of your business model and helps decide how profitable or unprofitable your company will be.
Your cost structure can be broken down into four categories: product, people, marketing and operations. If you have to pay someone to develop something, then that expense goes under product costs. If you for example have a business coach or consultant, then his or her rates go under people costs. Marketing expenses include advertising, marketing campaigns, promotions, and anything else related to attracting customers. Finally, operational expenses cover all fixed costs associated with running the business on a regular basis such as rent, taxes, and insurance.
STEP 9. Revenue streams: Which main in income streams do I generate?
Some general examples for income streams:
- One-off payments for your business consultancy trajectories
- Subscription money for your your online community
- Commissions for your referrals to your affiliate partner
A revenue stream is the way you make money. They’re the top layer of the Business Model Canvas—any other layers should be built on top of them. The first step in deciding what revenue streams to include is identifying which of your options have potential for growth or scale. You’ll want to choose those options that are scalable and have a high enough margin that they can support growing demand without cutting into profits too much.
In order to figure out which (preferably scalable) revenue streams should be included on the canvas, consider what is most important for your organisation right now—and for how long? What do people want most from you? Do you have enough money coming in through these particular sources? Is there something else you could offer that would increase sales volume even more than your current offerings do? These are all valid questions when determining what types of income streams need inclusion to fund your operations without going out-of-bounds financially.
Some final words
Your Business Model Canvas should be a living document that you update and refine over time, just like your Value Proposition Canvas (click here to read my article about how to design a strong Value Proposition Canvas). It’s important to remember that your business model is a tool for making decisions, not just a static description of the current state of affairs. If you find yourself using it less—or even ignoring it entirely—then perhaps it’s time for an overhaul!
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