Understanding the Business Model Canvas
The starting point for any good discussion on business innovation should be a shared understanding of what a business model actually is. A Business Model Canvas is a strategic management startup template for developing a new business idea or concept. This canvas demonstrates in a simple form how a business can maximise their share in the market through the nine basic building blocks that indicate how a company intends to make money. The model helps organisations realise the economic value of their product or service which will then allow them to gain an advantage against similar products competing in the market.
For researchers and research organisations the business model canvas allows you to easily describe and manipulate a business model to create new strategic alternatives for commercial projects and is especially useful in running a comparative analysis on the impact that an increase in investment may have. Without this it becomes difficult to challenge assumptions about a business model preventing successful innovation.
The business model canvas categorises the process and activities of a business into the 9 blocks which each represent a key segment in the creation of a product or service. These blocks represent the four main areas of business:
- financial viability
The customer area of a business covers three areas of the business model canvas: customer segments, channels and customer relations.
The customer segment is an essential part of an organisation’s business model and is key to ensuring that the product features are aligned with the customers characteristics and needs. To have an effective customer segment, a company must first know its customers current and future needs and list its customers in terms of priority. A company should also do research to find out about its customers and to find their strengths and weaknesses while also exploring alternative customer options.
Next is channels. The way through which an organisation provides its product or service to its customers is known as a channel. There are various channel options available to an organisation. The selection is based on the channel that is the quickest, most efficient and requires the least amount of investment.
The final block covered by customers is customer relations. An organisation must select the kind of relationship it will have with its customers in order to create financial success and sustainability. Following this the value of the customer must be evaluated. Loyal customers are relationships that the company should aim to invest in as they will give steady revenue for the business.
The Offering area of a business is covered within the value proposition of a product or service. The value proposition provides value through a number of attributes such as newness, performance , customisation, “getting the job done”, design, brand/status, price, cost and risk reduction, accessibility, as well as convenience/usability. When creating your products value proposition the first question that should be asked is, what problem is being solved by offering this product?Then one needs to look into how the product or service can be improved so that it provides greater value than the competition.
The infrastructure section of a business is made up of three of the business model canvas sections: key activities, key resources, and partner network.
Key activities outline the activities for your company. What do you focus on doing as an organisation? These are the most important actions a company must take to operate successfully but can differ depending on the business model type.
Similar to key activities is key resources. The key resources allow an enterprise to create and offer a value proposition, reach markets and maintain relationships. For an entrepreneur, it is important to begin with listing your resources. This gives you a clear idea of what final product or service your company needs to create for the customer.
The last building block of infrastructure is key partnerships. Companies forge partnerships for many years and partnerships then become cornerstones for many business models. Companies form partnerships to optimise their business models, reduce risk or acquire resources. It can also be useful to distinguish between three motivations for creating partnerships. Those are: optimisation and economy of scale, reduction of risk and uncertainty and acquisition of particular resources and activities.
The final area of a business, finances, is covered by cost structure and revenue streams in the business model canvas.
The cost structure describes the most important monetary consequences while operating under a particular business models. Businesses can either be cost driven – focused on minimising investment into the business, or value driven – focused on providing maximum value to the customer. The first step for an entrepreneur is to identify all costs associated with the business. A realistic understanding of the costs of the business is one of the hallmarks of a good business model. After identification, it is important to list all the costs on the canvas, so they are visually present and then create plans for each cost.
A revenue stream is the method that a company follows to get its customers to buy its product or service. A revenue stream can be created through the following ways: asset sale, usage fee, subscription fee, lending/leasing, licensing, brokerage fees or through advertising.
Through the application the the business model canvas it allows you think visually which enables easy visual representation for decision makers. The tool provides a breakdown of major factors impacting the business and make the direction the business must take clearer. The model also allows the organisation to understand how the nine building block relate to each other and evaluate potential tweaks in areas that a business can make become more efficient and profitable.