Importance of Business Model Canvas - BMC

Got an amazing business idea and don’t know what to do next? Want to improve your business model? There is a technique that can guide you and provide you solutions you are looking for, and that technique is called a Business Model Canvas.

The Business Model Canvas was originally developed by Alex Osterwalder, a swiss business theorist and entrepreneur as a part of his PhD Research. This Business Model Canvas was elaborated in a book called Business Model Generation co-authored by his graduate supervisor Yves Pigneur, a Belgian Computer Scientist. As it says on the front cover a Business Model Generation, it was also “Co-created by an amazing crowd of 470 practitioners from 45 countries”. That’s an impressive collaboration. 

What is Business Model Canvas?

A Business Model Canvas (BMC) is a strategic management template (one-page document) used to define and communicate a business idea or concept. It lets you visualise and assess your business ideas and concepts. It helps business describe, design, analyse their business models. It explains who the customer base is and how you can deliver value to them along with related financial details.

The Business Model Canvas is in the form of 9 features (Building blocks) that describe the value proposition of an organisation, its infrastructure, market, and finances. Basically, it represents the different fundamental elements of business. The objective of Business Model Canvas is two assist firms to align their activities through the illustration of potential trade-offs.

Business Model Canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of business.

Why you need a Business Model Canvas (BMC)?

1. BMC provides quick overview of the business model
2. The visual nature of the BMC makes it easier to refer to and can be understood by anyone
3. It is easier to edit, and can be shared with employees and stakeholders
4. BMC can be used by large corporations as well as start-ups
5. It clarifies how different aspects of the business are related to each other
6. you can use BMC template to guide a brainstorming session on defining your business model effectively

How to make a Business Model Canvas?

As mentioned before, a Business Model Canvas is divided into 9 Building Blocks, they are

1. Customer Segment
2. Value Propositions
3. Revenue Streams
4. Channels
5. Customer Relationships
6. Key Activities
7. Key Resources
8. Key partners
9. Cost structure

Now let us look into each building block,

Customer Segment:

These are the groups or companies that you are trying to target and sell your products or services to.

Segmenting your customer based on similarities such as geographical area, gender, age, behaviour, interest, etc., gives you the opportunity to better serve the needs, specifically by customising the solution you are providing them.

Different customer segments:

• Mass Market: Instead of focusing on a selected segment or group, it focuses on general population or a large group of people with similar needs. example: Smartphone market
• Niche Market: Here the focus on centred on a specific group of people with unique needs and traits. here the value propositions, distribution channels, and customer relations should be customised to meet specific requirements. example: Customised Sports Shoes
• Segmented: Based on slightly different needs, there could be different groups within the main customer segment. 
• Diversified: A diversified market segment includes customers with very different needs
• Multi-sided markets: This includes interdependent customer segments. Example: Credit card company caters to both credit card holders as well as merchants who accept those cards.

Value Propositions:

This is the building block is considered as the heart of the business model canvas. And it represents your unique solutions (product or service) for a problem faced by a customer segment, or creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. it should be innovative and disruptive. And, if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value proposition can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Revenue Streams:

Revenue streams are the source from which a company generates money by selling their product or service to the customer. In this block, you should describe how you will earn revenue from your value proposition.

A Revenue stream can belong to the following revenue models,

• Transaction based revenue - one-time payment
• Recurring revenue - continues services or post-sale services based\

There are several ways you can generate revenue from

• Asset sales
• Usage fee
• Subscription fee
• Lending/leasing/renting
• Licensing
• Brokerage fees
• Advertising

Channels:

Channels describe how your company will communicate with and reach out the customers. They are considered the touchpoint that let your customer connect with your company.

Channels play a role in raising awareness of your product or service among customers and deliver value proposition to them. Channels can also be used to allow customers that avenue to buy products or services and offer post-purchase support.

There are two types of channels

• Owned Channels: Company website, Social Media sites, in-house sales
• Partner Channels: Partner-owned websites, wholesale distributers, retails

Customer Relationship:

In this section, you will establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company. 

There are several types of customer relationships

• Personal Assistance: who interact with customer in person or by email, phone call or other means
• Dedicated personal assistance: who focus on individual customer
• Self-service
• Automated services: this includes automated processes or machinery that helps customer perform services themselves
• Co-creation: Here the company allows the customer to get involved in the designing and development of of the product: For example, YouTube has given its users the opportunity to create content for its audience.

Key Activities:

In this section you will list down all the key activities you need to do to make your business model work. These activities should focus on fulfilling its value proposition, reaching customer segments, and maintaining customer relationships, and generating revenue.

There are three categories specified under Key activities 

• Production
• Problem-solving
• Platform/network

Key Resources:

This is where you list down which key resources you need to carry out your key activities in order to create your value proposition

Type of key resources

• Human Capital (employees)
• Financial (Cash, line of credit, etc)
• Intellectual (Brand, patents, IP, copyright)
• Physical (Assets, Building, inventory, equipment)

Key Partners:

They are the external companies or people (partnerships) who help you carry out your key activities. 

Types of Partnerships

• Strategic Alliance
• Cooperations
• Joint Ventures
• Buyer-supplier relationships

Cost Structure:

This will identify all the costs associated with operating your business. You will need to focus on evaluating the cost of creating and delivering your value proposition, creating revenue streams,s. and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners. 

Businesses can either be cost-driven (focuses on minimising costs) or value-driven (focuses on providing maximum value to the customers).

End note:

The business model canvas is a great tool to help you understand a business model in a straightforward, structured way. Using this canvas will lead to insights about the customers you serve, what value propositions are offered through what channels, and how your company makes money. You can also use the business model canvas to understand your own business model or that of a competitor.