If you have been following our articles, such as the one on business models, you would know how crucial it is to have a lucrative business model. Business model canvas were invented with the idea to help entrepreneurs. A good idea has a strong business model to support it. Take Facebook for example, it is the largest social networking website. It was founded in 2004 and the website has grown into a flourishing business over the years. Facebook has acquired WhatsApp, Instagram and Oculus during its time in business.
The social media company was able to grow because it has a business model that is well-planned and profitable. Facebook’s journey should serve as a motivation for numerous entrepreneurs to come up with ideas that have robust business models.
You can either create a new business model or refine an existing one to your liking. However, finding a suitable business model that is profitable can be a hard nut to crack. It is all about planning and research. Extensive research about your product can help you to make the right decision.
Hence, Alexander Osterwald came up with a comprehensive template that helps to create business models. Alexander Osterwald is a Swiss business theorist who invented Business Model Canvas in 2008. He is the co-founder of strategyzer.com.
We will explain and talk about the advantages of using business model canvas.
What is Business Model Canvas?
Business model canvas is a tool that was created to develop new business models or improve the existing ones. Corporate giants such as Nestle, Proctor & Gamble, and GE etc. use the business model canvas to study their current and prospective businesses in a structured way. Business model canvas give a wider perspective about a product and shows the potential tradeoffs as well.
This template allows for more focus and transparency for the people who are working on the project. A BMC eliminates the need of an extensive, traditional business plan. Traditional business plans consist of many pages and are often hard to follow.
The BMC template is no longer than a page and provides all the crucial details in a comprehensive manner. It is far easier to follow and efficient because it leaves out all the unnecessary aspects of the business. The template allows for easier tweaking and offers a more coherent planning approach.
The canvas is divided into two halves. The right side of the canvas is customer-centric while the left side is for business. These two halves have their value propositions. The halves show how the business creates value for the customer and vice versa. A strong business model creates significant value for both parties, customers and the business.
We have an image of what the template looks like. As you can see, the template covers all the crucial details and puts them on one page.
Components that Make Up the Business Model Canvas
A template consists of various components that completes it. Hence, we have added a list of components and their descriptions so that is easier to understand them.
In this part of the template, users are expected to include details that help to create value for the customers. The products and services that are being offered to the customer need to be present in this section.
Moreover, this section should help you to create a list of personas that are related to the customers of your product or service. The idea is to use the list of personas to get a feel of what each customer has to say about your product or service.
Various customers have different pain points. Most companies try to address such issues when they release or improve a product. This section should include the value that the product provides to its users. Moreover, it should contain how this value is created in the first place.
There are two kinds of value propositions. They are qualitative and quantitative. An example of qualitative value is customer satisfaction. Similarly, an example of qualitative value is the price and efficiency of the product.
In this section, you can list down all the value propositions. These value propositions can be listed in terms of their priority. Prioritizing certain value points can help you to enhance those aspects in you product. These value propositions can be linked to the different types of customers in the customer segment.
This is another important section in the template. The product will not sell well, if your product does not reach the customer. So, you need to figure out the channels through which you can reach out the different customer personas that are relevant to your product.
Furthermore, a company can reach out to its customer base through different means. It could be through their own distributing channel or through a partner channel. You need to identify the channels that will be taken to reach out all the personas mentioned in the customer segment.
A company can decide the type of relationship they wish to create with their customers. Customer relationships can be integral to the success of a business. Hence, you need to think of the types of relationships that you want to establish with different customers.
These relationships can be in the form of dedicated personal assistance, self-service, automated services, co-creation etc.
The Most Important Component of Business Model Canvas: Revenue Stream
Businesses cannot sustain themselves if they do not have a sustainable revenue stream. In this section, you may add the details about how the customer pays and their preferences. Moreover, you can also add details such as how each stream add up to the net revenue of the product.
There are a myriad of ways to generate revenue. This section should be all about the revenue model of your product.
Key Activities and Resources
List down all the activities that need to carried out for your business. Furthermore, add all the vital resources that are necessary to carry out those activities. This will help you to prepare yourself for the future.
This section is all about the vital relationships you make with different suppliers. Moreover, these suppliers can be different companies that help you to provide key resources necessary for your activities.
Every business has their set of expenses. List down all your expenses in this section. Your business can be either cost-driven or value-driven. Hence, a cost-driven company looks to minimize all costs while a value-driven company is more focused on delivering great customer value in terms of quality or prestige.