Abstract
In my previous Article “How Innovation is
Easy” and especially in last section “WHY
INNOVATION IN SMALL FIRMS IS
SUBSTANTIALLY DIFFERENT THAN IN
LARGE COMPANIES?” I mentioned the six
Proponents of open innovation and one of
them was Business Model Canvas. So here
we will discover and approach more and
more about Business Model Canvas (BMC).
What that mean BMC and What is using for?
For small businesses, it is important to
analyses all situations carefully before taking
any decision. That way, there will be fewer
chances of making mistakes and designing
strategies that will not work. To help these
businesses, several analytical tools are
available like SWOT Analysis Canvas,
LEAN
Canvas,
FEEDBACK
Canvas, Open Innovation Canvas, HR
Innovation CANVAS, PITCH PLANNER
CANVAS, PROJECT CANVAS, and other
analysis tools that we will make you discover
them in next articles. Moreover here we will
show you and explain you in details the
WHY, HOW and WHAT of Business Model
Canvas. However, before you start using
a Business Model Analysis template and
check out pervious analysis examples, it is
important to understand what this analytical
method is all about. BMC helps you answer
two important questions:
• Is this a business or a hobby?
• If it is a hobby, how can you turn it into a
business?
Introduction
A business model describes how a company
creates, delivers and captures value.
Everyone has his or her unique way of
viewing the business model. During
discussions about this, there has been an
increasing need for a uniform template to
define and discuss the business model. This
template should be applicable to new and old
businesses alike, across industries.
A business model is a description of how
your business intends to operate and make
money. Sounds simple, RIGHT?
The Business Model Canvas is a strategic
management and lean start-up template can
be used as aid for developing a new, or
analyzing and mapping an existing business
model of a company. It is a visual chart with
elements describing a firm or product's value
proposition, infrastructure, customers, and
finances. It assists firms in aligning their
activities by illustrating potential trade-offs.
It gives a graphic representation of a number
of variables that show the values of the
organization.
The Business Model Canvas was initially
proposed and developed by Alexander
Osterwalder based on his earlier work on
Business Model Ontology. Since the release
of Osterwalder's work in 2008, new canvases
for specific niches have appeared.
Business model canvas has 9 building blocks
that are Key Partners (KP) , Key Activities
(KA) , Key Resources (KR), Value
Proposition (VP), Customer Relationships
(CR),
Channels
(CH),
Customer
The information provided by the canvas
regarding the products, services, resources
and the partners of the company helps in the
analysis of the processes and functions for the
achievement of organizational goals and
Segmentation (CS), Cost Structure (C$)
and Revenue Streams (R$).
objectives. It helps to take into consideration
of all the company inputs and creating valued
output the customers. It is affected by the
external world and other processes other than
the business itself.
What is a business model? How does it relate
to a business plan? Alternatively, better yet,
business planning? They live together. They
synchronize. Your business planning makes
your business model happen. And your
business plan is a regular step in your
Business planning. It is not business plan vs.
business model, the way some people seem
to think. The business model is like a
destination. The planning is how you are
going to get there.
How to Build Business
Model Canvas?
The illustration below shows how the nine
elements of the Canvas are integrated with
each other. As mentioned before, we will
begin to explore the right dimension of the
Canvas first.
of the “Channels” or “Distribution
Channels” block, which includes items such
as the delivery, blog, newsletter, customer
service and webinar. These channels
distribute and deliver the value propositions
to the customers. How are these propositions
promoted, sold and delivered? Why? Is it
working?
We start by putting the block
“Customer Segments” in place, which
maps who we are targeting to provide
value and who are the potential
customers to our desired objectives. For
instance: Who are the customers? What
do they think? See? Feel? Do?
In the second block “Value Proposition,”
ideas are generated to fulfill the needs of the
potential customers, while always keeping in
mind the business objectives that are driving
this product or service. Examples of value
propositions include cost reduction, agility,
convenience, customization and decision
support. What is compelling about the
proposition? Why do customers buy, use?
The Customer Segments and Value
Propositions blocks are the main elements
that will lead the remaining components of
the Canvas.
Once we determine the potential customers
and value propositions, it is necessary to
think about how we can link these two
fundamental components. This is the purpose
Next, we should understand the “Customer
Relationships” block. In other words, we
should figure out how to strengthen customer
involvement with the business. To give a few
examples: business development partnership,
customer retention, customer support, online
chat and feedback. How do you interact with
the customer through their ‘journey’?
The last right block is the “Revenue
Stream,” which translates to the path to
generate revenue based on the recommended
value proposition. Examples include a
monthly subscription, direct sale, paid ads
and license. How does the business earn
revenue from the value propositions?
In the left dimension of the Canvas, we can
find more direct and objective definitions that
sustain the components mapped in the right
dimension.
Some partners (outsourcing companies, for
example) can provide machines to drive
towards any key resource. Other types of
partnerships can supply contractors or
execute some of the key activities, such as
monitoring the social networks. What can the
company not do so it can focus on its Key
Activities?
