The Business Model Canvas, or Canvas model for short, is a visual representation of the key components of a business and how they interact with each other. It allows for a clear understanding of the infrastructure, offerings, customer segments, and financials of an organization, highlighting any deficiencies and enabling performance analysis.
It is a valuable tool for structuring and understanding a business model, by providing insights into customer information, value propositions, distribution channels, and revenue streams. Additionally, it can be used to analyze the business models of competitors.
What is the Canvas model for?
It provides an overview of the key elements of a business model and helps to identify which activities are crucial to achieving goals and which may be hindering progress.
It serves as a starting point for generating and evaluating new ideas and alternative models for the business.
By providing a visual representation of the business model, it allows for easy understanding and discussion among team members and stakeholders.
It serves as the foundation for creating a detailed business plan, providing a structured skeleton for outlining the business strategy.
The Business Model Canvas, or Canvas model, is composed of several key elements that together make up the overall structure of a business. To understand and create a business plan using the Canvas model, it is important to be familiar with these components and how they interact with each other.
To build an effective business model, a company must identify which customers it tries to serve. Various sets of customers can be segmented based on their different needs and attributes to ensure appropriate implementation of corporate strategy to meet the characteristics of selected groups of clients. The different types of customer segments include:
Mass market: There is no specific segmentation for a company that follows the mass market element as the organization displays a wide view of potential clients: e.g. car.
Niche market: Customer segmentation based on specialized needs and characteristics of its clients: e.g. Rolex.
Segmented: A company applies additional segmentation within existing customer segment. In the segmented situation, the business may further distinguish its clients based on gender, age, and/or income.
Diversify: A business serves multiple customer segments with different needs and characteristics.
Multi-sided platform/market: For a smooth day-to-day business operation, some companies will serve mutually dependent customer segments. A credit card company will provide services to credit card holders while simultaneously assisting merchants who accept those credit cards.
The value proposition is the core of a business's reason for existence and how it satisfies customer needs. It is important to differentiate your organization from competitors by focusing on elements such as quantity, price, service, speed, and delivery conditions, as well as quality, design, brand reputation, and customer experience.
Some elements that may add value for customers include:
→ Improved products or services that offer greater convenience, usability, and accessibility.
→ Customization of product and service offerings.
→Reduction of costs, prices, delivery times, and necessary investments through process optimization.
The channels through which your products or services are promoted, sold, and delivered play a crucial role in customer engagement and satisfaction. It's important to consider the communication, distribution, and sales channels, as well as the location of purchase, delivery, and provided services, in order to effectively reach and connect with your customers. The 6 different stages of customer engagement through channels include:
→ product knowledge,
→ and after-sales.
To maximize the potential of these channels, it's recommended to use a combination of physical and digital channels.
To ensure the survival and success of any businesses, companies must identify the type of relationship they want to create with their customer segments. That element should address three critical steps of a customer's relationship: How the business will get new customers, how the business will keep customers purchasing or using its services and how the business will grow its revenue from its current customers. Various forms of customer relationships include:
Personal assistance: Assistance in a form of employee-customer interaction. Such assistance is performed during sales and/or after sales.
Dedicated personal assistance: The most intimate and hands-on personal assistance in which a sales representative is assigned to handle all the needs and questions of a special set of clients.
Self service: The type of relationship that translates from the indirect interaction between the company and the clients. Here, an organization provides the tools needed for the customers to serve themselves easily and effectively.
Automated services: A system similar to self-service but more personalized as it has the ability to identify individual customers and their preferences. An example of this would be Amazon.com making book suggestions based on the characteristics of previous book purchases.
Communities: Creating a community allows for direct interactions among different clients and the company. The community platform produces a scenario where knowledge can be shared and problems are solved between different clients.
Co-creation: A personal relationship is created through the customer's direct input to the final outcome of the company's products/services.
To understand how your value proposition generates revenue, it's important to clearly define and analyze the sources of income for your organization. This includes revenue from sales of products or services, subscription fees, rental income, licensing fees, sponsorships, and advertising costs. By understanding the income and expenses associated with each revenue stream, you can better understand the financial performance of your business.
