How to create a new business model or understand existing business easily
If you are looking to create a new business model or improve your understanding of existing business, Business Model Canvas is a great tool. Business Model Canvas is a strategic management template used for developing a new business model and documenting existing ones.
You can find the template for Business Model Canvas here. Let me get into each area in detail. This model is designed by Business Model Foundry AG and is distributed under a Creative Commons license. This model is based on “why, what, how and who”. Let me start with a quick mind map.
Now let's spend some time in each area.
1. Customer segments: No business exists without a customer. Whether it is a product or service, if there is no buyer, the business will vanish sooner or later. It is important for the business to segment customers as it is easy to make offerings depending on the needs of the segments. Some examples of segments are
Gender: Men, Women
Age: Baby, Toddler, Teenagers, Adults, Old
Income: Rich, Poor, Middle class
Place: Rural, Metro, City
Key questions to be asked.
- For whom are we creating the value?
- Who are our most important customers?
2. Value Propositions: This answers the fundamental question of business existence and answers the why question. Any business exists to make life better, easy for the consumer. Key points to consider here
- What value do we deliver to the customer?
- What would be the state of the customer if we do not provide the value?
- Which one of the customer’s problems are we helping to solve?
- Sometimes a customer may not have any problem that she is aware of. It is good to think, what product or service we are offering will make customer life easy. A good example is smartphone. It did not solve any specific problem in particular. But it got phone, music, text, videos, camera and web into a single device.
3. Revenue streams: What’s the fun of running a business if there is no revenue? Even the not for profit initiatives need to generate revenue. Some business ideas may need to offer products or services for free in the initial days. However, eventually, they need to generate revenue. Revenue can be generated in multiple ways.
- By selling a product, for example, Coke
- By selling a service, for example, spa service
- Advertisement fee
- Usage fee, for example, renting a building or using a SaaS product
4. Channels: How does the business interacts or communicate with customers? This is important to know because of external factors some channels may get impacted. Take the case of Retailing. A retail business interacts with the customer through a storefront, online, marketplace, a shared space in a shopping mall. It is well-known fact that because of Covid, physical channels like Storefront and space in the mall were impacted. By knowing all the channels a business looks at sustaining other channels that were not impacted.
5. Customer Relationships: Customer is key ingredient for any business to grow or sustain. There are three ways, a business would thrive.
- Maintain existing customer base. This will help in not losing current revenue
- Offer more to existing customers and so gain an incremental benefit
- Onboard new customers to get exponential growth
What are the best ways to improve customer relationships? No easy answer. In the case of complex businesses like tax filing, banking a personal assistance will add a lot of value. In the case of retailing, giving a wide yet personalized selection of products with value pricing will attract more customers. In case of travel, hassle-free booking and refund policies will make traveller life easy. Few retailers tried building communities of customers with some dedicated social activities.
6. Key activities:
What are the key activities done to run the business? For a bank, it is about taking the deposits from customers, honouring withdrawals, giving loans to institutions or customers. For a retailer, it is about selling the products, processing product returns, filling the shelves, buying from the suppliers, running an efficient supply chain.
7. Key Resources:
This is a combination of people, knowledge, money, infrastructure to run the business.
8. Key Partners:
Who are the key partners without them, that this business doesn't exist. These include key suppliers, government agencies, legal authorities, local government bodies, approval authorities. This will reduce the risk and uncertainty in doing business.
9. Cost Structure:
Cost structure has a direct impact on profitability and eventually determines the success of the business. Any business that doesn't give returns better than fixed deposits, is not worth doing.