Nine Components Of Business Model Canvas
The Business Model Canvas is a strategic tool for describing, analyzing & designing business models. It is a visual chart with elements describing a firm’s or product’s value proposition, infrastructure, customers, and finances. It helps a company align its activities by understanding the potential trade-offs.
BMC(Business Model Canvas) is a great tool that offers focus, flexibility, and transparency. You no longer require tens of pages of a traditional business plan to understand the intricacies of the business. BMC in a single page which bring’s clarity to an organization’s core aims and leaves out all the unnecessary stuff. Using BMC you can Identify strength, weaknesses & priorities. BMC was initially proposed by Alexander Osterwalder. Let us get into details.
The right side of the Business Model Canvas is focused on the customer, and left side is focused on the infrastructure.
Components of Business Model Canvas:
Customer Segments
For whom are you creating value? What products and services are you offering to each customer segment?
Customer Segments defines the groups of people or organization you aim to reach or serve. Every company needs profitable customers in order to survive. Using the BMC, you will determine what your customer segment(s) will be. A good way to think about this block is to treat it as the demographic information of your customers. The information you may want to predict and test for this section could include age, gender, time spent working, etc. Something to keep in mind here is that if your customer is going to use your product, they are going to have to give up something else (time to use product, switch from current product, etc.), so find out what it is they would be giving up, and whether they are willing to do so.
Value Propositions
What value are you going to deliver to the customer? Which customer pain-points are you addressing?
The Value Proposition is an innovation, service, or feature intended to make a company or product attractive to customers. It is based on a review and analysis of the benefits, costs, and value that an organization can deliver to its customer. It is the reason why customers turn to one company over another. Something to keep in mind is your value propositions can change, as you gather more data from customer interviews. Final output should be a list of benefits arranged by priority, which are linked to the applicable personas.
Channels
Which channels are to be focused on to reach the desired customer segments? How are those channels integrated? Which ones are the most cost-effective?
Channel describes how a company communicates with and reaches its Customer Segments to deliver its Value Proposition. It is important to understand which pathway (or channel) is best for your company to reach your customers.
These channels could be physical channels, such as a store needed to sell clothes or a local market, or they could be virtual channels, such as an e-commerce website selling clothing online. You can also use a mix of both physical and virtual channels.
Customer Relationships
You should clarify what type of relationship do you maintain with each customer segment? What are the expectations of your customers? How to establish them?
Customer Relationships describes the type of relationship a company establishes with its specific customer segments. Customer relationships are driven by customer acquisition, customer retention, and boosting sales — in other words, you need to get, keep, and grow your customer relationships.
Revenue Streams
How do I make money? Who are the customers willing to pay and for what benefit? How would they prefer to pay? How are they currently paying? How does each stream add up to the total revenue?
When people think about generating revenue for a company, they think only about the price of the product. However, you need to think about the value customers are willing to pay for, how customers pay for products, what type of product you are selling, and what type of market you are entering.
There are various ways to generate a revenue stream for your company such as asset sale, subscription fees, leasing, licensing, advertising etc. These revenue streams should be linked to the personas or segments and the value propositions.
Key Activities
What key activities do your value propositions require?
Key Activities are the most important activities in executing a company’s value proposition. These include your product distribution, research, and development, strategy etc. It is the most important activities in executing a company’s value proposition.
Key Resources
What key resources do your value propositions require?
Key Resources describes the most important assets required to make a business model work. These can be things like your office, hosting requirements, human resources, financial, transportation, electricity etc. These resources should be mapped to the key activities. They are considered as an asset to a company, which are needed in order to sustain and support the business.
Key Partners
Who are your key partners? Your key suppliers? Which key resources are you acquiring from them? Which key activities do your partners perform?
Key partners are the external companies or suppliers that you would need to perform your key activities and deliver value to the customers. In order to optimize operations and reduce risks of a business model, organizations usually cultivate buyer-supplier relationships so they can focus on their core activity. Complimentary business alliances also can be considered through joint ventures, strategic alliances between competitors or non-competitors. Key partners also should be mapped to key activities.
Cost Structure
What are the most important cost drivers in your business model? Which key resources and activities are most expensive?
Cost Structure defines all the costs and expenses that your company will incur while operating your business model. This final step in this process is important because it will help your team decide whether to pivot or proceed. Your business can be either cost-driven or value-driven. A cost-driven company looks to minimize all costs while a value-driven company is more focused on delivering great customer value in terms of quality or prestige.