Types of revenue streams include:
→ Sale of assets: Revenue from the sale of tangible products, whether through electronic commerce or physical stores.
→ Fee for use: Charge for providing services, the amount of which varies depending on consumption (e.g. electricity, telephony).
→ Subscription fees: Uninterrupted access to a service by paying a monthly, quarterly, semi-annual or annual fee (e.g. gyms, Netflix, mobile telephony).
→ Loan, rent, leasing: Revenue generated by granting the right to use an asset for a certain period of time in exchange for a fee (e.g. renting a vehicle by the hour).
→ Licensing: Revenue generated by granting permission to use certain intellectual property in exchange for a license fee.
→ Brokerage fees: Revenue generated from intermediation services carried out on behalf of two or more parties (e.g. credit card providers, insurance intermediaries, real estate agents).
→ Advertising: Revenue generated through advertising channels, it is important to consider the means of payment for these channels (e.g. cash, credit cards, debit cards, electronic transfers).
To effectively deliver the value proposition to customers, it's important to have a clear understanding of the unique strategies and core activities that drive your business. This includes focusing not just on production, but also on problem-solving, networks, and the quality of the product or service. By understanding the value your organization offers to customers, you can build better relationships with existing customers and stand out from the competition in acquiring new customers.
Types of key activities include:
→ Production: Activities that prevail in the business models of factories.
→ Troubleshooting: Activities that focus on meeting customer needs through innovative and individualized solutions. Typical of service providers, such as consultants, and require constant updating of sector trends through continuous training.
→ Platform/network: Activities that focus on the operation and maintenance of a platform or network, such as the development and maintenance of web pages for e-commerce businesses, and the management and promotion of the platform and provision of services.
Key resources are the assets a company requires to operate and compete in the market. These resources can be classified into physical, intellectual, financial, and human. Physical resources include tangible assets such as equipment and buildings. Intellectual resources include knowledge, trademarks, patents, and certifications. Financial resources include cash flow, income sources, and investments. Human resources refer to the company's workforce.
Key resources can include:
→ Physical resources: Buildings, machinery, vehicles, equipment, points of sale, and technological infrastructure.
→ Intellectual resources: Brands, patents, copyrights, and other proprietary knowledge.
→ Human resources: Skilled workforce, expertise, and talent.
→ Financial resources: Cash, loans, investments, stocks, and bonds.
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. Complementary business alliances also can be considered through joint ventures or strategic alliances between competitors or non-competitors.
This describes the most important monetary consequences while operating under different business models.
Classes of business structures:
→ Cost-driven – This business model focuses on minimizing all costs and having no frills: e.g. low-cost airlines.
→ Value-driven – Less concerned with cost, this business model focuses on creating value for products and services: e.g. Louis Vuitton, Rolex.
Characteristics of cost structures:
→ Fixed costs – Costs are unchanged across different applications: e.g. salary, rent.
→ Variable costs – Costs vary depending on the amount of production of goods or services: e.g. music festivals.
→ Economies of scale – Costs go down as the amount of goods are ordered or produced.
→ Economies of scope – Costs go down due to incorporating other businesses which have a direct relation to the original product.
A business model is a tool used to validate a business idea and understand the key aspects of a business and how they relate to and compensate for each other. It is a starting point for generating ideas, analyzing the market, defining actions, evaluating, determining the source of income, and more. It is typically completed at the beginning of the business planning process.
A business plan, on the other hand, is a detailed document that describes the objectives of the venture and outlines the strategies and actions that will be taken to achieve those objectives. It includes the business model, but also includes financial projections, target market analysis, marketing and sales strategies, and more. It is used to communicate the vision, strategy, and potential success of the business to potential investors, partners, and stakeholders.
Some key points to consider:
1. Business Model is a tool used to validate and understand the key aspects of a business, while Business Plan is a document that describes the objectives and strategies of the venture.
2. Business Model is completed at the beginning of the business planning process, and Business Plan is a more detailed document that includes financial projections, target market analysis, marketing and sales strategies, and more.
3. Business Plan is used to communicate the vision, strategy, and potential success of the business to potential investors, partners, and stakeholders.
4. