Business Model Canvas explained (All you need to know)

I first came to learn about the business model canvas during one of the numerous business classes I attended before starting my first company. It was way different from every other creative method of bringing ideas to life that I have tried. I thought it was just another complicated business tool like the business plan. You can’t begin to imagine how long it took me to learn to write a business plan and how many times I gave up along the way.

Photo by You X Ventures on Unsplash

As the tutor began to teach about what a business model canvas was, it was the simplest thing I have learnt in business. So easy to understand, implement and even teach fellow team mate at work.

unlike a bulky business plan, a business model canvas makes it easy for both old and new startup founders to kick start their business.

As you read, you will learn just like me, how to create, define, fill-out and iterate your business model canvas.

Let’s dive in:

What’s a business model?

A business model is how a company creates values for itself while delivering products and services for customers. Before now, companies organize their businesses around functional department like the personal department, accounting department, sales department, media department and more. We normally will use an organization chart to simplify hierarchy and roles.

But today we are going to use a different diagram to describe all the pieces of your business and how they all link with each other. Just like our own body, a business model canvas will make you see how related every part of your business is to your success.

business model 9 building blocks

ps: You are advised to print the above diagram and fill the blank spaces with yellow sticky. Looking at the diagram above, you will see different fields that as you read on relates to your business.

Let’s examine each building blocks one after another starting from the middle item:

1. Value proposition

The word “value proposition” is a fancy word for “what problem or need are you solving”. It answers the question, what are you selling or what services you are rendering and for who the service is for? You must understand it’s not about your idea or product but more about solving a problem or need for your customers.

This is where normally you would list all the features and unique value/benefit your business offers. Your value proposition is not all about your technology, as your customers don’t care about the tools you use to solve their problem, they all care about one thing and that’s getting their needs met daily.

Few questions to ask yourself and your team if you have one.

• What customer needs are you satisfying?
• Why is your proposition unique from current solutions?
• Who are your customers?
• Who are your competitors? How are you different from them?

Having answers to all these questions will help your create a strong building block and enable you to see in clear terms who your product is for.

2. Customer segment

You must know in details who your customers are and why they should buy from you. Your customers do not exist to buy from you instead you exist for them. Among other things you should think about in this segment are the geographical, social characteristics, economic position and even the sex of your potential customers.

Key questions to ask yourself:

• Who are your customers and why do they buy?
• What is the problem you are solving for them?

There is almost no possible way of knowing in total everything about your customers until you start. Most of your thinking here will be a mere hypothesis. All you can build now is a functional character or a representation of your ideal customer. Such a character is called a persona.

A persona is a fictional representation of your ideal customers. A startup can have more than one persona as long as it can be defined.

Some details you should know about your customers include but not restricted to the following:

• Age range
• Level of education
• The Social network they use frequently
• Job responsibilities
• Preferred method of communication
• Earning power or salary range
• Location
• Industry
• Organizational size if you intend to businesses
• Biggest challenges
• Goals and objective
• How they gain information

3. Channels/Distribution channels

How does your value proposition get to your target customer segment? This is what you want to figure out here. Before the information age, entrepreneurs used physical channels to get to their customers. If you have a product and you want to sell, your customers must come to you or you must go to meet them physically. Since the rise of the internet, everything has changed. We now have multiple channels with which we can reach our customer segments.

Some of these channels include web, mobile, cloud, virtual reality etc. As an Entrepreneur, you can also combine both offline and online channels for more efficient delivery.

Questions to ask yourself:

• How do you reach the customer?
• How much do they cost?
• Do they integrate into your customers’ routines?

4. Customer Relationship

Customer relationship has a direct relationship with the other channels listed above. It outlines how you intend to get customers, keep customer and grow them. A business without a customer will soon fold up.

Customer relationship for a web/mobile business is very different from a physical business. Among others you should answer the following questions about customer relationship:

• How do I get customers?
• How do I keep them and not lose them to competitors?
• How do I retain them and make them spend more money?

5. Revenue streams

How do you make money from your value proposition sold to your customer segment? If you have more than one customer segment, then how do you intend to make money from each customer segment? What value are your customers paying for?

I know you are not planning to give your customer segments every value for free.

Here are few questions to get you started:

• How do you make money?
• How much are your customers willing to pay?
• What are your assumptions for this?
• Have you tested it?
• How does this price compare to your costs?

Consider the following methods below when picking revenue model for your business:

• Direct cash payment
• Freemium model where you hope some of your users turn into paying customers after using your product for a while.
• License
• Subscription model
• Software as a service
• eCommerce

The best way to figure the right model is to talk to your customers over and over again because they are the ones you are delivering the service to.

6. Resources

What are the most important assets required to make the business model work? Do you need capital from family, a loan from banks, do you need a physical location, specialized machines, intellectual property like patent, license, customer list and even human resources.

List each of those things you would need to make the entire business work.

In kicking off, you do not have to build the entire product. A simple a Minimum Viable Product is all you need to get the ball rolling.

7. Partners

Who are the key partners and suppliers needed to make the business model work? Also, you should ask yourself what key resources you intend acquiring from your partner, also what key activities does each perform.

Think of partnership you will need from day one and not the one you will need in year three of your business because that is simply not where you are now. Just plan for only what will get you started.

Here’s is a list of partners you should consider:

• Strategic alliances between non-competitors
• Suppliers and buyers
• Joint ventures

List as many as possible, go out and start testing your list.

8. Activities

What are the most important things the company must do to make the business model a success? What key activities do you need to become an expert at so your value proposition will be very excellent for your customer segment?

It is going to be production, management, consulting etc. your company must be doing something to achieve her business model goals if all other segments must work perfectly well.

You business model irrespective of how fancy and thrilling it maybe will not work all by itself without you carrying out the necessary activities. List out activities that are important the most in terms of distribution channels, customer relationships, revenue stream

9. Cost structure

What does it cost to operate the business model? You don’t just want to look at a few but everything in entirety.

Here a few questions to ask yourself or your team about cost:

• What is the most important cost?
• What are the most expensive resources?
• What key activities are the most expensive?
• What’s your fixed and variable cost?

Answer all these questions and you will be creating a very solid structure for your business both now and in the future.

Click here to see the difference between a business model canvas and a business plan.