Representing the required costs to maintain
and build the proposed solution is performed
by the “Costs Structure” block, which
indicates, for example, the amount of money
necessary to pay the machines’ maintenance,
contractors, OPEX, infrastructure and
resources. What are the business’ major cost
drivers? How are they linked to revenue?
What is the relation
between Business Model
Canvas and StartUPs Fail?
The “Key Resources” refer to the resources
directly associated with the business model
operation, such as teams, machines,
investments and technology platforms. What
unique strategic assets must the business
have to compete?
The “Key Activities” are all activities
needed to meet the value proposition, build
channels and keep relationships. We might
consider managing the social networks (a
powerful mechanism to strengthen the
customer relationship) or building a web
store. What uniquely strategic things does the
business do to deliver its proposition?
“Key Partners” are people who contribute
to both key activities and key resources.
Depending on whom you ask, somewhere
between 50% and 80% of businesses fail
within their first five years. There are plenty
of reasons why that happens, but they all
come down to one thing: lack of profitability.
Whether or not you make a profit depends on
how well you design and execute all the
activities and resources that make up your
business—your business model.
In his, book Business Model Generation: A
Handbook for Visionaries, Game Changers,
and Challengers, business theorist Alexander
Osterwalder writes, “An organization must
make a conscious decision about which
segments to serve and which segments to
ignore.” It is vital to prioritize your efforts
because there are so many ways to serve or
ignore your company’s different segments,
and every dollar spent on one-project takes
away from another project. One of the best
ways to weigh competing priorities is to use
the Business Model Canvas, a strategic
management and lean startup tool based on
years of research by Osterwalder. It
condenses strategic planning onto a single
page and covers nine areas divide into 4
majors: ·Infrastructure, Offering, Customers,
Finances:
Infrastructure
·
Key Activities: The most important
activities in executing a company's value
proposition. An example for BIC, the pen
manufacturer, would be creating an efficient
supply chain to drive down costs.
·
Key Resources: The resources those
are necessary to create value for the
customer. They are considered an asset to a
company, which are needed in order to
sustain and support the business. These
resources could be human, financial, physical
and intellectual.
·
Key Partner: - Partner Network- In
order to optimize operations and reduce risks
of a business model, organization usually
cultivates buyer-supplier relationships so
they can focus on their core activity.
Complementary business alliances also can
be considered through joint ventures,
strategic alliances between competitors or
non-competitors.
Offering
·
Value Propositions: The collection
of products and services a business offers to
meet the needs of its customers. According to
Osterwalder, (2004), a company's value
proposition is what distinguishes itself from
its competitors. The value proposition
provides value through various elements such
as newness, performance, customization,
"getting the job done", design, brand/status,
price, cost reduction, risk reduction,
accessibility, and convenience/usability.
mutually
dependent
customer
segment. A credit card company will
provide services to credit card holders
while
simultaneously
assisting
merchants who accept those credit
cards.
The value propositions may be:
1. Quantitative – price and efficiency
2. Qualitative – overall customer
experience and outcome
3. Customers
·
Customer Segments: To build an
effective business model, a company must
identify which customers it tries to serve.
Various sets of customers can be segmented
based on the different needs and attributes to
ensure appropriate implementation of
corporate strategy meets the characteristics of
selected group of clients. The different types
of customer segments include:
1. Mass Market: There is no specific
segmentation for a company that
follows the Mass Market element as
the organization displays a wide view
of potential clients. e.g. Car
2. Niche
Market:
Customer
segmentation based on specialized
needs and characteristics of its
clients. e.g. Rolex
3. Segmented: A company applies
additional
segmentation
within
existing customer segment. In the
segmented situation, the business
may further distinguish its clients
based on gender, age, and/or income.
4. Diversify: A business serves multiple
customer segments with different
needs and characteristics.
5. Multi-Sided Platform / Market: For a
smooth
day-to-day
business
operation, some companies will serve
·
Channels: A company can deliver
its value proposition to its targeted customers
through different channels. Effective
channels will distribute a company’s value
proposition in ways that are fast, efficient and
cost effective. An organization can reach its
clients either through its own channels (store
front), partner channels (major distributors),
or a combination of both.
·
Customer Relationships: To
ensure the survival and success of any
businesses, companies must identify the type
of relationship they want to create with their
customer segments. Various forms of
customer relationships include:
1. Personal Assistance: Assistance in a
form
of
employee-customer
interaction. Such assistance is
performed either during sales, after
sales, and/or both.
2. Dedicated Personal Assistance: The
most intimate and hands on personal
assistance
where
a
sales
representative is assigned to handle
all the needs and questions of a
special set of clients.
3. Self Service: The type of relationship
that translates from the indirect
interaction between the company and
the clients. Here, an organization
provides the tools needed for the
customers to serve themselves easily
and effectively.
4. Automated Services: A system
similar to self-service but more
personalized as it has the ability to
identify individual customers and
his/her preferences. An example of
this would be Amazon.com making
book suggestion based on the
characteristics of the previous book
purchased.
