Canvas is a highly durable fabric used by even the greatest artists in history for oil painting. Even Starry Night by Vincent van Gogh was painted on a piece of canvas. Its meaning in the art world is more than notable.
Business Model Canvas is, likewise, a tool for business people to express their ambitious minds and exhibit their talents, just not by painting with brushes. Let's get to know this handy instrument and how to utilize it to help your business thrive.
What Is Business Model Canvas?
Business Model Canvas or BMC is a business model diagram used to explain and visualise the holistic structure of the organisation. This tool eases the whole team to understand the ins and outs and ensures everyone is on the same page, ready for any change that may come.
The graphic above is an example of a BMC template. Most of the time, it is printed or written on a whiteboard in the company's meeting room that everyone can see. Team members can often brainstorm and put their ideas in each building block. The information is subject to change according to the company's current situations, so a piece of post-it is often used for easy editing. The BMC is divided into 9 sections.
- Customer Segments: Who are they? What problems do they face? What is their behaviour? You can separate the customers who 'buy' and the customers who 'use' your product or service to help target more accurately.
- Channels: the means to reach the customers for communication or sales. After identifying the customer segments, you should learn about the channels they use in their daily routine. Understanding this will make it easier for customers to find you and for you to reach them.
- Customer Relationships: Maintaining a positive relationship with customers is crucial for any business. Good relationship leads to brand loyalty, repurchasing, sharing, and protecting the brand.
- Value Propositions: What the brand offers its customers that makes it stand out in the market. What the customers will receive if they decide to buy the product. Value proposition helps you and your customer understand the good, the lacking, and the direction the brand faces.
- Key Activities: defines the objective of the brand's existence, or the mission to drive the business forward. Try to answer this question: What do you do every day to run your business model?
- Key Partners: Not every business can survive all on its own. There are limitations on particular resources that keep a company dependent on other skilled parties in different branches. Identifying who you cannot live without keeps the business going and help you save your resources.
- Key Resources: defines the people, knowledge, means, and money you need the most to keep the business up and running. You can divide it into two parts; resources you already have and resources you need more. You have to analyse this from the target customer and the value proposition and see if what you have now can satisfy that value you aim to provide.
- Cost Structure: List your main expenses by looking at activities and resources. This includes the cost to run the business, such as employee's salary, location rental, monthly bills, etc. The other part is the cost to add to your brand value, like marketing campaign costs or advertising budget.
- Revenue Streams: Where your annual income comes from? Try to look at which customer segment or which product makes you the most in return.
Each box of a the business models can be grouped like so:
1. Customer group
Customer Segments + Customer Relationships + Channels
The first group that we should focus on is the customer group. These three boxes tell who your customers are, what their needs or problems they need you to solve, what channels your prospective clients are, and what you should do to maintain relationships with those customers.
2. Proposition group
The second group that we should find next is the proposition for your products or services that customers choose in order to hit the right spot when communicating with them.
3. Infrastructure group
Key Partners + Key Activities + Key Resources
The next group concerns the infrastructure and those involved to help you evaluate the resources you have, find partners who will help you run your business and assign duties to your business.
4. Revenue group
Cost Structure + Revenue Streams
After figuring everything out, it's necessary to look back on the numbers, from various costs you have to pay, where your income comes from and how much.
3 Tips to Design an Outstanding Business Model Canvas
1. Connect the dots between customers and brand value.
These two topics often go together. They are the primary building blocks that drive other components in the same direction, so it is essential to start them right.
- In customer segments, try creating a buyer persona to define the person who buys your product. This will help you understand them better and easier.
- The value section is placed at the centre of the board, connecting to other elements of your BMC. Find out what you can offer to solve your customer's problems. Look at the market to see if other brands also offer what you have, and try to differentiate from them to attract the other segment those competitors cannot.
Once you finish those first tasks, rank them by their relevance, and stick them on your Business Models.
2. Analyse the customer journey and lay out communication plans.
These two tasks are often overlooked in most BMC. Investing your effort in them allows you to analyse your customer journey. There are many ways to do this; one is the AIDA (Attention, Interest, Desire, Action). Some of us add two more steps: Onboarding and Retention, so we have AIDAOR.
Let's take a look at an example. Bella, an HR senior officer, is looking for an online application program to help her sort applicants. Here is her customer journey.
Attention - Bella comes across an ad for an online application program. She sees the basics of how it can help her job easier.
Interest - Bella searches for more information on the brand's website. She finds it interesting and thinks that it could really help her.
Desire - Bella wants to integrate this program to find potential applicants for her company.
Action - Bella then presents this program to her overseer of how great it is.
Onboarding - Bella's company starts using the program.
Retention - Bella chooses to use the program in her work routine, and will use it for other projects of her own as well.
3. Define your business category before proceeding to Infrastructures.
Most successful organisations focus on just one direction. They can define themselves either as Infrastructure-driven, scope-driven, or product-driven businesses.
- Infrastructure-driven business has an enormous fixed asset that it aims to sell to as many different segments as possible, such as telecommunication providers.
- Scope-driven business creates an 'economy of scope', offering many different products for a particular customer segment to maintain costs to a minimum. Some samples are retailers, banks, or law firms.
- Product-driven business produces something unique which intrinsically delivers a value proposition relevant to one or more segments, such as applications or media businesses.
Once you have decided which type you are, it is time to analyse and proceed to the infrastructure group. Consider your business plan as you fill out the rest of the Canvas. Which activities are strategically unique to the business? Does that make sense with the business type? Which Key Activities should we be seeking partners for?
Frequently Asked Questions
Why is business model canvas used?
You can use the business model canvas to understand a business model in a structured way. Insight about the customers you serve, what value propositions are offered through what channels, and how your company makes money can be gained by using this canvas.
What is the difference between a business plan and a Business Model Canvas?
A business plan is a document that shows how a business might become profitable. The primary goal of a business plan is to gain investments, while a business model is made to be tested.
How does business model canvas work?
The Business Model Canvas can be used to quickly and easily define and communicate a business idea or concept. A one-page document is used to work through the fundamental elements of a business or product, structuring it in a coherent way.
What is the disadvantage of Business Model Canvas?
The focus of the business model canvas is to create value with revenue on return. So the exclusion of external forces from a business model, such as competition and market factors, is one of the main limitations.
What is the difference between Lean Canvas and business canvas?
The Lean Canvas is much simpler than the Business Model Canvas. The Business Model Canvas tries to provide a complete model of a business, which can be used for testing and search in lean startup, whereas the Lean Canvas is more focused on being a one page summary with "simple" business models.
Which elements of Business Model Canvas is the most important?
Customer segments might be the most important part of your canvas. If you don't know who your buyers are, you won't be able to sell to them. It's important to know who your customers are and why they would purchase from you.