To make a smart decision about the business, you are going to create or one you represents you have to know everything about it. You have to be aware who will be your costumes and partners. You need to know what you will be providing to them and how you will give it. And the most important, you need to know what will generate your costs and from where your income will come. The Business Model Canvas is a tool (template) which will help to visualise your business model.
The Business Model Canvas, the one introduced by strategyzer.com, is built with 9 following blocks:
Customer
The customers are the hart of each business. No business, at least there are limited numbers of business, can survive without the costumers. In most of the cases, there are even more than one customer. To be able satisfied our costumers first we need to identify them and group based on needs, expectations and behaviours.
There are several customer segments to be consider: mass market (a large number of costumers with very similar problems and needs), niche market (specialized costumers with very specific requirements), segmented (a few groups of costumers with slightly different requirements), diversified (number of unrelated costumers group) and multi-side market (two or more independent group of costumers).
Why it is essential to define the customer segments? Each segment may be interested in different services (value added). Each segment required a different relationship. Each segment can be reached with different channels. To have a full picture of our costumers, it is useful to know some consumers in each segment – it might be a good idea not to care about the segment with only one customer in it.
In my opinion Personas (the concept introduced in Product Design) can be easily used to create segments of costumers interested in our products or services.
Value Proposition
To have a successful business, we need to focus on delivering value, valuable products and services, to our costumers. A presented offer should resolve problems costumers have or might have in a feature.
The value proposition can be placed in one of the following categories: newness (new set of needs are satisfied), performance (improving product and service performance), customization (service and product adjust to the costumer needs), get the job done (allows costumer to do things he/she is not able to do), design (it looks better than other products), brand and status (costumer gets a value by using certain products and services), price (product and service that does the same think that other product and services but cost less), cost reduction (allows client to do thinks other way but cheaper), risk reduction (services and products mitigate or transform risk), accessibility (services and products previously not accessibly for the costumers) and connivance (makes things easier to do).
srategyzer.com introduced the Value Proposition Canvas, yet another canvas which might help with defining Value Proposition for our Costumers.
Channels
Now we know who our costumes will be and what Value we are going to deliver to them. In the next step will have to define how we will reach to our costumes and how we will be communicating with them. We need to make them aware of the benefits they going to gain using our products and services. We also need to define a way in which they are going to purchase it and how they will receive it.
Channels can be described as direct (direct contact with the customer by sales force) or indirect (website or advertisement) and own (we have our own workforce) or partner (we are using some marketing company to approach costumer in our behalf).
We can describe channels for each of 5 phases: awareness (how do we inform customer about new product or service), evaluation (how do we help customer to evaluate potential benefits), purchase (how do we allow customer purchase it), delivery (how do we deliver ) and after sale (how do we support our client once he/she using it).
We should define channels for each customer segments and groups.
Customer Relationships
We need to prepare ourselves to maintain the relationship with costumes which decided to use our product or service. We should plan it before we have our first client so he/she won’t fell left alone (or maybe it is our intention).
We can choose from one of the following relationships: personal assistance (face-to-face, e-mail or phone contact with member of the support team), dedicated personal assistance (one person selected to contact with costumer e.g.: Key Account Manager), self-service (there is no relationship with the costumer after sale is completed, no support from our side but we provide all necessary information for clients to help themselves), automated services (it’s is extended self-service model in which costumer receive some tool which helps with customization), communities (we create a space in which all costumers can exchange information and help each other), co-creation (costumer takes part in product or service development process). There should be defined at least one channels for each Customer Segment.
Revenue Streams
The next step in creating Business Model Canvas is to define Revenue Stream. It is essential to know not only how much money our products or services will generate. It is also important to know when the payment will be made. Will it be a one-time payment or a payment spread over the time? Will it be paid in advance (or part of it) or it will be paid after a product is delivered or a service is concluded.
There are several characteristics for the Revenue Streams: asset sale (costumer pays for the ownership right to the physical product), usage fee (customer pays fee depends on the usage of the service), subscription fee (customer pays for the access to the service regardless the usage of this service), lending fee (customer pays for the temporarily granted ownership to the physical products, with some defined limitations), license fee (customer pay for usage of the intellectual property), brokerages fees () and advertising (customer pays for advertising his/her products, services or brands).
Also, Revenue Streams can be categorised as Fixed Menu Pricing (prices are predefined based on product or service characteristic) or Dynamic Pricing (prices are changeable based on market condition).
To better predict Revenue Flow it needs to be determined how much each Revenue Stream contribute to the total Revenue. It is also useful to match each Revenue Stream to Customer Segments, where we have information about a number of potential costumers.
Key Resources
To make our business able to provide Value Proposition to our Costumers Key Resources need to be indemnified. Depends on the business the different Key Resources are needed to create a Value Proposition, to use Channels and to manage Customer Relationship.
The following categories can be used to describe Key Resources: physical (computers, desks, building, cars, etc.), intellectual (knowledge, patents, licenses), human (human resources, people need to get things done) and financial (money, stock options, bank guarantees). The Key Resources can also be defined as owned (people hired by a company), leased (developers who have been taken from software house to create an application) and acquired from partners (server hosted by a partner who gets profit from this business as well).
Key Activities
Key Activities holds a high-level plan how to make our business work. It can be treated as a To Do List. It needs to be planed how to use Key Resources to prepare Value Proposition and reach to our Costumers.
Key Activities can be categories as follows: production (designing, making and delivering products), problem-solving (creating a new solution for a new problem or optimized solution for a known problem) and platform ().
It is also a good practice to mark dependencies between tasks. There is no point in starting a marketing campaign in case there is no product to advertise (there is no product visualisation). It is not required, but I am going to recommend, to set a due date for each of Key Activities. It will motivate to go forward with your business.
Key Partnership
Usually, every business is working within some habitat in which other companies operate as well. In some cases it is easier and better from the business perspective get help from other companies.
We can group Key Partners by the motivation for which partnership has been created: optimization and economy of scale (buyer-supplier relationship), reduction of risk and uncertainty (strategic alliance with some competitors) and acquisition of particular resources and activities (usage of external resources and a third party to fulfil Key Activities).
Cost Structure
Our Business Model Canvas is almost completed. There are all the information about how our business is going to operate. However, to have a full view of our business. To be able to make the most important decision “are we in?”, we need to identify the main cost related to operating under this model.
Each item in the Cost Structure can be characterised with the following categories: fixed cost (costs remain the same despite any variables), variable costs (prices change proportionally with some variable), economies of scale () and economies of scope ().
Finally, the decision need to be made: What type of business we are going to run: cost-driven (minimising costs wherever it is possible) or value-driven (value proposition for the costumer is more important than some saving in business model). Or maybe somewhere in between.
And now Business Model Canvas is completed. Now we can use it to make a smart decision about our business, including the most important question “are we in?”. Business Model Canvas once created should not be left alone. It should be updated and adjusted as often as our business is changing. Otherwise, it become useless.