5. Communities: Creating a community
allows for a direct interaction among
different clients and the company.
The community platform produces a
scenario where knowledge can be
shared and problems are solved
between different clients.
6. Co-creation: A personal relationship
is created through the customer's
direct input in the final outcome of the
company's products/services.
Finances
·
Cost Structure: This describes the
most important monetary consequences
while operating under different business
models. A company's DOC.
Classes of Business Structures:
1. Cost-Driven – This business model
focuses on minimizing all costs and
having no frills. e.g. Low cost airlines
2. Value-Driven – Less concerned with
cost, this business model focuses on
creating value for their products and
services. e.g. Louis Vuitton, Rolex
Characteristics of Cost Structures:
1. Fixed Costs – Costs are unchanged
across different applications. e.g.
salary, rent
2. Variable Costs – These costs vary
depending on the amount of
production of goods or services. e.g.
music festivals
3. Economies of Scale – Costs go down
as the amount of good are ordered or
produced.
4. Economies of Scope – Costs go down
due to incorporating other businesses
which have a direct relation to the
original product.
·
Revenue Streams: The way a
company makes income from each customer
segment. Several ways to generate a revenue
stream:
1. Asset Sale – (the most common type)
Selling ownership rights to a physical
good. e.g. retail corporations
2. Usage Fee – Money generated from
the use of a particular service e.g.
UPS
3. Subscription Fees – Revenue
generated by selling a continuous
service. e.g. Netflix
4. Lending/Leasing/Renting – Giving
exclusive right to an asset for a
particular period of time. e.g. Leasing
a Car
5. Licensing – Revenue generated from
charging for the use of a protected
intellectual property.
6. Brokerage Fees – Revenue generated
from an intermediate service between
2 parties. e.g. Broker selling a house
for commission
7. Advertising – Revenue generated
from charging fees for product
advertising.
8. Resources the main inputs that your
company uses to create its value
proposition service its customer
segment and deliver the product to the
customer.
The Business Model Canvas gives you a
bird’s eye view of your business while
encouraging understanding, discussion,
creativity and analysis among your team
members. It’s used by successful innovators
around the world like Intel, Panasonic, 3M,
and MasterCard, and many users recommend
filling out the canvas in just 20 minutes.
Conclusion
The Business Model Canvas is useful for
driving the conception of new products and
services through its nine basic elements from
both rational and emotional perspectives. It
also allows the teams to brainstorm insights,
ideas and opinions around the product,
enabling a common understanding among the
stakeholders as well as generating strong
performance indicators towards a strategic
innovation. It’s another helpful tool for the
product owner to conceive a new product,
service, website, e-commerce or game.
Have you used the BMC before? Do you plan
on using it in the future? Let me know in the
comments section below, or if you have
Updates about this Topic (BMC).
N.B : The 4 most common mistakes
1. You fill it once and you're done
2. You fill it all at once
3. You don't take everything you wrote
as an hypothesis
4. You are generic in what you write
down
True at all stages
Going off of the common mistakes we
discussed before there's obviously a few
things you must do no matter what stage
you're at:
1. Being specific
2. Taking everything as an hypothesis
to test: remember you're just laying
the assumptions to built that
hypothesis.
3. Creating multiple canvases to
choose amongst: don't fixate on just
one option, go wide then deep.
4. Be quick on your feet: fill those
blanks quickly (lees than 1 hour<1hr)
and don't bike shed. Remember you
are putting hypothesis together that
you will test, don't try to think them
through in your head.
5. If you ran a test hopefully you've
learned something so go back and
update your canvas based on it.
6. regularly
consult
your
BMC (especially if you are a techy):
the temptation of going off to build
stuff is always so strong that going
back to the BMC weekly can provide
a great grounding checkpoint.
Examples of Business Models Canvas:
■ Skype Business Model Canvas
■ Spotify Business Model Canvas
■ Google Adwords Business Model Canvas
Sources:
1. Business Model Generation - by Alexander Osterwalder
2. THE 20 MINUTE BUSINESS PLAN: BUSINESS MODEL CANVAS MADE EASY by Alexander Cowan
3. Business Model Canvas: Step by Step - by Paulo Rebelo
4. How to use the business model canvas correctly - by Spike Morelli
5. How to Make a Business Model Canvas - by mgustin12
6. Business Model Canvas: A Complete Guide - by Martin
7. What is a business model?- by Alan Gleeson
8. Osterwalder's business model canvas - by Edwin Muilwijk
9. Business Model Canvas - by From Wikipedia, the free encyclopedia
10. Business Model Canvas And Generation Marketing Essay - by UKessays.com
11. Business Model vs. Business Plan vs. Business Planning - by Tim Berry
12. The Business Model Canvas - by Bill Martin
13. Business Model Canvas 101: A Step-by-Step Guide to Strengthening Your Strategy by jshumway
14. Business Model Canvas with Explanations - by 6W2X