What is the Business Model Canvas?

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How would it feel if you could fit your whole business plan into a page? Did you just scream impossible? Well, it is possible when you make use of a business model canvas.

Business Model Canvas 

According to Strategyzer, the Business Model Canvas (BMC) is a strategic entrepreneurial and management tool. It enables you to design, describe, invent, pivot, and challenge your business model. This methodology is on the rise and many companies use it to adjust their business models for innovation and growth.

Another school of thought defines a business model canvas as a strategic tool you can easily and quickly. It comes in handy to define your business concept or idea and communicate it to others.

BMC is a business tool that helps you visualize the building blocks of your business. It works for both startups and existing businesses. It is commonly referred to as the “one-page business plan.”

Segments of a Business Model Canvas

The BMC helps you to break your business down into easily understandable segments. This way, you have a clearer picture of your business idea and can act on what you need to improve. It never hurts to have a clearer understanding of your business as you’ll be able to communicate better to staff and clients.

Key Partners

This is a list of external parties, companies, or suppliers that your business needs. These parties affect the process of delivering value to your customers. Let’s take a restaurant business as an example. If you run this business, you need your meat supplier, egg supplier, and foodstuff supplier to deliver value. All these individuals are key partners.

Key Activities

These are activities you engage in to deliver value to your customers. To figure out these processes, you need to answer questions such as:

a.      What actions do you and your staff take each day?

b.      How do you deliver value to the customer?

c.       What methods of technical development do you adopt?

d.      How do you develop expertise?

Considering our restaurant example, the key activities include cooking, home delivery, serving food, etc.

Key Resources

Now that you know who your key partners and what your key activities are, what resources do you need? Key resources are practical tools required to achieve your key activities. These are the resources you need to deliver value to your customers.

For a restaurant, you need resources such as:

a.      Staff (cooks, waiters, delivery men, security, etc.)

b.      Cooking utensils

c.       Restaurant space

d.      Electricity

e.      Cutlery

Value Proposition

This is one of the most important aspects of the Business Model Canvas. It is foundational to any product or business. Your value proposition describes exactly what you are offering to the customer. The easiest way to find out your value proposition is to discover the problem you want to solve. 

a.      What problem can you solve?

b.      Why would anyone need you to solve this problem?

c.       What is the motivation?

Simply look at your target market or customer segment and figure out how your product can solve their problem. For a restaurant, it might be delivering tasty dishes to people in a location where there was no restaurant. As a result, the people in this location don’t have to travel long distances to get food.

Customer Relationships

In this section, you need to answer the question, ‘How does my business relate to my customers?’ It is quite straightforward so you shouldn’t have any problems. Another way to view this is, how do you interact with your customers?

Examples include one-on-one, online, email, phone, third-party contractors, and events. Looking at our restaurant example, it will be one-on-one, phone, and events (if you offer outdoor catering services).

Channels

Many people mistake Channels for Customer Relationships. In this case, you are defining how the customer contacts your business. Where do you find your customers? Do they make use of social media? Are they always listening to the radio or do they read billboard ads? This will inform your marketing decisions to make it easier to reach new customers.

Customer Segments

This involves splitting your customer base into different groups based on peculiar characteristics. Examples of these characteristics include gender, age, spending habits, occupation, and interests.

This helps you to understand who you are selling to and whether they value your product or not. You will also be able to determine their purchasing power to determine product prices as well.

Cost Structure

This is the monetary cost you incur to operate that business or deliver value. Here, you answer questions like:

a.      How much is it to run my key activities?

b.      What is the cost of my key resources?

c.       How much does it cost to achieve my value proposition?

d.      What are the additional overhead costs?

Revenue Streams

Revenue Streams shows how you convert your value proposition into financial gain. While understanding pricing is important, understanding how you gain revenue is also important. 

a.      Fee for service (the most common)

b.      Fixed rates

c.       Dividends

d.      Pay per product

e.      Referral feeds

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