The Business Model Canvas
The Business Model canvass is essentially a one page overview that lays out what your business does and how it achieves it. It is normally displayed as a visual chart containing different elements including customer segments, value propositions, channels etc.
Defining your customer is arguably the most important step in the business canvass model and in business period! Without these guys you have no business in the first place. So how do you do this ?
– Segment Dimensions – Identify whether your business has a single or a multi sided market. A great example of this is ‘The Times magazine’. On one hand they serve the reader, writing engaging content to meet their needs, on the other hand they have the advertisers, who provide the revenue that drives the business.
–Segment Composition – Above we discussed the segment dimensions, which represent the macro analysis of your customer base. The micro is the type of persona(s) you are trying to reach. The aim of the game here is to be able to visualise the persona in detail! What car do they drive, what’s their age? Try to get as detailed as possible to know exactly who your business is trying to serve. This step should enable you to have an understanding on what your customer thinks, what they see, how they feel and most importantly how they use your product/service.
–Needs and problems – Ensure that you have identified with existing needs and problems, in addition, know what alternatives that your customers are currently using. The best approach to achieve this is by simply going out there and speaking to people to gain valuable feedback, which in turn will help you improve on the issues at hand.
This is the collection of products and services your business offers to meet the needs and wants of your customers. Essentially, your value propositions are what make your business unique and what differentiates it from its competitors. Value propositions can be provided in various ways including design, branding, convenience, price etc.
Businesses deliver their value propositions through different channels. Channels? you may ask, these aren’t the ones found on your TiVo or Sky TV remote. Channels are the methods you use to communicate your propositions to your customer segments and the ways to sell to your customer. It is very important to think this part through all the way to the ‘customer journey’, be very specific. A business can reach its customer segments via its own channels e.g. the store front, through partners e.g. distributors or a combination of both.
It is vital for any business to define the type of relationship they wish to build with their customers, ultimately ensuring its survival and success . The form of relationship you have with your customer will highly depend on the type of service of product you provide, some forms of customer relationships include:
- Personal Assistance– This refers to the customer and employee interaction which is normally performed during a sale e.g. helping you find the right product, after sale e.g. upselling or offering complimentary products, or a combination of both.
- Dedicated Personal Assistance- A very intimate and hands on personal assistant who handles all the needs of the customer e.g. ‘Apple Geniuses’.
- Self Service- This refers to the indirect interaction between customers and staff, utilising technology to facilitate the customer experience e.g. self checkouts in supermarkets.
It is pretty self explanatory why knowing the revenue streams of your business is important. At this stage you want to be able to clearly link how your business earns revenue from the value propositions identified earlier. There are a number of ways to generate a revenue stream, some of the most common types:
- Selling Goods– The most common type is selling ownership rights of a physical product e.g. ASDA.
- Usage fee– Generating revenue from the use of your services e.g DHS
- Subscription fee– Generating revenue from selling a continuous service e.g. Netflix
- Leasing/Renting- Enabling customers to get exclusive rights of an asset for a set period of time e.g. car rentals.
Key activities are the essential things that the business needs to do in order to deliver on its propositions and ultimately make the business work as whole. For example, a product driven company like Apple will invest a lot of time and money in learning about their users behaviours and new techniques to improve their products. Key activities for a business that delivers multiple things to its customer segment may include maintaining superior expertise on the segment, creating or acquiring products and services that ensure competitiveness. For an infrastructure based business this may include making the infrastructure more efficient and reliable for customers.
Key resources are the assets your business needs in place at a greater or more targeted degree than its competitors. The business model canvass proposes three core business types: product, scope and infrastructure.
- Product Driven– Key resources for product driven business include key talent who posses critical areas of expertise.
- Scope Driven – This type of business usually has a great depth of knowledge about the particular segment it operates in and implements a repeatable set of processes and in some cases posses infrastructure.
- Infrastructure Driven- These types of businesses achieve economies of scale and have repeatable processes, for example grocery supermarkets are traditionally infrastructure driven with multiple branches across a region selling the same/similar stock. This type of business’s key resources are physical or virtual infrastructure.
These are the suppliers and contractors that your businesses works with. There are a number of motivations for partnerships for different businesses. The business model canvas outlines three common motivators including optimisation and economy, reducing risk and uncertainty and acquisition of particular resources and activities. The important questions to ask here are :
- Who are our key partners?
- Which key resources are we acquiring from partners?
- What are the key activities our partners perform?
So far the business model canvass has illustrated how the key activities of your business drive and link with propositions and revenue. However, you have to also know how these key activities drive your costs and whether those costs are in alignment with the key value propositions. In addition you must outline whether your costs are fixed or variable as you test out different business models.
If you are a visual learner, click here to watch a video overview of the business model canvass.