Business management is not that easy. If you do this blindly, you may get lost or waste a very large amount of your time. You have to manage products, reach your branding, take care of the employees, plan for profitability, deal with the distributors and many other things…
S0 what is the solution?
The business model (or rather, the business model canvas) is a road map that keeps you from going crazy, transforms your business, and helps you manage your business with a unified look.
Who benefits from today’s article?
- Everyone who owns a business and wants to have a unified view of it.
- Everyone who is thinking about growing business.
- All ambitious and brave people who sooner or later want to start their own business.
- Curious people that are eager to learn.
In this article, you will learn about the nature of the business model, the business model canvas, the benefits of using one and how to create a business model; then we will draw a sample business model step by step. After reading the article, you can draw your own canvas and use it to manage your work.
What is the business model?
Simply put, a business model is a model, a path where you can make to increase your company profit and figure out if your company is worth anything!
In fact, when someone asks you very bluntly, “What is a business model?“, or may ask “What are your plans for making money?”
This may seem like a very general question, but it’s good to know that behind this question lies a string of other questions that will get you into the business model. For example:
- Who is your target audience?
- What pain points of your audience are you solving?
- What value do you create for the customer?
- How are you going to attract and retain customers?
- How much are you going to charge them?
- What is the routine for product distribution?
- Did you calculate the costs?
- What is your profit margin?
- How do you market and distinguish yourself?
The most important thing you need to know is that the general nature of the business model is summarized in three sections:
- Anything that produces a value (such as production plan, raw materials, production process, manpower, etc.)
- Anything that helps sell a value (such as marketing, distribution, on-site services, reviewing sales trends, etc.)
- Anything that leads a customer to pay (such as pricing strategy, payment methods, installments, etc.)
All of the above are like puzzle pieces that complete a brand’s business model.
What is the difference between a business plan and a business model?
You see, business model is like drawing a map that you can put on the wall of your room and start each morning with a glance at it.
But the business plan is a little different. Business plan is a complete file, with all the details of all the activities you are going to do in your business.
Your business plan is a long-term plan in which everything (from employment to financial issues) has been considered, but the business model is a series of short-term (and of course necessary) programs that will lead you to make more profit leads.
Why should we have a business model?
Every successful business has its own business model and moves forward accordingly. Mostly more than one!
Over time, business owners will reconsider their business model in order to reflect environmental changes and market conditions. That’s why business models are often designed for the short term so that they can adapt very quickly to market conditions.
Here are four key pointers in moving your business forward.
1. Identify your competitive advantage
Is there a lot of competition in the market in which you are trying to operate? Do you have any plans to win this competition?
In competitive markets, the advantage you create for the customer can be your winning card in attracting customers. Competitive advantage varies from brand to brand; for example, for a web design company, strong support is key, and for a travel company, accurate recall of flight schedules is a competitive advantage.
Now imagine that with the model you have built for your business, the competitive advantages are right in front of your eyes and you plan accordingly every day.
2. You can grow your business
By designing a business model and constantly improving it, you are constantly managing your profits and you can dedicate a portion of your income to business development.
3. You have financial stability
One of the factors that guarantee the success of a business is financial stability in any situation (even in bad economic conditions and market downturn).
Every year, a large number of businesses are forced to close due to poor financial management. A successful business model, on the other hand, alerts you about your profit margins over a period of time and is a quick hit to deal with losses.
4. You attract investors
If you have a small business and are looking to raise capital, this is the main reason why you have a business model.
Investors are well aware of the failure of small businesses. That is why they want to know what your plan is to make a profit.
So if you are looking to raise capital, your biggest advantage over your competitors is creating a business model and presenting it to the investors’ interest.
What is the business model canvas?
The business model canvas (BMC) is a tool that helps create new ideas and constantly review them.
With the help of BMC, you have an image of the ideas and activities you need to do to make a change. This descriptive image puts everything clearly in front of your sources, your team, and your investors.
What are the components of a business model canvas?
The Business Model Canvas is a form of puzzle that consists of putting together nine sections. Each of these nine sections is part of your business.
In the image below, you can see the raw sample of the business model canvas.
At first glance, 9 sections may seem a bit complicated, so according to the 3 Lenses IDEO model, we will summarize the table for you into 3 sections.
With these three sections (or 3 lenses), it’s easier to figure out which sections to zoom in on and which sections to ignore (for now).
Being wanted means knowing what motivates the customer, how they will interact with us, and what makes them buy from us.
