Brief overview of the Business Model Canvas

The Business Model Canvas is a visual framework for explaining great business ideas. It's like a one page traditional business plan. It has nine key elements that show how a company creates, delivers, and captures value. These elements include customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partners, and cost structure. The advantages of the Business Model Canvas are its simplicity and ability to provide a comprehensive overview of a business model in one place. It can act like a business plan template. It can also help with communication and collaboration within a company. However, the limitations of the Business Model Canvas include its potential for oversimplification and static nature. It may not capture the dynamic and complex nature of some business models and lack detail for in-depth analysis in some cases.

In summary, the Alex Osterwalder's Business Model Canvas is a valuable tool for analysing and understanding a business model, but it should be used in conjunction with other tools and methods to ensure a comprehensive analysis.

Importance of using a visual framework for strategic management

The business model canvas is a visual tool that encapsulates all key elements of a business in one diagram. It helps guide product roadmap development by showing stakeholders how different parts of the business model interact. Decision-makers can align product development with strategic goals using the canvas. It serves a reference point for teams to ensure their work aligns with company objectives. The canvas is agile and can adapt to changes quickly based on market conditions or feedback. It creates a common language for the organization, fostering collaboration and alignment. Overall, the business model canvas is essential for strategic management and guiding product development.

Explanation of the concept created by Alexander Osterwalder

The Business Model Canvas, created by Alexander Osterwalder, is a tool for describing, designing, challenging, and pivoting business models. It consists of a one-page template with key aspects of a business. This includes customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure. The canvas helps organizations map out value creation, delivery, and capture. It also promotes innovation and adaptation to changing market dynamics and customer needs. The tool is beneficial for startups and established companies, providing a holistic view and identifying growth opportunities. Simple and flexible, the Business Model Canvas is widely used by entrepreneurs and managers to refine their business models.

How it revolutionised traditional business planning

Traditional business planning often involved lengthy, detailed documents that were often obsolete by the time they were completed. However, with the advent of new technology and data analytics, business planning has been revolutionized. Companies now have access to real-time data, allowing for more agile decision-making and the ability to adjust their plans as conditions change. This new approach to business planning has enabled companies to be more responsive to market changes and to better capitalize on new opportunities. As a result, traditional business planning has been transformed from a static, inflexible process to a dynamic, adaptable tool that can better serve the needs of modern businesses.

Our YouTube tutorials: Business planning in bite sized chunks

Key Elements of the Business Model Canvas

The business model canvas is a strategic management tool that helps businesses visualize, design, and analyse their business models. It consists of key elements that are essential for understanding and planning a business's value proposition, customer segments, revenue streams, and more. In this article, we will explore the key elements of the business model canvas, including customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure. Understanding these elements and how they interact with each other is crucial for any business looking to innovate, grow, or pivot their strategy. Whether you're a startup or an established company, the business model canvas can provide valuable insights and help guide strategic decision-making.

Value Proposition

XYZ Solutions offers customized solutions that provide unique value to different customer segments. For small businesses, we offer affordable software solutions that streamline operations and enhance productivity. Mid-sized businesses benefit from our high performance technology and user-friendly interfaces that meet the demands of their growing operations. Large enterprises value our innovation and customization, which help them stay ahead of the competition and future-proof their operations. Overall, we solve specific problems, satisfy individual needs, and deliver tailored solutions that provide tangible value to each customer segment.

Your VP should cover these basic building blocks:

1. Description of the product
2. What are its main features
3. Definition of the benefits for the customer segment.

Here are ways to pique the interest of your customer segments - language to use that resonates with them.

1. Newness – no one else has it
2. Performance – better than the rest
3. Customisation – made to your specifications
4. “Getting the Job Done” – it does exactly what is expected
5. Design – designed, made and looks better than the rest
6. Brand/Status – It will impress people and make you feel good
7. Price – More affordable than most / reassuringly expensive
8. Cost Reduction – you can cut your costs with this product
9. Risk Reduction – It will keep things/people safe
10. Accessibility – It is easy to get hold of this / it’s a rare commodity
11. Convenience/Usability – It is easy to use this
12. Values – our values are aligned with your values

Customer Segments

When thinking about customers the golden rule is that you cannot sell to the whole world.
From a Sales & business development perspective, you are part of an extended Value-Chain – but where do you fit in? Customer segmentation makes you choose between casting a wide net or being very targeted. Customer personas - the way you describe groupings on similar buyers - is the most effective way to group them.

