The business model canvas can be a daunting task for any new entrepreneur.
There are so many aspects to consider when starting a new business but take it from someone who has been through the process.
It may seem difficult, but the business model template is a great way to get you started and to get those creative juices flowing.
The 9 Building Blocks for the Business Model are:
- Customer Segments – The target audiences that you plan to offer value with your products or services.
- Value Propositions – This value proposition is built to explain how your customer segments will value from your unique offer and differentiate it from the competition.
- Channels – What channels will your value proposition be delivered through?
- Customer Relationships – How do you plan on keeping solid relationships with your consumer segments?
- Revenue Streams – How will your value propositions bring in revenues from each target audience?
- Key Resources – These are the assets available to the business that allows you to run your operations effectively.
- Key Activities – What operations are essential to the success of your business?
- Key Partnerships – These partnerships are obtained through networking with the people that can help with your business success.
- Cost Structure – All of the costs associated with a business.
While this article is built to give you a good understanding of each principle of the business model canvas, we found it extremely beneficial to our business having the Business Model Generation book by John Wiley. We recommend having this book as a reference and guide as you build your business and can be found right on Amazon.
Let’s discuss each section of the business model to help you create more value for both your business and your target audiences.
1. Customer Segments
The first building block of a business model is customer segments.
This defines the different groups of people or organizations that a business plans to reach.
Without profitable customers, how can any business succeed?
When looking at customer segments, it is important to group people into multiple segments to better satisfy their needs. The groups could be small or large depending on their common needs, behaviors, location, or attributes.
With these groups, you can better understand how to communicate properly with them and find out what works best for each target audience.
While most businesses know their audience’s geographic locations and demographics, they too often skip out on the essential psychographic attributes of their customers.
What are their interests? What challenges do they face? What goals do they seek? What are their pain points?
These crucial points are addressed in the most detailed customer segment worksheet we created to aid you in business success.
Once you have a clear idea of who you are providing a service for, you can make the steps towards creating value for them.
2. Value Propositions
The second building block is based on how your company bundles products and services to meet each customer segment’s needs.
A Value Proposition creates a unique value for customers through a mix of elements that could be qualitative or quantitative. This could include price, speed, design, or customer experience.
What value do we deliver to the customer?
What makes a person choose AT&T over Verizon Wireless or Sprint? Perhaps they decide to choose Virgin Mobile. Now, think about how each company offers value to their customer segments.
Verizon might offer value to customers that are looking for the best cell service at an affordable price. They could also offer a great bundled deal with DISH network for a user that doesn’t want to pay two different bills.
How about the customer that lives in the city with great coverage and is looking for the best price? That could be exactly what Virgin Mobile offers with a low cost and no contract involved.
It is due to the value proposition that a person might want to choose one service over another.
Don’t just try to offer what everyone else is with lower prices, think outside the box. It is often due to innovation and disruption that new businesses succeed.
Think about how you can fill the gaps of customer needs and problems that other companies in your industry are not fulfilling.
The channels building block is how your company will communicate with each customer segment, delivering them your value proposition.
These channels can include social media, websites, newspaper advertisements, search engines, and word of mouth.
Evaluate how you communicate which each customer segment and how you can either improve or change that communication. Also, consider which methods of communication are the most cost-efficient.
It is this brainstorming that will improve how you reach each customer and aid in building a relationship with them.
To help with your brainstorm session, here are 5 channel phases to build upon:
How do we raise company awareness and build upon our brand?
How do we reach customers to have them evaluate our value proposition?
Through which channels can we direct customers to purchase our products and services?
How do we deliver the value proposition to the customers?
How do we provide customer support
This may seem like a standard set of phases for you.
Well, that is the point!
These phases are in place to help to build your thinking outwards towards all the possibilities to best serve your customer segments.
4. Customer Relationships
I truly believe that this part of the business model is the most important. If you build personalization into your brand and company, then the sky is the limit!
