Define your Business Model using the reference canvas
Do you want to formalize your business model, structure it, ensure its viability, improve it before you serenely launch into your entrepreneurial adventure? For this, do you want to build a Business Model Canvas? So, you fell in the right place. We will introduce you to one of the best templates. This is due to the theoretician Alexander Osterwalder. It is today a reference in the matter, even the reference of Business Model Canvas.
Discover how this canvas is presented and how to build it to structure the key elements of your business and put all the chances of success on your side.
What is a Business Model Canvas, what is it for? [Reminder & Definition]
The Business Model Canvas is a document that allows to formulate and structure the economic model of a new company, a new product, a new service. It allows for obtaining a holistic vision of the main impacting elements. Here is how the canvas proposed by Alexander Osterwalder looks:
Of course, this model is not the only one possible. There are others but this one seems to us particularly effective because simple to use. It’s no coincidence that this is one, if not the reference Business Model Canvas. It is widely used around the world to validate ideas, investment projects.
This Business Model Canvas is composed of 9 boxes, corresponds to the 9 stages of development of your business model:
- Customer Segments – Who are your customers? What is your target? What are your targets?
- Value proposition – What value do you offer? What are the benefits of your product, of your services for your customers?
- Channels – What means of communication do you use to promote and sell your offer?
- Customer Relationship – How do you interact with your customers as they go?
- Revenue Stream – How does your business generate revenue? What are your sources of income?
- Key Activities – What are the activities that run your business?
- Key Resources – What are the essential activities for your business?
- Key partnerships – What does your company not know how to do? What partnerships does it need to get them done?
- Cost Structure – What is cost-generating in your business? What is the relationship between these cost items and revenue streams?
Using a Business Model Canvas (BMC), and especially that proposed by Alexander Osterwalder, will allow you to:
- Easily structure your business model. A BMC makes it possible to visualize in a very simple and very clear way the structuring elements of your activity (contrary to business plans of 50 pages …). By using a BMC, you really focus on the essentials.
- Using a Business Model Canvas provides a lot of flexibility. It is easier to evolve a business model and test things when dealing with a single-page document.
- Last advantage: transparency. Simple, this document can be shared very easily within your teams and allows everyone to have a clear vision on the main aspects of your business and its business model.
Now let’s go into detail and present the 10 components of this Business Model Canvas to help you make the best use of it.
# 1 Customer Segments
Let’s start with the customers. They are at the heart of your project, they will buy your products and services, which will fuel the turnover of your business. From a methodological point of view, starting with customers is the best option.
In this context, you need to define the different segments or targets, ie the different customer profiles that your products and services target. Each segment corresponds to a homogeneous group of individuals (or companies if you are in B2B), sharing expectations, needs, similar preferences, similar budgets.
If your project consists of multiple activities or multiple dimensions, you will have at least as many segments as activities/dimensions. For example, if you are a media, you will have at least two segments: readers and advertisers. Obviously, for each dimension, within each “macro” segmentation, you need to identify more specific segments. To identify your main segments, we recommend using the method of creating personas. On this subject, we advise you to read this excellent article.
For each customer segment, you need to identify the issues, needs, and habits of your customers. This will help you build your value propositions.
Tip: if you have too many customer segments, we recommend focusing on your priority segments, limiting you to 6 or 7 persons maximum. It is normal that you spend a lot of time on this first step, it’s normal, rest assured. Customer segments and value propositions are the two most structuring elements. All the other steps, all the other frames are derived from these two components.
# 2 Value Proposals
A value proposition is an offer presented in terms of the benefits to the customer. Your customers will buy your products and services if you have a good value proposition. The “Value Proposition” step is carried out in parallel with the “Customer Segments” step. It is the analysis of your targets, their needs, their expectations, their problems that will help you build and refine your value propositions. List all the value propositions you identify and then prioritize them. You need to capitalize on and work on your key value propositions so that your target will choose you over your competitors.
Once you have identified your main value propositions, those that best represent your added value, you can try to relate them to your different segments. This mapping will allow you, for example, to say “We have 3 personas. Person 1 is sensitive to Value Proposition 1 and 2. Person 2 is sensitive only to Proposition 1. The persona is sensitive to PV 3, etc. “.
Once again, identifying the most important customer segments, value propositions, and their combination is the biggest part of your work.
# 3 The Channels
What are the means of communication, the channels that you will use to present and sell your value proposition? This is the question to answer in this part. You need to distinguish your product promotion channels, sales channels, and customer service channels. These channels can be very diverse: website, social networks, Google AdWords, SMS, phone, stores …
Once you’ve listed your main channels, link them to your different segments if it’s relevant. Sometimes segments can follow different paths, have different preferences in terms of channel.
The item “Channels” is to be linked to the item “Customer Relationship”. These are the two items that define how you interact with your customers, the business-customer interface. If your customer journeys are complex, we advise you to map them using, for example, a matrix of channels/steps. You define for each step of the route the channels available to the customer. Each intersection between a stage and a channel represents a “point of contact”. For example Step = I discover the offer, Channel = AdWords, Point of Contact = I discover the offer by clicking on an AdWords ad.
In the choice and prioritization of channels, you must take into account different parameters: speed, efficiency, the necessary investments, the preferences of your customers.
