The Business Model Canvas (BMC) is a strategic management tool to quickly and easily define and communicate a business idea or concept. It is a one-page document that works through the fundamental elements of a business or product, structuring an idea in a coherent way.
Download your Business Model Canvas here
Why use it?
- To quickly draw an overall picture of what the idea entails.
- It allows us to get an understanding of your business and to go through the process of making connections between what your idea is and how to make it into a business.
- It looks at what kinds of customer decisions influence the use of your systems.
- The visual nature of the business model canvas makes it easier to refer to, understand by anyone and make edits.
- The business model canvas can be used by large corporations as well as startups with just a few employees.
- It clarifies how different aspects of the business are related to each other.
- You can use a BMC template to guide a brainstorming session on defining your business model effectively.
How to Create a Business Model Canvas
There are 9 building blocks in the business model canvas and they are the Value Proposition, Customer Segments, Customer Relationships, Channels, Key Resources, Key Partners, Key Activities, Cost Structure and Revenue Streams.
Let us look into more detail for each of these items:
The Value Proposition is foundational to any business/product and is the building block that is at the heart of the BMC. It represents your unique solution (product/service) for a problem faced by a customer segment/s, or that creates value for the customer segment/s.
A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. If you are offering a product that already exists in the market, it should stand out with new features and attributes.
Good questions to ask when defining your business/product:
- What is the problem I am solving?
- Why would someone want to have this problem solved?
- What is the underlying motivator for this problem?
Customer Segmenting is the practice of dividing a customer base into groups of individuals that are similar in specific ways, such as age, gender, interests and spending habits.
Things to consider when determining your Customer Segments:
- Who are we solving the problem for?
- Who are the people that will value my value proposition?
- Are they another business?
- If so, what are the characteristics of those businesses?
- Does my value proposition appeal to men/women or both?
- What age group does my product appeal to?
- What are the characteristics of the people who are looking for my value proposition?
Another thing to gauge and understand is your market size, this will help you understand your market from a micro and macro perspective. Another great place to understand your customer is to create customer personas for each of your Customer Segments.
There are different customer segments a business model can target:
- Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs (eg. mobile phones).
- Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements (eg. hybrid car).
- Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
- Diversified: A diversified market segment includes customers with very different needs.
- Multi-sided markets: this includes interdependent customer segments. For example, VISA & Mastercard caters to both their credit card holders, as well as, the merchants who accept those cards.
Customer Relationships are defined as how a business interacts with its customers.
There are several types of customer relationships:
- Personal assistance: you interact with the customer in person, by email, phone call, or other means.
- Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.
- Self-service: here you maintain no relationship with the customer, but provide what the customer needs to help themselves.
- Automated services: this includes automated processes or machinery that helps customers perform services themselves.
- Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
- Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, TikTok has given its users the opportunity to create content for its audience.
A really helpful step is to create a Journey Map of your customers as they interact with your business. This helps clarify the points of engagement between you and your customer and the modes used to relate to your customers. This will also help you start to define your operations as a business and also help you identify opportunities for automation.
Channels are defined as the avenues through which your customer comes into contact with your business and becomes part of your sales cycle and is generally covered under the marketing plan for your business. Understanding how to reach your customers is extremely crucial to your business’s success.
There are two types of channels:
- Owned channels: company website, social media sites, in-house sales, etc.
- Partner channels: partner-owned websites, wholesale distribution, retail, etc.
Examples of channel types include:
- Social media
- Public speaking
- Electronic mail (email marketing)
- SEM (Search Engine Marketing)
- SEO (Search Engine Optimisation)
- Engineering as marketing
- Viral marketing
- Targeting blogs
- Sales and promotions for commissions
- Existing platforms
- Public relations
- Social advertising
- Trade shows
- Content marketing
- Community building
- Offline advertising (billboards, TV, radio)
The Key Activities of your business/product are the actions that your business undertakes to achieve the value proposition for your customers.
There are 3 categories of key activities;
- Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
- Problem-solving: finding new solutions to individual problems faced by customers.
- Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.
Gaining an advantage over the competition is extremely important in business. This section of the BMC is where you’ll plan out strategies and activities that will help you gain an upper hand on your competition.
You should think about what practical resources are needed to achieve the key activities (actions) of the business?
There are several types of key resources and they are:
- Human (employees)
- Financial (cash, lines of credit, etc.)
- Intellectual (brand, patents, IP, copyright)
- Physical (equipment, inventory, buildings)
These resources allow you to create value for your desired consumer.
Key Partners are a list of other external companies/suppliers/parties you may need to achieve your key activities and deliver value to the customer.
Types of key partner are:
- Strategic alliance: a partnership between non-competitors
- Coopetition: astrategic partnership between partners
- Joint ventures: partners developing a new business
- Buyer-supplier relationships: ensure reliable supplies
Your business cost structure is defined as the monetary cost of operating as a business.
- How much does it cost to achieve my business’s key activities?
- What is the cost of my key resources and key partnerships?
- How much does it cost to achieve the value proposition for my customers/users?
- Are there additional costs to running a business?
- What is the cost of my business?
- It is important also to place a monetary value on your time as a cost.
- How much would it cost you to hire you?
- What is the opportunity cost of running your business?
Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).
Revenue Streams are defined as the way by which your business converts your Value Proposition or solution to the customer’s problem into financial gain. It is also important to understand pricing your business accordingly to the pain of purchase in exchange for the pain of solving the problem for your customer.
There are several ways you can generate revenue:
- Asset sales: by selling the rights of ownership for a product to a buyer
- Usage fee: by charging the customer for the use of its product or service
- Subscription fee: by charging the customer for using its product regularly and consistently
- Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
- Licensing: customer pays to get permission to use the company’s intellectual property
- Brokerage fees: revenue generated by acting as an intermediary between two or more parties
- Advertising: by charging the customer to advertise a product, service or brand using company platforms
This section can lack lots of detail but it should give you a strong idea of every revenue stream.
Once you have completed your BMC, you can share it with your organization and stakeholders and get their feedback. It’s important to note that the BMC is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.
For any further information regarding creating your Business Model Canvas, you can book a free discovery call.
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