Business Model Canvas – what is it and how to create it?
Any entrepreneur who has success on his account, when asked about what is most important in running a business, will answer the same thing – a good business model. In other words, a development plan based on a specific strategy. So what is Business Model Canvas? It is a template that helps organize data that will later be used to create a business model. Why is it important to create it?
Gone are the days when the general outline of the concept, existing only in the head of the originator, was enough for the company to earn and grow constantly. If the goal is development, then there will be no proper plan. The business model fulfills this function. This determines what values a given organization will create and how it will benefit from it. In short, it’s a plan to generate profits. However simple it sounds, a bad business model, i.e. an erroneously conceived mission of the company and the wrong path of implementation can have the opposite effect, if not plunge the organization.
The business model should also clearly define objectives and the means to achieve them. Everyone interested can thanks to it know where the company draws funds from, what it produces and how it generates profits. He should define information about the offer and compile the whole, well describing the entire production and distribution process. The company’s mission and assumptions will emerge black and white. Business Model Canvas is in a sense a graphic scheme for creating a business model.
Business model schema
Business Model Canvas, or business model schema, was created by Aleks Osterwalder in the book “Creating business models. Visionary Handbook ”published for the first time in 2012. It is an incentive to create a business model according to predefined guidelines. They are intended to collect basic data about the company itself and, in part, the industry in which it operates. Thanks to this, it is possible to further formulate the business model based on established information.
Nine components of the business model schema
In the scheme constructed by Osterwalder, the reality in which the company operates can be described in nine blocks. They relate to four areas of the company’s operation: the client, the offer, infrastructure and finance.
This is probably the most important element of the nine-part compilation. This topic can be debated for a long time, but the goal of any organization is ultimately to provide specific value to the client. You should think about who could be a potential buyer and why? Who is the product being made for and who intends to pay for it? What will be the greatest value for our clients?
This block defines the recipient of the offer or the entire target groups. The answer should be well thought out, because customers are the source of income. Segmentation makes it possible to identify the most important characteristics of buyers and their needs. This in turn defines the product strategy. One or more segments can be selected.
This is a complicated issue because there are many types of clients. The mass client is a group with unified needs, hence the answer to their needs will be one channel, value proposition and type of relationship with the organization. The answer to the niche market is a specialized product. In the segmented market, i.e. separated slightly from each other by different needs and problems, similar methods and approaches should be used, but on a different scale. A diversified market requires delivering your product to a diverse customer, i.e. a wide range of products from various industries for many different customers. If this solution makes sense and is justified in terms of generating profit, nothing prevents you from providing completely unrelated services.
For a previously defined customer, a certain value should be created that will distinguish our product from the competition. It must be something that may be significant for the client in a given industry or constitute an additional profit for him, in addition to the purchase of the offered product. This must be the reason why the customer will choose us instead of the competition. Value that solves his problem or adds something that the client needed. In an ideal world, something innovative should be offered that has never been on the market before. However, this can be difficult due to strong competition in virtually every field. A rare product will almost always be a variant of something that already exists. However, it can be offered in an unusual or more accessible way than rivals.
Help in coming up with a similar product can be the answer to the question, what problem does our product solve? Further development in this direction may result in unconventional solutions that will tip the balance of benefits towards our company. The offered values are divided into two groups. Quantitative means competitive prices, faster service delivery time and cost reduction methods on the client’s side. Qualitative values are offering comprehensive service that facilitates the client’s life, better product design, better customer service or a generally more popular brand for people who value this type of value.
Channels are a way or place to provide the customer with information about products and services provided by our company. In addition, they are of course a method that allows the purchase of the product and a place for subsequent evaluation of cooperation and expressing opinion on the offer itself. Communication, distribution and sales are three issues that channels must identify.
Five phases can be distinguished in most customer transactions. In the first one, the customer receives information about the company’s product and services. In the second, we offer the customer an additional value over that offered in the product itself. This value should distinguish the company from the competition. The third is followed by the purchase itself and the manner of its implementation. The main sales channels are currently online and stationary stores. In the fourth phase, the product purchased by the customer is delivered. The best way to transfer the service to the customer should be found here. In phase five, the buyer must be given the opportunity to evaluate the product and the level of service.
This block should describe the type of relationship the company will establish with each customer segment. They can be distinguished or standardized, however, customer satisfaction should always be the higher value. The type of interaction must be strictly described and tailored to the industry in which the company operates. It must also interact with other elements of the business model. The choice of relationship is also dictated by the costs that must be incurred to maintain the communication channel.
In the case of personal relationships, we usually deal with long-term business partners and contractors with whom friendly relationships are built over a longer period. In direct contact customer service is provided by specific people who are employed as salesmen, consultants or carers. The relationship can also be completely automated, where there is no direct personal contact with the client. However, it should be remembered that some customer segments may be put off by this perspective. A relationship based on the principle of co-creation is contact with the client in which he creates the image of the company, e.g. by issuing opinions or reviews of products.
Revenue structure means arranging payment for the offer. It must answer the question of how, for what and how much the customer will pay for our service. Individual segments will generate profits, and at this point you should specify how they will flow into the company. The structure must describe how many customers will be able to pay at all and what form of sale we can offer – immediate, installment or maybe in the form of a subscription.
A company can generate revenue in a variety of ways, not just through one-off sales. The fee may also be charged for using a product or service. The customer can be charged a paid subscription for access to the service, in the form of buying a license. Revenue can also be generated from advertising. Of course, all these streams can be combined. One product can generate profit at various stages of operation and in various forms.
Resources make it possible to produce a product, reach a customer and allow him to buy. While larger resources do not guarantee success, too little can prevent it. They are divided into money, i.e. of course the finances needed to generate value for the customer. Physical resources include machines, cars, outlets, servers and anything else that is needed to start and contact a customer and make a transaction. Intellectual resources are e.g. patents, copyrights or customer data. The company’s resources also include human capital.
After determining the resources for production and customer service, you can move on to the activities that the company performs to create that value. It is also establishing contacts with the customer or maintaining a sales channel.
Production will be one of the key activities. It is about designing, manufacturing and delivering a specific product to the buyer. The next step is problem solving, i.e. customer support in solving problems related to the operation, use or purchase of a product. Assistance in unusual situations or joint development of a solution must be offered. The next step will be running a platform or network. This mainly applies to companies offering physically non-existent products, such as internet services.
This block has a network of suppliers, contractors, producers and all contractors on whom the functioning of the company depends. They can be both service providers and companies with which the company cooperates. Strategic partnerships with competitors can also be considered. Whatever is required for optimization and economies of scale. The motivation to establish a partnership may be a desire to reduce costs, minimize risk or produce a better product. It should be remembered that the main goal is to tip the scales of customer trust on our company’s website.
The last block is simple in its essence. These are the costs that a company’s business entails. As part of the business model, many assumptions and plans are created. At this point, the costs they generate should be estimated. The structure can be determined after completing the previous points, because then there is a better idea of the actual shape and outline of the company’s operations.
The cost structure includes everything from creating and delivering value to a customer, through maintaining relationships with him, to generating revenue from all channels.
The essence of the business model schema
The business model diagram is an introduction to the essence of our organization and what it is supposed to do. It defines the methods of operation, channels of cooperation and contact with the client, the type of service and its costs, and of course earnings. This is a great incentive to later construct a more complex and detailed business model that will become the basis for implementing the company’s strategy in providing services. Such a scheme is built graphically so that thanks to its simplicity it enables the brainstorming of the whole team and quickly sorts out all ideas. These concepts have a great impact on each other and can be mutually modified, which is why the table scheme facilitates work by placing all elements on one sheet.