Fail to plan — plan to fail. Anyone who has started a business has heard that statement before. Mention creating a business plan and most folk’s eyes will glaze over! While formal business plans can be complicated and downright intimidating, using a business model canvas approach is a visual alternative to help you determine and acknowledge the necessary variables to your business's viability.
By using a business model canvas, you can visually target the key areas that need to be discussed in advance — and used — for future plans as your business grows.
So what is a business model canvas? Wikipedia defines a business model canvas like this:
“Strategic management and lean startup template for developing new or documenting existing business models. It is a visual chart with elements describing a firm's or product's value proposition, infrastructure, customers, and finances.”
Sound complicated? It really isn't!
Creating your business model canvas
Look at your business model canvas as the building blocks for your business plan. You will be able to visually see each “block” and know where you stand, what you need to do, and any concerns that need to be addressed. By putting down this data, you can get a good idea if your business model is viable — as well as what you need to plan for.
During the process you'll find that by addressing the key elements necessary for any business model, additional questions and practices will rise to the surface to be addressed. One question will lead to another and that allows you to make sure that you have all variables necessary to a solid business model as part of the discussion.
Your business model canvas is an effective visual tool that allows all involved to see, at a glance, the status, suggestions and action items for each stage of your planning.
You can do this online or have your business model canvas displayed on a large whiteboard (or blackboard) so that you can outline your chart and be able to add comments, make adjustments and correct assumptions.
Key business model canvas value points
Your business model canvas allows you to visualize key value proposition elements at the heart of your business model. Let’s look at each of those in a bit more detail:
Key partners
Round up your key partners and suppliers. You would also include the resources you acquire from your partners and the activities they perform that contribute to your business. Detail every partner's responsibility and prioritize your dependency on their roles, including what you need them to accomplish to reach your goals.
Here you can create a wishlist of tasks to work closer with your suppliers on to gain advantages in costs, distribution, supply chains, etc.
Key activities
List the activities in your business model canvas required to contribute to your value proposition such as revenue streams, distribution channels and customer relationships. But what is a value proposition?
Value proposition:
noun: value proposition; plural noun: value propositions
1. (in marketing) an innovation, service, or feature intended to make a company or product attractive to customers.
~ Oxford Living Dictionariers
List your revenue streams in order of importance. Then go to your business model canvas and connect the dots between those streams and your customer relationships. Do your distribution channels meet your needs — or where can there be improvement?
Key resources
Note the resources in your business model canvas needed to back up key activities. With the these in mind, what is your minimal viable product? Your minimal viable product is a product has just enough features to satisfy your initial customers, but will provide feedback for future product development.
List the customer problems you are solving and what you deliver to your target market. Are there distinct customer segments — and can you bundle products or services to cater to each?
Customer relationships
How do you plan on acquiring, keeping and growing your customer base? If you are a startup:
- How do you plan on acquiring your founding customers?
- What type of customer relationships have you already established and at what cost?
- What campaigns have produced the best results, and why?
Customer segments
Segment customers in your business model canvas based on which are most important, what value you have created for each and how you can cater to them further. Next, define your customer archetypes. Customer archetypes are created by using the data you already have available to better understand customer behavior. Things like:
- Who are your customers? Think about traits like position, income level, age, sex, role and location.
- How do your customers determine it's time to make a purchase? Consider their needs, budget, amount and seasonality.
- Who influences your customers, and, therefore, their purchasing habits? Who do they follow, read, watch, and listen to?
- What is important to your customers? What are they motivated by? Here we’re talking value, price, location, delivery and time.
Channels
Which channels work best and are most cost-efficient? Determine the channels your customers prefer to use. Then look at what your competitors are doing. How can you work these preferences and information into your workflow?
Cost structure
This is where you determine your cost ratios — and should include your fixed and variable costs. Your cost ratio will show you how well you are doing in regard to managing your profits and the associated costs. What are your most and least profitable expenditures?
You can further segment based on product, product line, service, customer demographic or geographic region. Prioritize your costs in order of importance, and determine which resources and activities provide the most value and if there are costs that can be minimized.
Revenue streams
In this part of your business model canvas, determine your revenue model — a framework for generating revenue. Your revenue model needs to guide what you should pursue based on established revenue sources.
Determining what value you offer and how to price that value as well as who is willing to pay for that value helps you determine your target market and create the most effective marketing strategies.
Do you know what your customers are willing to pay compared with what they are currently paying? If so, what value do they attain at that price point? What tactics can you put in place to offer that value (or more) and while increasing your bottom line?
Your business model canvas is a work in progress
By consistently referring back to each module in your business model canvas, you can address new developments and change strategies as needed. This approach allows you to visualize and address each variable on the road to profitability.
Why not create your own business model canvas today? You might be surprised at what you discover that you might not have thought about before!
