Business Model Canvas is a type of management template entrepreneurs use to create new business models. Another one of its uses is to better document existing business plans. The business model canvas (BMC) is the brainchild of Alex Osterwalder. It helps investors assess factors like potential revenue streams and customer segments more efficiently. BMC is what you should be using as a building block of successful business infrastructure in the complex reality of the 21st century.
The Difference Between a Business Model Canvas and a Business Plan
A business plan is a document you prepare that explains how your company is going to make a profit. It includes a long-term goal for optimizing that profit. You use it to determine the goals you want to reach and then present them to potential investors and stakeholders.
A business model canvas includes all elements of a business strategy that will allow you to achieve these goals. Advertising, distribution, client relations, innovations, and resources are a part of the business model. You need to test these strategies in advance and fine-tune them to fit the requirements of your enterprise. The business plan and the business model are distinct entities in the business creation process. They share a vital connection as well.
The Core of Business Model Canvases
When you’re starting a new business, a proper business model canvas will help you create a rock-solid business plan. Your aim should be to create as detailed a description of your business idea as possible. The successful outcome of your endeavor depends on how well you do your job in the nine key elements of your business plan:
1. Customer segment
2. Value Propositions
4. Customer relationships, type of relationship
5. Revenue streams
6. Key resources
7. Key activities
8. Key partners
9. Cost structure
Spend enough time on each of these when you prepare your new business model canvas, and you’ll avoid many of the common pitfalls for emerging ventures.
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The key activities, key resources, and key partnerships of your future business form its core infrastructure. The main activities in your business plan include actions you need to take to ensure the smooth execution of your business activities. For example, optimizing the business’s value proposition by working on creating a supply and distribution chain for your products.
You’ll need to know the key resources required to build up value for the clients. These are your company’s assets and include employees, capital, property, and equipment, as well as intellectual property and technical know-how.
The last element of the business infrastructure is the key partnerships you form. Their function is to ensure the smooth running of the supply and demand chain. If you want to have a good relationship with your clients, you need other businesses to help you. These may include retailers, advertisers, competitors, and non-competitors. Getting right the infrastructure section in your business model canvas template means you’ll cut down the risk of the venture. You’ll be optimizing revenue streams and giving your company the best chance of surviving.
These are the value propositions of your future business. When building your business model canvas, you need to determine what products and services you’ll be offering? The list should reflect the needs and desires of your target audience.
In business canvas theory, the value proposition makes the firm superior to the competitors. Your products and services will stand above the crowd if they offer:
• New products
• Finer performance and customization
• The ability to get the job done for the customer
• Unique design
• A distinct brand style
• Competitive price
• Access, ease of use
The value propositions can be both quantitative and qualitative. Your products and services can offer better prices than the competitor. Or, they can provide an improved overall customer experience. The best-case scenario is to strike a balance between the two.
The Customers Side of Your Business
The business model canvas helps you decide what your company’s ideal customer is. The proper grasp of your customer base will decide the efficiency of your business model. The people using your products and services can vary in respect of their attributes and specific needs. Nevertheless, the usual categories include mass market, niche market, segmented, diverse, and multi-sided.
The mass-market profile means you don’t have a specific customer segment. The customer segmentation relying on certain customer needs and profiles falls into the niche category. When there are several specific customer profiles at play, it means you have a diverse customer segmentation. A multi-sided marketing platform means there is a relationship between your diverse customer segments. One example of this is credit card companies. They work with both consumers and the businesses serving their purchases.
Don’t overlook your potential distribution channels, either. There are many ways in which your customers can receive your business’s value proposition. During the business canvas stage, your task will be to determine each channel. After that, you’ll make sure they are open for you. You can create your channels by setting up retail locations/online shops. Or, you can rely on your key partnership network.
Customer relationship is one more aspect to consider. How do you want to communicate with your clients? How will your business keep your paying customer happy so that it can survive and thrive in the long run? What you can do in that direction is to decide on and set up:
• Personal assistance, either common or dedicated
• Customer self-service
• Automated client services
• Co-creation, where your customers have direct input into the way your products operate and develop
Your BMC will not succeed without figuring out your finances. It needs to happen while you’re in the planning stage. The cost structure deals with the monetary obligation and revenue stream management of the emerging business. In that category, businesses can be:
1. Cost-driven. This business model relies on cutting costs at the expense of convenience. Think about budget air-lines and in-store brand retailers.
2. Value-driven. This is when costs remain a consideration. Quality and individual customer happiness are more significant (like Hugo Boss, Rolex, Lexus).
The optimal value proposition means your business’s revenue streams are at full capacity. But what can those be? Direct asset sale and subscription and usage fees are most common in the business world. Leasing and licensing are other options you can explore in your business model canvas. Brokerage fees and advertising in particular are becoming more and more prevalent in the digital age.
Everything comes down to the types of products and services you offer. Find the best way to distribute them to your customer base, and you’ll find the best way to monetize them as well.
Why BMCs Succeed?
The earlier business model template worked for startup companies in the 1980s. Alexander Osterwalder created the BMC template in the book “Business Model Generation”. He aimed to optimize the existing business plan method. He knew the new age required new and existing businesses to utilize modern technology. The business value proposition canvas comes with distinct advantages over the traditional business plan:
1. The BMC helps you keep the focus on your enterprise goals. Brainstorm for your business model canvas and you’ll define your ideal customer journey to obtaining your products and services.
2. The template cuts to the chase. You can boil down the essence of your business to a single page. You can use different business models. A lean canvas remains the most efficient way to share your vision with stakeholders, partners, and customers.
3. The method creates a clear vision of your target customer’s needs. It is no longer enough to manufacture a good product. You need to know who is going to buy it and how. The sales strategy part of the business model canvas helps you with this decision.
4. Risk management is one of the most valuable advantages of the template. It’s the optimal way to see the connections between value proposition, customer segments, and revenue streams. Then you can base your marketing strategy on the competitive edge you have over other companies in the field.
5. The model utilizes modern technology. You don’t need pen and paper or even the often-confusing MS Excel spreadsheets to make your point. Apps like Whiteboard, Pigneur, Yves, and Strategyzer help you create your new business model. And you do it without a single Post-It or sticky note.
The business model canvas works because it uses a scientific framework. Experts built it on direct empirical evidence.
The Drawbacks of BMC
A BMC ensures your enterprise is going to be competitive on global and local markets alike. New entrepreneurs need it more than ever. Keep in mind the strategy doesn’t work well in the early stages of development. When you brainstorm your ideas for a small or medium business, you may need to resort to older methods.
Experts point out founders are prone to making risky assumptions based on their business model canvas. At the same time, there isn’t a simple way to assess the cost-benefit ratio of such risks. The BMC focuses primarily on how your business is going to look in its final stage. It tells you little about the way you are going to get there.
You need a rock-solid business strategy for that reason. That doesn’t mean a business strategy naturally comes before a business plan. You should work on both, in unison, to ensure the finest results.
Do you have any experience with or insight on a business model canvas? If you care to share what you know please leave a comment!