To put it simply, a Business Model Canvas (shortened as BMC) is a management tool that helps entrepreneurs and businesses map out their plans or business concept in a clear and concise way. As the name implies, the tool has a white (canvas) document format and consists of nine key elements covering the key business aspects, such as:
- Target audience;
- Revenue streams;
- Cost structure.
As such, all the elements on the canvas can be divided into two groups:
- External. They are placed on the right side of the document and are customer-focused;
- Internal. They are scattered on the left side of the template page and are related to business.
Both internal and external elements meet in the middle. That’s where they should outline an idea or offer that is valuable both for an organization and a customer. If the idea is not very clear or doesn’t seem that valuable to either party, it means that the plan needs to be adjusted a bit.
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Why Use a Business Model Canvas?
There are a number of reasons why a BMC is a favorite tool for so many entrepreneurs. Here are some of them:
- With the help of a BMC, it is easy to make a quick sketch of your business idea;
- It is also a great tool to show the connections between your idea and how it can help contribute to the business;
- When you use a BMC, you can actually see exactly what customers’ decisions have the biggest impact on the business processes;
- Finally, BMC makes it easier to get your idea across to everyone on the team and make sure they all see what you see and can imagine the potential outcome.
So, How Do You Use It?
Let’s go over each of the sections on the canvas and see what information should be put there to create an effective business plan.
Value Propositions
Value is the worth that a customer is willing to pay to get their problems/pains sorted using the product/service of your business. It is also the benefit that businesses get in return.
With a good value proposition in place, you can increase profits and drive business growth while also creating satisfied customers who are more likely to return and recommend you to somebody else.
Let’s see how to figure out if the product or business is truly valuable and if the game is worth the candle.
Here are a few questions to ask yourself:
- What kind of problem is it solving?
- Who and under which circumstances would want to have this problem sorted?
- What is the real reason/motivator for this problem?
You might not have all the answers ready, and you don’t need to rush. Instead, take the time to find out which customer segment your target audience belongs to and think about what problems they might have and would like to solve. You can use Maslow’s Hierarchy of Needs to get help.
If you are not selling a product directly to a customer but selling it to a business that then sells it under its own name, you will still play an important role in how well the value of the product is communicated to its customers.
No matter how you wrap it up, there should be a story that explains exactly what the company is trying to achieve and what values their services or products can offer to end users.
Customer Segments
Understanding your customers is essential for business success, and the best way to do it is by using customer segmentation. Essentially, this practice means dividing your potential customers into several groups according to certain categories, such as, for example, gender, age, interests, habits, and so on.
If you are not sure how to identify your customers in the right segments, ask yourself the following questions:
- Who are the people whose problems you are trying to solve?
- Will they see the value of the product / service / business?
- Maybe, it’s not regular customers but other businesses whose problems you’re trying to solve?
- If that is right, how do these businesses stand out from the rest? What characteristics do they have in common, and what are different?
- Who is more likely to find your proposition valuable, women or men? Or both?
- Does it sparkle interest in people aged 20-30 years old or youngsters under 20?
- What do the people who are searching for your product actually look like? Can you picture them? Where are they from? And what are their main interests?
To make the most accurate predictions, you should also be able to tell how big your market is. By understanding the size of your market, you can achieve several business goals, such as forecasting revenue and growth potential, assessing competition, and attracting investors.
In addition to segmenting customers into several groups, it is a good practice to create a customer persona for each of them. This will help improve your marketing efforts and personalize your customers’ experiences, based on an in-depth understanding of their needs and behaviors.
There is a handy guide on how to develop a customer persona you may want to use.
Customer Relationships
Even the most innovative business won’t go very far without investing time in building great relationships with its customers. So, the next important step in bringing together a valuable business concept is to determine how the relationship between the customer and the business will be built.
It can be done in several ways, including:
- Over the phone;
- In-person;
- Through an intermediary;
- Online;
- During events.