# 4 Customer Relationship
What dialogue do you want to develop with your customers during the different cycles of the relationship: product discovery, purchase, use/consumption? Do you want to privilege this or that channel (the web, the chat, the phone …)? What are the resources you are willing to invest to support the different points of contact that you want to offer to your customers?
To what extent do you want to automate Customer Relationship, for example by developing a chatbot or setting up marketing automation scenarios? Would you like to develop a community forum or chat to engage your customers in the life of your Customer Relationship? As you have understood, this is to define in this step the terms of your Customer Relationship throughout the customer journey. Note that the terms may differ from one customer segment to another.
# 5 Revenue streams
No need to make a paragraph about the importance of this question. As in any business, your ultimate goal is to generate revenue. The question is how do you plan to do it? Essentially, in this step, linking segments, value propositions, and revenue streams are about linking these three items. For example revenue stream 1 is generated by persona 2 and implies value propositions 1 and 2, and so on. Revenue streams can take different forms: the purchase price of a product or service, the cost of using a service, the registration fee, the rental of a product, the purchase of a license, commissions, advertising, etc.
You will have to answer several questions of the type: do you wish to propose your product to the purchase or to the rent? Would you like to set up a subscription system? If so, what types of packages (monthly, annual …)? Are your prices fixed or negotiable? Would you like to vary the rates according to your segments? Would you like to offer discounts based on the volume? Etc.
In the end, you’ll get a list of revenue streams, linked to personas (or segments) and value propositions. Once you get there, congratulations, you did half the work! At this time, we advise you to take a break and summarize everything you have done to ensure consistency in what you have defined for your offer and your customers.
The last 4 steps relate to the “infrastructure” of your business.
# 6 Key Activities
In this step, you must define the essential activities of your business, the ones you absolutely must manage to run your business and deliver your value propositions to your customers. For example, if you sell your products on marketplaces, managing your account on these marketplaces is a must. If you offer a customer space and this space plays a central role in your Customer Relationship and for the management of your services by the user, the optimization of this customer area is an activity to which you can not escape. If you offer a very sharp service, strengthening your expertise on this service is essential. If the main interface between you and your customers is the website, you must seek to optimize it permanently by improving its design, adding features, simplifying navigation, etc.
Your key activities are those that maintain and improve the attractiveness of your value propositions over time.
# 7 Key Resources
You will define in this step the key resources you need, which you must invest to run your business and do better than your competitors! This item is inseparable from the previous one. The list of resources to be committed depends closely on the list of key activities that you have determined above. Resources are to be taken broadly: they can be human, intellectual, financial, physical and technical. This directory of necessary resources will allow you to calculate the costs to be incurred to support and develop your project.
Be careful, it is less a question of listing all the necessary resources than those which are really essential to run your activity.
# 8 Key Partnerships
At this stage, you already have a very clear vision of your business and your business model. It’s about identifying the activities and resources that are not essential to your business and the value propositions it intends to offer – that is, the activities that can be outsourced partially or totally to partners, to suppliers. The list of key partners must be made from the list of key activities. A key activity must be an integral part of your business model. You must manage it: it is an activity that allows your company to make the difference on your competitors, which can illustrate your added value. Activities that are not key are those that come out of your core business, those on which you are less essential, less productive. They can be outsourced, so you can focus on your core competencies, on activities that directly serve your value propositions.
# 9 The Cost Structure
So far, you have worked on understanding your key activities and how they work together to deliver your value proposition and generate revenue. But these activities are generating costs for your business. Your business model involves a series of costs. it’s about defining and quantifying them clearly. Several approaches are possible. You can try to focus on cost control (via automation, outsourcing, salary control …). You can focus on optimizing investments. You can focus on the value, the satisfaction of your customers, your ability to offer what they expect.
You must determine your cost structure, identifying:
- Your fixed costs, those which remain always identical, which do not evolve with the development of your activity. For example the rent of your premises.
- Your variable costs, which vary in the same direction as your production. For example the cost of buying raw materials (if you have a craft / industrial activity), goods (if you have a commercial activity).
- Your economies of scale, that is the costs that decrease with the increase in production.
It is obviously essential to take the time to identify all the costs associated with your business and to understand the nature of these costs (variables, fixed …). A business model, to be coherent and relevant, must be based on a fair evaluation of costs. In this step, you must identify and list all the costs so that it is visible right away when you learn about the canvas.
Make sure these costs are aligned with your value propositions. Test different business models and, for each, identify the costs that are variable and those that are fixed. This will allow you to predict the overall evolution of your costs as your business grows. Make connections between your key activities and your cost structure to ensure that your cost items are proportionately fair to the importance of your different key activities. If a relatively secondary activity generates very high costs, analyze these costs more precisely to judge their legitimacy.
The advantage of this Business Model Canvas is that it answers the essential questions: does my project have an economic meaning? Could it be improved before being developed? Do my teams, my collaborators understand and share it? Share the first edition of canvas to your teams, your associates, your collaborators, your entourage will undoubtedly allow you to improve it, to bring out new ideas. This Business Model Canvas makes it possible to put everything in the clear, to formalize everything, to take a step back on your initial idea, to analyze its concrete modes of implementation. It’s a job that can take a little time (well, not that much if you think about it) but it’s definitely worth it! This little exercise will allow you to identify weak points or perfectible of your business model.