Business Model Canvas Made Easy

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. 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