The Business Model Canvas is an excellent tool to create a business model and present your ideas. It gives a clear picture of how you will make money and sustain your business. The Business Model Canvas will challenge you by making you answer tough questions about your business which would help you to be more prepared to start a business.
The Business Model Canvas should come before your business plan
. Although some refer to the Business Model Canvas as a one-page business plan, it should not replace your business plan. But it should be the foundation of your business plan. Whether you are presenting your ideas to investors, starting a new business, or looking for funding, the Business Model Canvas is your best friend.
There are a couple of terms that make the Business Model Canvas sound complicated. But these are simple business terms with fancy names! The Business Model Canvas consists of nine essential parts: Customer Segments, Value Proposition, Revenue Streams, Channels, Customer Relationships, Key Activities, Key Resources, Key Partners, and Cost Structure.
Let’s take a look at each section of the Business Model Canvas.
1. Customer Segments – Who is your customer?
We, marketers, hate selling everything to everyone. Identify who would be your key customers and group them by their pain points, demographics, buyer behavior, or other relevant characteristics. Buyer personas would be super helpful for this part.
2. Value Propositions – What makes you better than others?
I think this is the most important question to answer for any business idea. You need to spend time on this. This is where you will challenge yourself. To compete and be profitable, your leads need to choose your business over others. But why? You already know it can’t be price because bigger companies would cut their prices until you go out of business. For this part, the first thing you need to do is identify key decision-making features in your industry. For example, if you are Uber, your app interface should be user-friendlier than Lyft’s, and, your drivers should be more professional and better trained than Lyft’s. If you are selling coffee, you need to consider the quality of your beans, the speed of your service, freshness, smell, price, etc. These criteria depend on your business and industry, but the idea is the same; you need to be better than your competitors on a couple of these criteria. Link value propositions to your customer segments. Each segment has different needs and pain points. If you have three segments, then you should have three different value propositions.
3. Channels – How will you communicate your value proposition?
What are your marketing tools? Some answers might be social media (but be specific, which social channels?), paid advertising, distribution channels, print advertising, etc.
4. Revenue Streams – How will you make money?
This is where you explain your revenue streams. Will you whole sell? Will you have an e-commerce website? Will you have a brick & mortar store? Will you have add-on services? In other words, explain what your primary, secondary, and additional revenue sources will be. You can link your revenue streams to your value propositions and customer segments. You may want to offer customized products/solutions to certain customer segments. Your coffee shop may want to sell cup carriers for 50 cents (another revenue stream) to those who order pick-up (customer segment).
5. Customer Relationships - How will you interact with your customers?
Again, this depends on your business. If you are a B2B then you would have salespeople dedicated to your customers. Think about your sales process starting from the initial step. If you are selling online, your leads would start searching online, then they would go to your website to find more information. Would there be a chat option? Do you want them to call or submit a contact form? After the first contact, who will follow up with them? Do this until you sell your product/service and consider your after-purchase experience with the customers. Will you add your clients to a newsletter? How will they contact you with any issues with the service/product?
6. Key Activities – What are the activities that would enable you to deliver your value proposition?
Let’s go back to your value proposition and think about our coffeeshop example. You identified a few criteria, freshness, speed, and quality, that you think you can do a better job than your competitors. Well, that’s easier said than done. How? This, again, is where you challenge yourself. For speed, you can say “my competitors have three employees. I will have one more employee than my competitors and deliver faster service” (then you need to raise your prices to make up the added cost). For freshness, you could work with local roasters (or roast in-house) to ensure freshness, and grind coffee beans only when you are ready to serve.
7. Key Resources – Who/what are your key resources?
This is where your key personnel and capital (equipment, machines, labs, etc.) come into play. Also, your patents, recipes, know-how, and experience are your key resources. Anything that you own that would help your business become successful is your key resource.
8. Key Partners
You can’t be on your own! You need advisors, mentors, supporting organizations, a chamber of commerce, a lawyer, and an accountant. These are all your key partners that work with you for your success. I hope the SBDC is already on that list!
9. Cost Structure
These are your major revenue eating activities. What are your major costs? R&D, capital expenditures, and cost of goods sold. Are you utilizing economies of scale? Is your business capital or labor-intensive? What about your fixed costs and variable costs? This part should be a snapshot of your cost structure.
Generating a Business Model Canvas is fun; remember, we are always here to help you. That said if you want to simplify things before you start writing your business plan, download a Business Model Canvas template here
, and start filling it out!