For Entrepreneurs: How to Use the Business Model Canvas
Contributed by Josh Pedro
You have a great idea... so what's next?
One pitfall many entrepreneurs fall into when they pursue an idea is rushing straight into a business plan. This was certainly one of my biggest mistakes during my start-up. The problem is you spend so much time indoors perfecting your plan thinking it’s the best but fail to engage with your customers early on. In this post, I am going to share with you an amazing tool called the Business Model Canvas and how you should use it.
The Business Model Canvas
The Business Model Canvas (BMC) is useful for entrepreneurs looking to create or develop an idea. The canvas is used by many Fortune 500 companies to manage strategy whilst start-ups use it in search of the right business model- what you’re probably here for. Having a good idea is simply not enough, you need to be able to answer key questions about the idea and how to take it forward.
The BMC creates an overview of your strategy, the products you should offer, the people you should focus on, the paths you should take and the resources you should use to make your idea as successful as possible by asking key questions.
Understanding the Business Model Canvas
Looking at the Business Model Canvas template below, you will see 9 key elements. Take a moment to read each of them and understand it. These are some of the questions you ought to be answering as you develop your idea.
“an innovation, service, or feature intended to make a company or product attractive to customers.” Google
Describes the bundle of products and services that create value for a specific customer segment. You should think about the specific problem you want to address, and how your products/ services solve your customer’s problem. Why should customers choose your Product/Service? What value are you creating? Do they care about it?
Define the different groups of people your business aims to reach and serve. Who are your most important customers? You must be able to define your customers into different segments with common needs, behaviours and attributes. How do they behave? How does each customer segment want to be reached?
Channels play an important role in your customer's experience/journey. You need to describe how your business will communicate and reach the different customer segments. It’s important to find a channel that makes it convenient for your customers to purchase/consume your product or service. How do your customers want to be reached? How are we reaching them now? What works best?
What type of relationship do you need to establish with each customer segments? How do you interact with customers throughout their journey of using your product or services will it be online, personal contact, automated or a combination? How costly are they?
How does your business generate money from your value proposition? What are customers really willing to pay for your products and services? Are you generating recurring or one-off transactions? What are your customers currently paying? How would they prefer to pay? Being able to answer this allows the business to generate one or more revenue streams.
Resources allow a business to create and offer a value proposition, reach different markets, maintain relationships with customers and ultimately earn revenue. What are the most important assets required to make the business work? What resources do you need to support your day to day activities? These can be owned or leased or by acquiring or joining with a key partner.
e.g. financial; physical plants (machinery); intellectual property and people.
Creating partnerships allows you to optimise your business model, reduce risk and acquire particular resources. Who are your key partners and suppliers? What resources are you acquiring from them? What activities do they perform and how does this align with your value proposition?
These are the most important actions your business must take to operate successfully. Acquiring key resources that are required to create your value proposition will largely depend on the type of business you are creating. What activities do you need to focus and perform well at in order to make your business model work and deliver on your value proposition?
Creating and delivering your value proposition costs money. These can be calculated after you define your Key Resources, Key Activities and Key Partnerships. What are the most important costs to create your business model? Does the cost structure offer a reasonable profit? Fixed vs. Variable costs?
Together these elements allow you to organise your thinking, giving you a structure to a business plan when you have a suitable business model. The most important advice I can give you is to keep it short and simple whilst you begin but make sure you go out there and speak to potential customers that may be interested in your product or service. Document everything as one day you might need to pivot.
Most start-ups fail from lack of customers than from a failure of product development. The next stage is to leave the building and turn that hypothesis into facts, Updating your business model on a regular basis. Check out my previous post for help on this!
Be sure to print the template and use as many as you need until you find the right model.
Once you find the right model, you can start writing a business plan.
If you have an idea or currently working on one and would like to discuss how to use a business model canvas, feel free to contact me.