How to Use the Business Model Canvas Management Tool
The business model of a company illustrates how it creates, provides, and captures value. It gives a clear picture of how organizations distinguish the products and services they plan to sell, including their target market, anticipated expenses, and other elements of the business.
For both new and established brands, business models are essential to attract potential investors, evaluate interested parties, create concrete strategies, and studiously test business assumptions.
In this article, let’s talk about a strategic management tool that makes it easier for people to define and communicate business ideas. Let’s also touch base on how we can apply it in innovation.
What is the business model canvas management tool?
Making a business model involves planning the fundamentals that the business needs to flourish.
As this framework contains all the aspects that entrepreneurs need to focus on to successfully run a business, having a proper business model helps entrepreneurs evaluate the strength and success of their initial concept.
This assessment is made a lot easier with the use of a business model canvas — a one-page template or model that coherently structures the fundamental elements of a business.
Here’s an example of what it looks like:
It provides a holistic view of the business — a perspective which entrepreneurs can use in analyzing the effects of specific changes like an increase in investment or a partnership with another company.
The right side of the BMC highlights the external operations of the business, emphasizing customer-related processes. Meanwhile, the left side contains the internal affairs of the organization.
Why use the business model canvas?
These are the primary reasons why you should consider using the business model canvas:
It establishes focus. The canvas allows entrepreneurs to understand the business deeper as it gives them a holistic view of how they can correlate all their processes to deliver value to their customers. It provides them with a clear picture of the business, guiding them to the areas that require more of their attention and investments.
It enables flexibility. Developing your business model involves implementing changes. With a diverse range of skills and perspectives, teams can successfully identify which areas need improvement. In essence, collaboration helps to weigh the pros and cons of all the proposed changes during the discussion.
It allows an exchange of views between people. Using the business model canvas pushes organizations to research and discuss every element of their business model. Going through such efforts adds to the validity of a business concept, including its possible problems, limits, and constraints.
It speeds things up. As enterprises focus more on the crucial inputs of every element found in the business model, using the business model canvas keeps the entire process simple and focused. The tool is easy to work with — a feature that makes starting with, developing, and iterating business concepts fast.
It’s generally understandable. Because the BMC has an intuitive nature, the organization can use it as a conventional and direct reference to expound, share, and acquire feedback.
Parts of the Business Model Canvas
The business model canvas categorizes the processes and internal activities of an enterprise into nine distinct parts. These sections represent the fundamentals of creating a product or service.
1. Customer Segments
Knowing who your customers are is integral to your business. Your knowledge and understanding of your customers will determine the core focus of your operations and activities.
Categorizing your (potential) customers according to gender, age, spending habits, interests, or any other criterion gives companies the ability to create products and services with features that effectively respond to their problems and needs.
2. Value Proposition
A value proposition refers to the advantages and practicality that a company guarantees to provide through its products and services. It explains why people should choose you instead of other brands present in the industry.
It is a part of your marketing strategy that states what you stand for, how your business operates, and why your products and services deserve their interest, fondness, and appreciation.
In creating value propositions, businesses must focus on solving the problems of their customers. Organizations must generate ideas to deliver the required solutions.
3. Revenue Streams
Revenue streams are distinct sources of income.
They are a significant part of the business model that impact planning, strategies, and investments. Revenue streams signify the economic value of the products and services of the company.
Organizations create revenue streams through:
Charging brokerage fees
Making a sale
Organizations get in touch with customers and become a part of their sales cycle through mediums referred to as channels.
Aside from shaping brand awareness and providing post-purchase customer support, channels also indicate how organizations intend to deliver their value propositions.
Marketing channels like direct sellers, intermediaries, and distributors close the gap between a product’s producers and users.
5. Customer Relationships
Building customer relationships is vital in keeping customers happy. Those who can comfortably engage with your brand can give you the most valuable feedback and suggestions that may enhance your products and services.
There are plenty of ways to retain customers. Aside from making sure that they could rely on you with any concern before and after the purchase, you can also update them with your new products and services.
Various activities like giving out promos and freebies can also help. In addition, you can choose to co-create outputs with them, such as making videos and answering questions in your online community.
6. Key Activities
All the activities that you plan to conduct in the business must deliver value even to the organization. These activities must consider all the elements of the business model to ensure sustainability and growth.