“We need customers to want us, otherwise we can’t sell anything!”
Does it help the business? It helps to know who to hire, who to partner with, what activities to focus on, and what tools to use.
“Our planning must be possible, otherwise we will fall into illusions and fantasies.”
This section is about money! We need to know how much money we make and how much we spend. Keep in mind that every business needs financial stability to keep growing, so we need to set aside a portion for the day so that we can stay afloat if things change.
“We have to work to be sustainable; otherwise we will go bankrupt.”
We now apply this feature to the business canvas. You can see the result in the figure below.
Desirability applies to customer segmentation, customer relationships, channels, and value proposition.
Feasibility is to be considered in the key resources, key activities and key partners.
Viability focused on your cost and revenue structure.
Well, let’s go to the 9 sections and complete the business canvas.
Business model canvas design steps
As you know, the business canvas consists of 9 parts, but in order to complete it properly, we need these first 2 steps to understand why and what our business goals are. However, if you know these two things, you can start from the third step and go straight to the canvas.
Step 1: Discovering your purpose
Let’s be honest with yourself; why are you building this business?
Knowing why? you can easily figure out which sections should be discussed and which sections should be handled.
Simon Sinek, along with the golden circle of entrepreneurship, explains this argument in a well-thought-out way.
Once you know why it’s easier to understand:
- What decisions to make
- What would success be for you?
- What not to do?
Step 2: Set a goal
When you don’t have a goal, you will never be able to successfully to design the canvas. Now that we know why we’re in business, let’s set short-term goals for our business canvas.
Step 3: Customer segment
We are now in the canvas and the first thing we need to know is who is our customer.
The customer is the one you need to convince and get to buy from you.
Without the customer’s knowledge and completion of this section, the rest of the ecosystem is virtually unused. In other words, you can’t sell products to any business without knowing your customers.
The first thing you need is a persona.
This persona represents your audience, but they don’t exist externally, and you draw them based on the characteristics of your ideal customer.
This persona will tell you everything about the customer, from family life to their mental barriers, and you can best promote and sell your product with the knowledge you gain from this customer.
Step 4: Value proposition
Many people say that the hard part of designing a business model is designing the value proposition for the customer.
What is a value proposition?
The value that brands expect to receive in a customer’s mind is called the value proposition.
Have you ever wondered why a customer should pay for your product or service?
Just because it works? If that were the case, a big company like Apple would never have made it this far, so what’s the point?
You prefer to buy an iPhone because it is different and you think you will have a special and unique experience with Apple, or because Apple is a luxury item and you want to look special and luxurious.
As you can see, we don’t pay for SMS with Apple phone, call or other features; we choose Apple because it makes us feel good!
This is an important point that marketers are well aware of and know how to use.
What types of values should be offered?
We can summarize the values offered in the customer’s mind in three categories:
Suppose you are thirsty and go to the first shop to buy mineral water. Your goal here is to quench your thirst, so it doesn’t make much difference to you which brand you buy mineral water from! Thus quenching your thirst is a functional value for the mineral water brand and is supposed to meet your needs.
These values are supposed to make the customer feel good.
For example, someone may buy a luxury car and feel good. Another person may feel good about buying a bag from the Gucci. But if the same person buys that bag from a fake brand (but quite similar to the original brand), it will never feel good.
As you can see, these are the brands that make us feel luxurious or special.
Sometimes the customer wants to know how long the product will last for the cost. This part of the value falls into the economic category. In general, the price of your product relative to competitors, the long-term product performance, and the cost that the customer is willing to pay are among the economic values.
So decide what customers to expect from your brand and how much it will cost for them.
Step 5: Customer relationships
All the ways brands interact with clients are the same, some of them automatically reach customers, and others prefer either directly or at least by phone.
Sometimes the profitability of brands is in the long–term relationship with the customer, and sometimes it is better for this relationship to be short-term.
What kind of relationship do you want to have?
Note that the relationship you create with the customer is always about 3 things:
- Customer attraction
- Customer retention
- sales increase
In short, proper communication will attract the customer, maintain them and increase sales. You also need to determine the best way to communicate with your customers, based on the segmentation of your audience, the value you create in their minds, and the company’s policies.
Answer to the following 4 questions will help you complete the customer relationship section of Business Model Canvas:
- Is our relationship long-term, short-term?
- If the connection is long-term, what are the follow-ups?
- Is the response method automatic or personalized?
- Are we focusing on retaining the current customer or attracting a new customer?
