You’ve heard of business plans time and time again. However, they aren’t always the most effective. Especially with technology and businesses moving so rapidly. That is where a business model canvas, or BMC becomes important. Usually, I reserve BMCs for startup companies. Why? Business plans are usually a go-to for any business in general. Startups on the other hand, tend to prefer the business model canvas approach as they’re quicker and allow for rapid changes. But, as we’ll soon see, a business model canvas can be used in any business and at any stage of their maturity.
What is a business model canvas?
First, we need to understand the basics. A business model canvas (BMC) can be summarised as a strategic management tool to quickly and easily define and communicate a business idea or concept. It is a one page document which works through the fundamental elements of a business or product, structuring an idea in a coherent way. Below is an example:
The right side of the BMC focuses on the customer (external), while, the left side of the canvas focuses on the business (internal). Both external and internal factors meet around the value proposition, which is the exchange of value between your business and your customer/clients.
Why do you need a business model canvas?
Here are 5 key benefits of the business model canvas:
1. The Business Model Canvas is focused
Every business needs a definition of how they will get their products or services to their customers. A business model canvas helps you define them. By designing your business correctly, you’re able to launch a profitable business capable of sustained growth, giving you a competitive edge overall.
2. The model is clear and concise
If you’ve ever written a standard business plan, it can get quite lengthy. For some reason, having over 100 pages makes your company seem more legit. Wrong. The business model simply acts as a blueprint, that only defines your business in this current time and place. You can and will expand on it later, and having a BMC makes it easy for you, your team, investors and partners to view your vision.
3. It targets your customers’ needs
Quite often, we see businesses doing marketing and advertising without thinking about the customer. It’s one of the biggest reasons businesses fail. The mantra of “build it and they will come” is nothing new, and something we still see in new businesses today. When you think about how you want to sell your brand, the customers you will need as well as the different customer segments, the business becomes more apparent. Putting this down into your BMC gives you clarity when communicating with your customers.
4. Reduces the chance of failure
Failing to plan is planning to fail. However, too much planning can lead poor performance overall. With the BMC, you’re able to quickly find a link between your value propisition, your customer segments and your revenue streams. These are valuable inputs not only for your marketing strategy, but for your sales strategy too.
5. It Uses Tried and tested methodology
The BMCs main benefit is that it’s a scientific framework that actually works. And, it’s not just for startups as many people may think. It is also for large businesses or businesses that have been around for many years. Nespresso, those tasty espresso and cappuccinos you see from Nestle had its own Business Model Canvas. Using this method, they were able to change the face of the coffee industry. Instead of simply selling coffee through retail (transactional business) they were able to sell proprietary pods through direct channels (recurring revenue).
How to use a Business Model Canvas
Now that we understand why a Business Model Canvas is so useful, we will look at how we can use it effectively. Below is a breakdown on the order in which to complete the BMC and what each of the sections entail.
1. Customer Segments
First up, customer segmenting is the process of dividing your customers into different groups, based on various characteristics. These can be their physical qualities (age, race, gender), but also more consumer-focused habits, such as what type of problem your business is solving for them. Other points can include:
- Who are we solving the problem for?
- Who are the people that will benefit from my value proposition?
- If so, what are the characteristics of those businesses?
- Or, are they other people?
- Does my value proposition appeal to men/women or both?
- Does it appeal to young adults aged 20 to 30 or teenagers?
- What are the characteristics of the people who are looking for my value proposition?
Hint: List the top three segments. Look for the segments that provide the most revenue
2. Value Proposition
The Value Proposition is foundational to any business/product. This part is vital, as it defines your core concept of how you provide value to your customers. It’s the problem you are solving for them. It’s what your customer is really looking for and why it matters. For Apple, it was Design, Performance, Brand/Status and Convenience. For Nike, it was running shoes. If you’re stuck, these questions will help:
- What is the problem I am solving?
- Why would someone want to have this problem solved?
- What is the underlying motivator for this problem?
Hint: What are your products and services? What is the job you get done for your customer?
3. Revenue Streams
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. Note that you’ll need to understand what you need to price your products/services accordingly so that the pain of the purchase is relevant to the pain of solving the customer’s problem.
But how do you gain revenue?
There are many different revenue models here:
- Pay per product (pay per view)
- Fee for service
- Fixed rate
- Referral feeds
- Equity gain
Hint: List your top three revenue streams. If you do things for free, add them here too.
Channels are how your customers interact with you and how they become part of the sales cycle. These are covered in your marketing plan (contact us if you’d like us to set one up for you). Here are some things to ask yourself to get the ball rolling:
- How are we going to tell our customer segment about our value proposition?
- Where are our customers?
- Do they use social media?
- Are they driving their car and listening to the radio?
- Do they attend webinars?