Here are ways to segment that audience:

Demographic: Age, gender, income, education, occupation, and other demographic factors
Geographic: Country, region, county, city
Psychographic: Personality traits, lifestyle, attitudes, faith, values, and interests
Behavioural: Purchase history, spending habits, frequency of purchases, brand loyalty, and usage patterns
Technographic: Technology aptitude, preferred tech, internet usage, and social media usage.
Firmographic: Sector, industry, size, revenue, age, ownership type

Customer Relationships

Your business will need to build different types of relationships with customers through good customer service and personalised communication across multiple channels. Strategic alliances are an important entrepreneurial tool. The type of relationship will determine the use targeted marketing, clear messaging, and focus on product benefits to attract and retain customers. Building trust, loyalty, and long-term satisfaction is key.

Things to ask your self about relationships with your customer segments are:

Is this going to be a short term or long-term relationship?
Will the relationship create one off sales or repeat business?
Will the relationship cost you time and money to build and maintain?

Examples of different types of customer relationships:

Personal Assistance: We offer a tailor made solution just for you!
Co-creation: We can only deliver our service with your help
Communities: We have a trusted userbase, they want to be part of the conversation
Self-service: Most of our products are ready off the shelf
Automated services: Everything is online and automated – we rarely speak to customers

Channels

In your marketing plan you will use social media platforms such as Instagram, Facebook, and Twitter to engage with customers and share updates. Email marketing will be utilised to send personalised content, offers, and product updates. Sales funnels can be created to enhance the customer experience, create the building blocks for repeat business and make the most from your customer base. Networking with other businesses and partners will help us expand our reach. Events, trade shows, and local ads will be used to reach customers who prefer traditional communication methods. This will allow us to effectively engage with our customers.

The five phases of channel strategy will make the customer journey meaningful. Here is a summary of those stages that I recommend you map in a table.

Awareness: How do we tell people about our offer?
Evaluation: How can they try it out before they buy it?
Purchase: How will they buy it from you?
Delivery: How will customers get what they have bought?
Aftersales: How will you support the purchase?

Revenue Streams

Your business will use different ways to make money. By understanding what customers are willing to pay, you can tailor our revenue model to match their preferences and increase profits. This is often where your thoughts about economies of scale come in. Can I make my offer available more cheaply if I make more in one go?

To complete this section here are three things you need to be able to answer:

What is the sell price?
How many units will you sell per period?
Have you created a sales forecast?

To establish a good pricing strategy consider using several of these:

Cost-plus: Cost of production and includes a profit margin.
Value-based: What customer is willing to pay for the product based on the benefits it provides.
Dynamic: Real-time pricing based on availability and demand.
Penetration: Low initial price to gain market share. Increased once it becomes popular.
Skimming: High initial price due to newness. Price lowered later to appeal to broader market.
Bundle: Offering multiple products or services to encourage bulk buying.
Psychological: £9.99 not £10.00. The left digit effect!. Also. odd but precise pricing works.
Promotional: Discounts based on sales channel, time limitedness and end of line.
Anchoring: Several price options – most expensive first.

Key Activities

We deliver our value proposition by developing products, manufacturing, and distributing them. To meet customer preferences, we innovate and develop our products continuously. This involves research, testing, and prototyping. In manufacturing, we focus on high quality and efficient production processes. Establishing a reliable distribution network is important for timely product delivery. Our business provides high-quality, innovative products and services to meet customer needs. Our goal is to consistently exceed customer expectations and build strong relationships.

Remember that you can't do it all. You will need to know what needs doing and then who is best placed to do it. Here are some common activities undertaken in running a successful business operation:

Sales: Business development, account management, promotion/networking.
Knowledge: Researching new ideas, professional development.
Strategy: Competitive analysis and changing strategy as a result.
Image: Designing the brand/website/materials/presentations. Using social media.
Supply chain: Sourcing and buying materials or services.
Production: Making the products or delivering the service, and order processing.
Compliance: Paperwork for Regulatory requirements and conformity to standards.
Debtors: Raising invoices for customers and chasing for payment.
Creditors: Paying bills for purchased goods and services. Bank reconciliation.
Professionals: Working with the accountant, bookkeeper, HMRC, insurers and solicitors.