You may want to interact with customers in more ways than one. That’s where creating a user journey from point A to point B can help you identify touch points along the way and choose the most effective communication tools.
Channels
Channels refer to the “entries” through which customers come to a business. Different companies may use different channels, so it is important to choose those that best suit your business goals.
Think again about your value proposition. How can you share it with the prospects? Do your customers visit social media websites? Do they listen to the radio while commuting from home to work? Or, maybe, they visit different events and conferences?
Depending on the habits and interests of your customers, channels for engagement could be:
- Facebook, Instagram, TikTok, etc.;
- Emails;
- Professional networking;
- Affiliates;
- Targeting blogs;
- Promotions;
- Advertising over TV, radio, billboards, and so on.
It will be difficult for you to set your business off the ground without knowing how to reach your customers. So, determining channels for engagement is important for long-term business success.
Key Activities
Under the section “Key activities” take all of the actions that you plan to undertake to reach your goals. This can include resources, timeframe, deadlines, expertise, means of distributing the product/service, marketing strategy, or technical development that may be needed to achieve value exchange.
For example, if you need to outsource technical aspects to a developer team, you can put web development and design here, while those who seek some advice with advertising can add consultation. In short, there can be any activities related to your specific business.
Key Resources
Key resources are the resources that are required to run your business and undertake the actions you need to achieve your goals. Finding an office, buying equipment, paying for hosting, hiring staff, paying electricity bills, and getting car insurance, these are just a few examples that go here.
Key Partners
Most companies rely on partners to do business. For example, if you open a shop, you will need to find suppliers to source products for sale. If you are a web company offering content-based services such as news, information, etc., you’ll most likely need to partner with content providers to obtain content unless you plan to craft it yourself.
Some companies partner with distributors to expand their reach and access new markets. For example, an e-commerce website might partner with a distributor to sell its products in brick-and-mortar stores.
Cost Structures
A business cost structure refers to expenses related to the operation and production processes of a company, and it is important to include everything here. This will help you work out the real cost of your business, product, or service.
- How much would it cost you to get resources?
- How much will go on the wages of the hired staff?
- Are there any additional expenses that may arise as you start doing business?
- Do you need to sort out any legal paperwork?
- Will you need to pay for insurance?
- Will you pay taxes?
- What do you think you will need to pay once your business grows?
In addition, the time you put into work should also be given value as a cost.
After you work through this list of questions, you should have more or less accurate numbers on the company’s cost structure. This will help you identify areas where you can cut costs and improve profitability.
Revenue Streams
In layman’s terms, a revenue stream is a financial gain that a company receives in exchange for solving a customer’s certain pain. There are a few ways in which businesses can generate revenue. Some of them are:
- Commissions;
- Royalties;
- Dividends;
- Subscription fees;
- Fixed rates;
- Equity gain;
- Advertising revenue;
- Freemium, etc.
What Tools to Use?
When it comes to the choice of tools to create a BCM, there are quite a number of options.
- Business Model Canvas. It is the most popular tool that has the classic nine blocks as described above and a one-page template;
- Lean Canvas. A modified version of Business Model Canvas, this tool focuses on the key problems that a business is trying to solve and the potential solutions rather than the product or service itself;
- Canvanizer. The great thing about this tool is that it can be used online, allowing you to collaborate with others in real time;
- Strategyzer. This is a suite of tools and resources for business model innovation, which includes the Business Model Canvas, Value Proposition Canvas, and other tools for strategic planning.
Final Thoughts
To sum it all up, the Business Model Canvas is a useful tool for businesses to create a visual representation of their strategy and identify areas for improvement. It can be used to test new ideas, validate assumptions, and communicate the business model to stakeholders.
To make the most out of it, it is important to involve key partners and stakeholders and use it as a living document that evolves with the business.
With a well-thought-out Business Model Canvas, companies can create a clear and compelling business model that will help them succeed in a rapidly changing business landscape.