- Do they watch TV at 7pm on a Friday night?
Examples of channels:
- Social media
- Email Newsletters
- SEO (Search Engine Optimisation)
- Blogs (like this one!)
- Sales and promotions for commissions
- Existing platforms
- Trade shows
- Content marketing
- Offline advertising (billboards, TV, radio)
Understanding how to reach your customers is so crucial to your business.
Hint: How do you communicate with your customer? How do you deliver the value proposition?
5. Customer Relationships
So now we know where to find your customers – but how do we interact with them? In person? Over the phone? Zoom or Microsoft Teams? A really helpful step is to create a User Journey Map of your customers as they interact with your business.
Hint: How do you maintain the relationship and are there options to make this process more automated?
6. Key Activities
Now it gets a little easier, as key activities are exactly that – key activities you do to achieve the value proposition for your business. Your lunch break is not a key activity. However, these examples can be:
- Consulting (e.g. time or expertise)
- Web development
- Training (e.g. personal training or online coaching)
- Baking (e.g. if you run a baking business)
Hint: What do you do every day to run your business model?
7. Key Resources
Now that you have the activities -what resources do you need in order to achieve these activities? Key resources differ from the rest because your business needs these, well, to do business. Some examples include:
- Office space
- Software (e.g. Microsoft Office)
- People (staff)
- Internet connection (e.g. if you’re in IT)
- Car (e.g. if you’re an Uber driver)
- Oven (e.g. if you’re the baker)
HINT: What do you do every day to run your business model?
8. Key Partners
Key Partners are similar to resources, however, it’s the external companies/suppliers/parties you may need to achieve your key activities and deliver value to the customer. Think of these people as your go-to partners in order to do business. Examples include:
- Retailers (in the case of Nike shoes)
- IT contacts (if you’re managing a digital marketing company)
HINT: List the partners that you can’t do business without (not suppliers).
9. Cost Structure
Your business cost structure is defined as the monetary cost of operating as a business. Some questions to help:
- How much does it cost to achieve my businesses key activities?
- What are the costs of my key resources and key partnerships?
- How much does it cost to achieve the value proposition for my customers/users?
- How much do you spend on marketing and advertising?
- Do you have any legal or accounting costs?
- It is also important to place a monetary value on your time as a cost.
- How much would it cost you to hire you?
HINT: List your top costs by looking at activities and resources.
That’s the whole model. Short, sweet, and to the point. The process, however, can be tricky if you don’t know where to start. The steps below will guide you.
Steps to complete a Business Model Canvas
1. Before you begin
Chances are that your business will have or already has competitors in your industry. Therefore, start by mapping out their business models. This will give you some insight into what your customers want and what they will be willing to pay. Your customers’ needs will become more visible not just for your company but for the entire industry. Before you begin the model, though, here are some things you need to get you prepared:
- Get your business owners and managers together (2-5 people)
- A LARGE piece of paper (A4 is ok but it can get tricky)
- Sticky notes! Unless you want to redo the entire model every few minutes
2. Start at high level
Don’t get too technical straight away, so start at a high, basic level to make it easier for yourself. Include only the most important aspects of the model.
HINT: You want your business model canvas to be as simple as possible, so that anyone in the next few months will still be able to understand it.
3. Make everything link
Now it is time to connect all the sections! Make sure that every value proposition has a customer segment and a revenue stream. When you have them all together, step back and see if you’re missing out on anything.
4. Stay in the now
Quite often, you’re going to put down what is happening now with what you want to be in the future. It can be confusing at first, but be as honest with yourself and your business as possible. Jumping to the future can contradict what you’re trying to achieve in this moment.
5. Step back and review
Once you have everything together, step back and assess what you’ve put down. Does it all make sense? Does every customer segment link to a value proposition and revenue stream? Don’t forget that your canvas is also still split into two sides – business and customer – so make sure they support each other.
6. Final Touches
And you’re done! Well almost. By now your canvas should look messy, very messy. But that’s good! However, if you want to share with other people (colleagues, friends, not your competitors), you might want to clean it up a bit. They might notice some parts that are missing, but at least it’s now much easier to update compared to say a business plan.
But you can’t forget the most important step! This model isn’t meant to be filed away or forgotten about. Why do you think we cleaned it up? Make it visible – and review it often.
If you’re not actively checking this business model canvas at least monthly (we do it weekly), you might stray somewhat with your core values and attitudes towards your business and customers.
Tools to Use
Below are some tools you can use to get going. If you’re still confused, drop us an email and we’ll help you create one or link it to your marketing initiatives.
A whiteboard / big piece of paper
Do you have a business model canvas? If not, you may be missing out on some really beneficial insights to your business. With these steps though, you should be on your way to improving your business and keeping your customers happy.