- How should we talk to the audience?
Step 6: Evaluate the channels
Channel means communication. You must create routes that value the business model value propositions to various sectors of customers.
Note that you are dealing with 3 types of channels:
- Customer relationship
- Distribution of products
- Sell products
Customers should be able to easily connect with these 3 channels and have a good user experience of communicating with your brand.
So in completing the business model canvas, we need to select channels that convey all of your values to the relevant audience; considering how many channels to attract and how many channels to deliver the product to the audience will make your job easier.
Step 7: Key resources
Identifying and managing key business resources is just like playing a war game.
The key resources for different businesses are different, even if you work in the same area. However, we would like to draw your attention to a variety of key business resources:
- Individuals and manpower (such as a company or an important team member)
- Business location (such as a particular building or address on the map)
- Copyright (such as intellectual or material ownership of products)
- Company secrets (like a secret project or even a simple food recipe)
- Your brand (your personal brand or brand name that makes all products sell with confidence)
Now to complete this part of the business model, ask yourself the following 4 questions:
- What are our key resources?
- Do we have plans to preserve or support current resources?
- Is there a source that outweighs everything else?
- Do we have an outsourced resource that may be better to do in-house?
Step 8: Key activities
Every business is full of ideas, thoughts, goals and activities that need to be done. If like us, you have a busy schedule that is full of monthly and weekly tasks, you know exactly what we are talking about.
But one question: which activities should be included in the business model canvas?
You see, there are a number of activities that are important, but they are part of the company’s routine and do not fall into the category of key activities. Activities that need to enter the canvas are also related to other parts of the canvas.
To complete this section, it is better to find the answers to the following 5 questions:
- Given your value proposition, what activities are important to your business?
- What should be done in the distribution channels section?
- What is the most effective way to manage our customer relationship?
- Which part of the activity is best left to key partners?
- Which activities generate income for you?
Note that our role as decision-makers or employers is to minimize unnecessary activities and focus much more on important activities.
Step 9: Key partners
There are partners in your business who you can’t do without them. For an online store like Amazon, for example, suppliers are key partners.
In order to find your key partners, think about the answers to these 4 questions:
- Which companies are your key partners?
- Who are the main suppliers?
- Which one of the key resources do we depend on our partners?
- Which key activities do our partners do for us?
- The answers determine which partners, and suppliers play a vital role in your business and should enter the business model canvas.
Don’t forget; you have to manage your key partners well; how?
- Conclude a cooperation agreement between you
- Set clear expectations for each other
- Set goals for your partnership and set a time for it
Step 10: Cost structure
Do you know that you have to spend a lot of money so far?
We have identified important resources that we need to think about buying them. We may hire a new employee. We may need something to manage our customer relationships, we are giving money to suppliers, and so on; but they all cost money. And they may not be cheap!
So we need to manage costs well; the best thing to do is to have a clear structure for them.
To manage costs, we need to know which costs are paid only once, which ones are permanent, which ones are fixed, and which ones are changed for a variety of reasons.
For example, the startup needs a series of computer systems, desks and chairs that cost once and can be used for several years.
The startup also has a number of other costs that are permanent and are spent on maintaining and developing the business; marketing costs are an example of regular costs.
The startup may operate in a shared workspace or rent an office; in any case, the monthly rent of the office or shared space falls into the category of fixed costs and is a fixed amount. (Note that this cost is fixed for at least 1 year of the contract and may change with the renewal of the contract.)
Step 11: Revenue stream
Various sources of income for a company or organization affiliated with them (such as selling goods or providing services) are called revenue streams.
After spending some time to get to know the important sources of income for our business. Knowing the sources of income helps us manage costs properly, develop marketing programs for important resources, and coordinate other areas of the ecosystem with them.
To complete this section, ask yourself the following 3 questions:
- In each product segment, what would customers want to buy?
- How much does each customer willing to pay?
- How many times would they buy from you until they cancel or leave?
Note that the revenue stream section is closely related to other sections, especially Value Proposition. We need to know how much the customer is willing to pay for the value we have created in their mind; therefore we can check the pricing strategy we have adopted to see if it’s correct or not.
Hope this article helped many of you get a more clear understanding of how you should make a business model canvas. Kiuloper offers many resources to startups and entrepreneurs! We offer everything starting from the all-in-one packages to consultation services.
As always, if you have any questions or can help improve this article with your information, be sure to post it in the comments section. We look forward to hearing from you and we will try to respond to you as soon as possible!