Concept
The business model Canvas is a strategy that shows how a start-up or company creates, delivers, and captures values, comprising details on the target customers, value proposition, channels and customer relationships, revenue streams, partnership, activities, resources and cost structure.
Any business model identifies three essential elements:
- Value creation: e.g., new benefits and features around a product
- Transactions: activities to create, deliver and monetise values.
- Resources: are physical and non-physical assets required to perform activities.
Business-model innovation varies in depth of details, and choosing the right-fit business model for any start-up will depend on the level of business progress. Thus, the business model applicable for pre-start-ups, those searching for the problem-solution fit, is the essential business model developed by Block and George- ‘The business model’. For start-ups, searching for the best path to test the product-market fit, Ash Maurya’s business model discussed in the book ‘Running lean’ is the best fit. Finally, for businesses looking for growth, the business model Canvas developed by Osterwalder and Pigneur in the book ‘Business model generation’ is the right fit.
Background
The concept of business model is an old term and is recently populated, especially in the start-up disciplines, by Osterwalder’s book, ‘ Business Model Generation’ of 2010.
How does it work?
According to Osterwalder’s book ‘Business Model Generation’, a business model Canvas comprises the following nine business blocks (Osterwalder and Pigneur, Y., 2010)1:
- Customer segments: define the different people or businesses an enterprise aims to reach and serve. To better satisfy customers, a company may group them into distinct segments with shared needs, behaviours, attitudes, demographic characteristics, motivation drivers, and other attributes. Attractive customer segments are characterised by being easy to reach and access and having the financial capability to buy your products.
- Value propositions: describe the bundle of products and services that create values for a specific customer segment, and they are benefits a company offers customers. Value propositions may be quantitative (e.g., the price or speed of service) or qualitative (e.g., design, convenience, or customer experience). Value proposition attributes can be newness, value advantage, speciality, hard to copy and imitate, rare, precious, gain creators and pain relievers. Examples of value propositions include attractive designs and features, powerful brands, lower costs and selling prices, low risk, convenience, higher usability, and so on. Job doers, gain creators, and pain relievers are all that value propositions can do. Any value proposition is successful and makes demand if only it matches the needs of customer segments.
- Channels: describe how a company communicates with and reaches its customer segments to deliver a value proposition. Channel types are direct (e.g., sales forces, web sales, or own outlets), indirect (e.g., partnership agents or distributors), physical, and online. Any channel acts to distribute products and services through a variety of activities like communication, distribution, displaying and financials.
- Customer relationships: describe the relationships a company establishes with customer segments to discover, retain and grow customers. Tactics for customer relationships include increasing awareness, running loyalty programs, and increasing sales growth.
- Revenue streams: represent the cash or income a company generates from each customer segment. Each revenue stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management. Revenue streams can be transactional (i.e., resulting from one-time deals) or recurring (i.e., resulting from ongoing deals). There are several ways to generate revenue streams, like asset and product sales, usage fees, subscription fees, renting, licensing, or advertising. Revenue streams are critical for the sustainability and profitability of any profit-mission business and can be enhanced by encouraging growing sales and controlling costs.
- Key resources: describe the assets required to make a business model work. Resources can be physical (e.g., machinery, tools, or building), financial (e.g., money), intellectual (e.g., non-physical assets, IPO, copyright, logo, know-how, customer database), or human (e.g., skilful staff and management).
- Key activities: describe the processes or actions a company must take to make the business model work. Activities can be for planning, production, financing, supply chain management, acquiring resources, leading teams, reaching markets, customer relationships, or earning revenues.
- Key partnerships: describe the network of suppliers and partners that make the business model works, reduce risks, and gain resources. A partnership can be formal as an agreement with suppliers or strategic alliances, or informal like online networking sharing common views on specific issues.
- Cost structure: describes all costs required to operate a business model. Costs are typically financial obligations for any business to get services and materials. In accounting, the matching principle rule recognises costs by testing their association with revenues. Costs can be fixed (i.e., remain unchanged despite the production change) or variable (i.e., change because of the production change). Costs are critical for any firm’s profitability and pricing strategy, as expensive costs result in low profitability and higher pricing.
- This post is sourced from my new book- Your Guide To Reach Innovation.
- For more information about the book: https://growenterprise.co.uk/your-guide-to-reach-innovation/
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Final note: the book- Your Guide To Reach Innovation, is an actionable guide to innovation from beginning to end. Enjoy reading the book, and I look forward to your reviews.
Author: Munther Al Dawood
maldawood@growenterprise.co.uk
References:
- Osterwalder, A. and Pigneur, Y., 2010. Business model generation, John Wiley & Sons, New Jersey.
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