What is a Business Model?
“A business model describes the rationale of how an organization creates, delivers, and captures value.”Alexander Osterwalder
This is basically a company’s plan for making a profit. It identifies the products or services the business plans to sell, its identified target market and expected expenses.
What is a Business Model Canvas?
A Business Model Canvas or BMC is a strategic management template for developing business models. It breaks your business model down into easily understood segments. Just like a business model, the BMC describes how your business creates, delivers and captures value. It is basically, “your business on one page.”
Business Idea to Business Model
In order to succeed, a great business idea needs a great business model, and the two are quite different. When your idea is introduced to the world, it will meet customers. If the problem you are trying to solve does not interest the customers, then that is the end of your great idea. On the other hand, even if you have a great idea that interests customers, unless you have a scalable and financially sustainable business model your business will fail.
Which is why it is necessary to find reliable channels to find and acquire your customers. As well as build an infrastructure that will endure as your business begins to grow. Therefore the most important step is to search for the right business model that will allow your business idea to succeed. A Business Model Canvas can help you visually map the challenges you will face, explore them, and plan for them.
9 Building Blocks of the BMC
1. Customer Segments
Some questions you need to address are: “For whom are we creating value?” and “Who are our most important segments?” It is important to know as many details about your customer segment as possible.
2. Value Propositions
These are the bundles of products and services that create value for your customers. It is necessary to make sure you have substantial information that confirms your value propositions make sense for your customers.
Touchpoints through which you are interacting with customers and delivering value. The channels you chooses should make sense for the type of product or service you are offering and your target customer segment. For example, it doesn’t make sense to deliver a product via Alibaba, if your target customer segment is not familiar with online shopping.
4. Customer Relationships
Outlines the type of relationship you are establishing with your customers. Emotional connection is essential for building a solid relationship. So you need to not only love your customer but also be genuinely interested in learning what is important to them, otherwise you will be stuck fighting over price.
5. Revenue Streams
Clarify how and through which pricing mechanisms your business model is capturing value. Determine the value for which customers are really willing to pay, how they are currently paying, and how they would prefer to pay.
6. Key Resources
Describes the infrastructure you need to create, deliver and capture value. It also shows which assets are essential for your business model. Resources maybe physical, intellectual, human or financial. You won’t necessarily own all the key resources.
7. Key Activities
Shows which things you really need to be able to perform well. Key activities may involve production, problem solving, and networking. You won’t necessarily be performing all the key activities yourself.
8. Key Partners
Shows who can help you leverage your business model since you wont necessarily own all the key resources yourself and nor will you be able to perform all the key activities yourself. You will need to determine your suppliers, what resources you are acquiring from them, and the key activities your partners perform.
9. Cost Structures
Once you have an idea of your business’s infrastructure you will also have an idea of the cost structure. This includes the most important costs in your business model, as well as which key resources and activities are most expensive.
These nine elements described in the Business Model Canvas allow explicit dialog about choices, alternatives, and opportunities. You need to validate your model’s assumptions with the customers until you get it right. The Business Model Canvas allows you to test the feasibility of your business before you actually venture out.