A company’s key activities are the tasks and processes they perform to support their value proposition. Apple’s core activities, for instance, are engineering, design, and branding.
Identify what tasks and processes are vital in keeping your business up and running. Consider the factors that would make these procedures fast and efficient.
7. Key Resources
As an organization, your resources are the means, knowledge, money, and people you need to keep your operations rolling. Identifying the main assets that your company has to have in delivering your products and services can significantly impact your business model.
There are five types of resources that you need to secure for your company:
Financial: Your capital keeps everything moving. With money, you can secure the other resources you need to get your business in its top shape.
Physical: A lot of tangible assets might be necessary for creating your value proposition. Examples are facilities and equipment.
Intellectual: Intellectual resources are intangible assets like copyrights, partnerships, patents, and brands.
People: Aside from your employees, other human assets are consultants, people in the press for media mileage, and researchers.
Digital: Digital resources are materials that need computer access and other devices to utilize. Examples of digital resources are software, business simulations, websites, and many others.
8. Key Partners
Key partners are organizations that you can form alliances with to minimize business risks, venture possible opportunities, and acquire necessary resources for expansion and growth.
Partner up with companies that can help you create and deliver your value proposition. Make sure that your vision and cultures are aligned to avoid conflicts.
There are different types of partnerships that you can get for your business:
Strategic alliance: This kind of partnership exists between non-competitors.
Buyer-supplier: A buyer-supplier relationship happens with individuals or enterprises that supply the materials, machines, or technology that you need in creating your products and services.
Joint venture: A joint venture happens between complementary businesses that aim to discover opportunities for growth.
Coopetition: This type of partnership occurs in companies that exist in the same line and industry. Some brands initiate coopetition to produce synergies and account for a larger share in the market.
Don’t forget to consider legal conditions. Aim for a win-win partnership.
9. Cost Structure
Your cost structure indicates the monetary costs of running your business. Defining this financial block of building your business model helps you set a specific budget in every aspect of the business.
In creating a cost structure, avoid underestimating expenses. Conduct meticulous research to ensure the fit of your budget with your actual expenses. Add contingency percentages to keep your operations up and running no matter what emergencies may come ahead.
After some time, you can go back to your cost structure and evaluate what changes are necessary to go beyond the break-even point. You can also choose to reduce overall costs, or you can go all out to provide a highly-tailored service to your customers.
When do you use it?
There are various processes that entrepreneurs can do with the business model canvas management tool.
Here are some of the following:
1. Studying Rival Companies
The business model canvas helps entrepreneurs gain a better understanding of the strengths and weaknesses of other brands, including things like limits and constraints.
Whenever a company gains a better understanding of the competitive landscape, it thinks of better procedures to stand out. Moreover, it creates a better business model in general.
This management tool comes in handy during regular strategic planning and development sessions. It helps guide the direction of the strategy to increase alignment and buy-in.
With a color-coding feature, the canvas can also highlight and classify processes according to priority. Entrepreneurs may also highlight complex elements to emphasize how it needs focus and attention during meetings.
3. Deciding on Investments
The business model canvas allows companies to sketch business models.
As they go through the details carefully, they figure out which areas need more resources and time. In the process, business opportunities come to light, and an even allocation of resources happens.
4. Mergers and Acquisitions
Even in mergers and acquisitions, organizations can utilize the canvas to identify which companies would make a perfect fit.
Using the BMC to analyze the business models of other enterprises can make you identify potential synergies and opportunities for integrations.
Determining what sets you apart from the rest involves improving your products and services. It also includes redeveloping your business model to enhance your value proposition.
The business model canvas plays a vital role in the six-step horizontal model of innovation, particularly in solution-finding. This part is where you generate as many ideas as possible with a diverse group of people.
Gathering employees with different backgrounds and expertise generates plenty of ideas. With a roster of creative options at hand, companies can take the time to discuss and identify which ideas are worth pursuing.
Brainstorm facilitators can use the business model canvas to exchange views on every potential idea, develop the best concepts, and achieve one or more validated solutions. Organizations can then choose the best option and deliver the best results in turn.
Next steps: Making a business model isn’t easy. But with the business model canvas on hand, planning the fundamentals of your operations comes with a lot of benefits.