Key Resources

Our key resources include physical facilities like manufacturing plants and distribution centers, as well as specialized equipment and machinery. We also rely on intellectual resources such as proprietary technology and research capabilities to deliver value to customers. Human resources, including skilled workforce and product knowledge, are essential. Financial resources, like lines of credit for operations and innovation investments, are crucial for our competitive edge. These resources support our revenue streams and help us deliver high-quality products and services. We continuously invest in these resources to enhance capabilities and maintain market leadership. Our goal is to maximize customer satisfaction, drive revenue growth, and achieve sustainable success by leveraging these key resources.

Here is a list of common resources that are needed in a business:

Equipment – Tools, machinery, vehicles, storage racking
Materials to make the goods, supplies, parts, packaging, labels, boxes, tape
Transport to deliver, collect or to visit with
Marketing materials – business cards, banners, flyers, newsletters, posters,
Property – Storage unit, production facility, trading location, office space
Digital resources – website, social channels, branding, email accounts, domain
Laptop, Mobile & Tablet – Technology devices to communicate with others
People - The team that will actually perform the ‘hidden activities’
Working capital – cash, credit cards, loans, bank account
Legal/compliance - Intellectual Property, contracts, heads of terms, T’s and C’s
Software – Accounting, CRM, Cloud Storage and specialist apps
Artificial Intelligence – ChatGPT, Midjourney, Quillbot, Microsoft CoPilot, etc...

Key Partners

We rely on partners like suppliers, distributors, and other businesses to achieve our goals. Strategic partnerships give us a competitive advantage and align us with similar organizations. These partnerships help us access resources, reduce risk, and grow our business. They allow us to enter new markets, use new technologies, and benefit from our partners' expertise. By partnering with reputable companies, we enhance our brand's visibility and credibility. Our key partners and strategic partnerships are crucial for our success, growth, and reputation.

Remember that your business model is only as good as a key suppliers business model. If they fail might that put your business model at risk?

Here is a list of key partners that are quite common in the UK:

Suppliers – Raw materials suppliers or specialist services to make the product.
Channel Partners - to sell through or communicate through
Professionals - Accountants, lawyers, financial planners, consultants, sub contractors, IT experts, design agencies, insurers, others?
Associates – People from related industries with whom you might cross-refer. Great for joint ventures.
Contacts – Past connections, Networking groups, online communities and forums
Bank and financial institutions – You will need places to hold working capital and methods to manage it?
3rd Party Support– Councils, Growth Hubs, grant and funding agencies, professional accreditation bodies, trade associations, Trading Standards, business incubators, business catapults and accelerators.

Cost Structures

The business cost structure includes essential costs like materials, labour, rent, and transportation. Materials cost covers raw materials and components needed for production, and labour includes wages and benefits for staff. Rent is the cost of leasing facilities, while transportation covers shipping expenses. Key partnerships with suppliers, distributors, and collaborators are also factored into our costs. We track fixed costs like rent and salaries, as well as variable costs like materials and transportation. Accurate accounting is essential for managing costs and maintaining financial health.

If you are 'Cost Driven' consider these:

Lean structure - don't grow too big.
Automation - let systems run them selves and find software to help.
Outsourcing - don't employ instead find experts to do it at a fraction of the time and cost.
Low Price Value Proposition - it will be evident in your pricing.

If you are 'Value Driven' consider these:

Buy in talent - Surround yourself with subject matter experts.
Invest in best systems - Advanced processes, programs and technologies to give you the edge.
Take time to get it right - you can be more measured in building the plan and executing your strategy.
High Quality Value Proposition - it will be evident in the customer experience.

In summary

In summary, filling in every box in the business model canvas is crucial as it helps to ensure that all aspects of the business are considered and addressed. It allows for a comprehensive understanding of the business model and encourages thorough analysis and strategic planning. Moreover, iteratively changing the canvas as the business model evolves is essential for adapting to market changes, customer feedback, and new opportunities. This iterative process helps to continuously improve and refine the business model, staying competitive and relevant in the ever-changing business landscape.

It is important to note that the business model canvas will never be complete, as businesses are constantly evolving and changing. New innovations, market shifts, and customer demands will always require adjustments to the business model. Therefore, it is essential to continually reassess and modify the canvas to ensure that the business remains agile and adaptable. Overall, the business model canvas serves as a dynamic tool for ongoing strategic planning and business development.