Does the thought of writing a business plan stop you from starting a business? If you're looking forward to coming up with your business idea without the hassle of creating a massive document, a beginner's business model canvas might be right for you.
Business Model Canvas All About
The business model canvas originally introduced by Alexander Osterwalder is a great tool for understanding the business model in a simple and systematic way used by managers to illustrate and develop their business model. The canvas template clearly identifies the key elements that make up a business.
The 9 Building Blocks
The Business Model Canvas segregates a company's internal processes and activities into nine separate categories, each representing a building block in the development of a product or service. This category represents the four primary aspects of a business which are customers, offerings, infrastructure, and financial viability.
Following are a breakdown of each of these nine elements. Together these elements all link and work with each other to ensure the success of the business.
#1. Key Partners
A key partner is a company or individual who collaborates with your company to develop a strategic relationship. For example, Grab announced a strategic partnership with Honda to collaborate on various initiatives to enhance benefits for GrabBike drivers and riders in all countries where GrabBike operates.
Thus, they are key partners in delivering the value your company promises to its customers. Usually, suppliers and distribution partners in the supply chain are examples of key partners.
Things to consider in key partners:
What are the key resources that these partners provide to your company?
What are the main activities this partner can perform?
What drives your company's decision to collaborate with this key partner?
Is there anything that only they can provide?
Do they help in cost-cutting?
#2. Key Activities
Key activities include all of the tasks that must be completed in order for your business to function. For digital products, this involves continuous product evolution and marketing. These activities include recruiting, advertising, and so on. If you provide a specific service, this may include things that improve your value proposition.
Things to consider in key activities:
What are the key activities required to deliver your value proposition?
What activities distinguish your company from competitors?
What distinguishes your revenue streams, distribution channels, and customer relationships from those of competitors?
What impact do your main activities have on these?
#3. Key Resources
This is an organization's most important asset in terms of how it provides value to its customers. Resources can be categorized as human, financial, physical, and intellectual.
A diamond mining company, for example, cannot function without mining equipment. So either, an automotive company cannot function without the human capital and expertise required to design automobiles.
These resources are what are practically needed to carry out your business actions/activities:
#4. Value proposition
The value proposition is the most important component of a business model canvas template. The basic offer and confidence that a company tries to give to its customers are determined by the value proposition.
It is a vital component in business operations. For instance, JOCOM provides conveniences for clients by managing the product fulfillment and delivery to the doorstep regardless of how bulky the items are ordered. They also help merchants to export their local products overseas.
Things to consider in the value proposition:
What exactly is your company trying to offer customers?
What problems is your company trying to solve, and what are the needs that your company satisfies?
How would you provide something unique that meets the needs of your target market (e.g., price, quality, design)?
In general, value is exchanged from a customer for money when your company solves a problem or alleviates pain for them.
#5. Customer Relationships
Customer relationships refer to the various types of interactions that a company has with its customers. A designer suit company, for example, will provide significant assistance to the customer, tailoring to their needs and working directly with them to create the suit they desire.
While telecommunications companies frequently have poor reputations and customer relationships because many of them engage in aggressive sales practices through their call centers. Thus, the designer suit company has significantly richer and more fulfilling customer relationships than telecommunications companies.
Things to consider in customer relationships:
How do you interact with the customer through their ‘journey’?
Does your company provide any special assistance? After selling service?
How frequently do you communicate with your customers?
A channel is a communication unit used by a company to reach a specific customer segment. If you sell your product online, then that is one of your channel business model canvas. Another solution to attracting customers to your product such as search engines and tools, social media, and even word-of-mouth marketing may be one of them.
For example, a company like Amazon needs to consider how its fulfillment centers and shipping services are integrated to send out timely shipments.
Things to consider in channels:
How do the channels work effectively in delivering your value proposition to customers?
Which are the optimum channels to reach your customer segments?
Are your channels well-integrated and cost-efficient?
#7. Customer Segments
Customer segmentation is the practice of segregating a customer base into people who have common characteristics such as age, gender, interests, and spending habits.
Airline companies are one example. Airlines sell tickets in economy, business, and first-class. First-class passengers are entitled to special benefits and luxury travel arrangements. Economy passengers, on the other hand, receive much less assistance, costing less but bringing in significantly more money.
Things to consider in customer segments:
Who is the main focus of your value proposition? Who are you creating value for?
Does my value proposition appeal to men/women or both?
What are the characteristics of the people who are looking for my value proposition?
Another thing to consider is the size of your market and the number of people in your customer segment. This will help you in understanding your market from both a micro and macro scale. Creating a customer persona for each of your customer segments is a good way to start understanding your customers.
#8. Cost Structure
The monetary cost of running a business is defined as your business cost structure. When a company is cost-driven, it focuses on lowering costs and, as a result, customer prices. A company that is value-driven, on the other hand, focuses on creating value for its customers while putting less emphasis on cost.
For instance, Forever 21 is a fast-fashion company that focuses on delivering the latest styles at low prices as a company that is cost-driven. Gucci, on the other hand, is a luxury brand focused on delivering high-quality clothes and accessories designed with the latest fashion industry trends and is a value-driven company.
Things to consider in cost structure:
What are the business’ major cost drivers? How are they linked to revenue?
How do your key activities and key resources contribute to the cost structure?
Does your company utilize economies of scale in production to minimize the cost structure?
#9. Revenue Streams
Revenue streams are the various methods you use to make money for your product. They are primarily derived from the mapping of Customer Segments to Value Propositions.
For example, Uber customers use a bank card to pay for their rides. Uber earns money through ride commissions. Apple, on the other hand, has multiple revenue streams from its various products and services, such as Apple Music. Other methods of making money within your product are also revenue streams such as various billable add-ons, subscriptions, premium accounts, and so on.
However, the most important thing you need to consider is how far your product/services can create good revenue streams and how it affects your customers.
Things to consider in revenue streams:
How does the business earn revenue from the value propositions?
Does your company offer multiple forms of payment (up-front, payment plans)?
What is the pricing strategy for the products offered by your company?
The Bottom Line of Business Model Canvas
Simply said, the business model canvas assists organizations in developing a structured, tangible, and strategic plan for a new or existing business. Canvas is also used by leading global companies like GE, P&G, and Nestlé to manage strategy or create new growth engines, while new businesses use it to find the right business model. The main goal of the canvas is to help businesses move beyond product-focused thinking and toward business model thinking.
Apple, for example, is a success story in the business model canvas. When Apple introduced the iPod to the world, they become a game-changer. Apple integrates devices, software, and online stores through iTunes to create an experience that puts the music industry at your fingertips. This business model is essentially a seamless blend of key components from the business model canvas that is used to leverage its own value proposition. Apple has a long-standing relationship with music producers, with whom it negotiates contracts in order to sell their music.
Next, is Zara a Spanish retailer of apparel and accessories one of the largest worldwide fashion companies in the world. Their business model is that they produce where they sell. From basic design to final production, it uses a highly tight supply chain. This helps the organization to quickly react to new fashion trends and concepts. As a result, short lead times for new products are achievable, as are quick replenishments of sold-out merchandise.