Although this service can be personal or automated, it is crucial to understand which method will best serve your customer’s needs.
There are three driving motives to building relationships with your customers.
- Lead Generation
- Customer Retention
With these motives, rank which goals are more important to your company than the others. From there, decide which issues you might come across with these goals and how to best communicate to your customer segments in each goal.
5. Revenue Streams
This building block measures the earnings a company generates from each customer segment. When targeting each target audience, think about what each group is willing to pay.
When you realize that different groups of customers are willing to pay at different levels, you can come up with different revenue streams to apply to each of these groups.
A business model includes only two types of revenue streams:
- Transaction Revenues – This results from customers who make one payment for a product or service.
- Recurring Revenues – These on-going payments can include a prolonged value proposition or a post-purchase customer service.
When deciding which type of revenue stream fits well in the communication with a customer segment, ask yourself:
How are they currently paying?
How would they prefer to pay?
Does a certain method of revenue contribute more to overall earnings?
6. Key Resources
What are the key resources that can set your business apart from the rest?
What resources are key to offering your value proposition?
Key Resources are the important assets that are available to you and are required to make your business plan a success. These resources allow you to create your unique value proposition, maintain important relationships with your customers, reach new markets, and create revenue.
These resources can range from physical, financial, intellectual, or human assets.
7. Key Activities
The key activities building block describes the important process that a business must take part of for a business model to work.
Much like key resources, these activities are required to maintain customer relationships, reach new markets, create value propositions, and earn revenues.
Key activities can be grouped into three categories:
These key activities are the focus of manufacturing firms and relate to designing, creating, and delivering products.
2. Problem Solving
These activities include knowledge management and training. Problem-solving is key to coming up with new solutions to customer problems.
This category includes platform management, service positioning, and platform promotion. This is built around a company that relies on networks, software, and brands that can function as a platform.
8. Key Partnerships
The building block of key partnerships revolves around the network you build. This can include suppliers, partners, or even other businesses or influencers in your industry to create an alliance with.
There are 4 main categories of partnerships:
1. Strategic Alliances with Non-competitors
2. Strategic Partnerships with Competitors
3. Joint Ventures to create new Businesses
4. Buyer-Supplier Relationships
With these 4 categories of partnerships, we find 3 main motives:
1. Optimization and Economies of Scale
This motive is based on reducing costs and can involve outsourcing or a sharing infrastructure. This optimizes the allocation of resources and activities so your company doesn’t rely on owning all the resources or performing every activity on its own.
2. Reduction of Risk and Uncertainty
This motive is brought on by competitors joining in strategic alliances in one area while remaining competitive in other areas.
3. Acquisition of Resources and Activities
It is rare for any business to have access to all the necessary resources and activities to create the most value to their customers.
It is important to realize which assets are more cost-effective to outsource and to rely on other businesses to bring resources that you could not come up with on your own.
9. Cost Structure
The cost structure building block describes all costs involved in operating a business model.
When your business defines how to create value, maintain customer relationships, and generate income, it will see costs incurred on each of these levels.
The cost structure of a business can be placed into one of two categories:
This cost structure focuses on minimizing costs wherever possible. This process can include high automation, extensive outsourcing, low price Value Propositions, and the leanest possible cost structure.
With the value-driven cost structure, a business focuses on how they create the best value for each customer segment. This can include a highly-personalized service and exclusive services.
That concludes the 9 Building Blocks that go into a Business Model!
This model is meant to be a hands-on tool for your whole business team to add and take away items when needed.
To print out a poster-sized canvas, feel free to download our Free Business Model Canvas.
I will leave you with three last instructions to help build your business model:
1. Print it out on a poster!
2. Place the poster on the wall!
3. Sketch out your business model!
Now It’s Your Turn
Now that you have a solid understanding of the elements that go into the business model canvas, it’s time to start brainstorming.
Download the business model canvas below and either print it out for the office or fill out the information directly on the PDF file to your local computer.
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Download the Business Model Canvas
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