According to Wikipedia, the Business Model Canvas is a strategic management and lean start up template for developing new or documenting existing business models. It is a visual chart with elements that describe the value proposition, infrastructure, customers, and finances of a company or product. It assists firms in aligning their activities by illustrating potential trade-offs.
As a business design template, the business model canvas has nine (9) building blocks, proposed in 2005 by Alexander Osterwalder.
The Business Model Canvas looks like this;
It is a very useful tool for determining your business model. Whether you’re just starting out or have been in business for longer than 10 years, this canvas helps all entrepreneurs to clearly define all the various aspects of their business. More importantly, it gives you a clear visual representation of your business, which will prove a valuable resource throughout your entrepreneurial journey. Utilizing the Business Model Canvas as a template, you can refine your existing model to best suit your needs, market shifts and your business evolution. You can use the business model canvas to create your own ideal business model.
The Nine (9) building blocks of the canvas highlights critical aspects of any business:
Infrastructure of the Business Model Canvas
- Key Business Activities: comprises important activities your business initiates to deliver its value proposition. For example, a business whose value proposition consists of driving cost down for its customers, will initiate key activities that enable it to create an efficient supply chain to achieve that low cost proposition.
- Key Business Resources: constitute resources that are necessary for providing value to the customers, and your business partners. They are considered assets that are needed to support and sustain the business. These resources range from human capital, financial, physical, intellectual, technological etc.
- Key Partner Networks: this consists of relationships that are cultivated with the aim of optimizing business operations and reducing the risks of a business model. These partnerships are vital for the company so that they can focus on their core activities. Examples refer to buyer-supplier relationships, business alliances through joint ventures or strategic alliances between competitors and other external parties.
1. Value Propositions
While the collection of your products/services meets the needs of your customers, your value proposition is what distinguishes you from your competitors.
Your value proposition provides value through various elements – performance, speed, customization, price point, design, brand/status, accessibility, user experience, functionality etc.
You must identify which customer you intend to serve when building your business model. Include everything you know about your target audience, the market potential and existing customers to help you determine which marketing strategies and channels to utilize for maximum results.
1. Customer Segments
There are various sets of customers that can be segmented based on their different needs. To be success To be successful in business, your strategy implementation must align with appropriate characteristics of selected groups of customers.
The different types of customer segments include:
- Mass Market: No specific segmentation exists for a company that is invested in the mass market. This is because the organization displays a wide view of potential clients. e.g. Car manufacturing companies.
- Niche Market: This customer segmentation is based on specialized needs and characteristics of its clients. e.g. Rolex manufacturers.
- Segmented: A segmented customer segment is created when a company applies additional segmentation within an existing customer segment. In the segmented situation, the business may further distinguish its clients based on gender, age, and/or income. e.g. FMCG companies.
- Diversify: A business serves multiple customer segments with different needs and characteristics. e.g. e-commerce companies like Jumia.
- Multi-Sided Platform/Market: this market or segment thrives on seamless business operations while serving mutually dependent customer segments. A credit card company will provide services to credit card holders while simultaneously assisting merchants who accept those credit cards. E.g Uber, Visa.
2. Customer Relationships
To be successful and continue to survive as a business, you must identify the type of relationship you want to have with your customer segments. In assessing this, you must address three critical elements of customer relationships:
- Customer acquisition: how the business will get new customers.
- Customer retention: how the business will keep customers purchasing or using its services.
- Revenue growth from existing customers: how the business will grow its revenue from its current customers.
Various forms of customer relationships include:
- Personal Assistance: As in a form of employee-customer interaction. Such assistance is performed during sales and/or after sales.
- Dedicated Personal Assistance: an intimate and hands-on personal assistance in which a sales representative is assigned to handle all the needs and questions of a special set of clients.
- Self Service: This type of relationship translates from the indirect interaction between the company and its customers. Here, an organization provides the tools needed for the customers to serve themselves easily and effectively.
- Automated Services: A system similar to self-service but more personalized as it has the ability to identify individual customers and their preferences. An example of this would be Netflix.com movie suggestions based on the characteristics of prior movie selections.
- Communities: Creating a community allows for direct interactions among different clients and the company. The community platform produces a scenario where knowledge can be shared and problems are solved between different clients.
- Co-creation: A personal relationship is created through the customer’s direct input to the final outcome of the company’s products/services.
Delivering your company’s value proposition to its targeted customers is typically through different channels. Effective channels will disseminate a your value proposition through media that are fast, efficient and cost-effective. You can also reach customers through owned channels (store front), partner channels (major distributors), or a combination of both.
1. Cost Structure
This describes the most important monetary consequences while operating under different business models.
Cost structures are explored according to the business structure one is operating. You either operate a Cost-Driven business structure – where you focus on minimizing costs at every turn and offering nothing extra – or operate a Value-Driven business structure where you don’t focus so much on costs, but on delivering the highest value to your customers.
2. Revenue Streams
This describes the way a company intends to make income from each customer segment to ensure continued growth and sustainability. Revenue streams can come from the sale of assets, usage fees – as in monies generated from the use of a particular service, subscription fees – as in monies generated through the sale of continued service just as with Netflix. Licensing, brokerage fees and advertising are other ways a company can generate revenues.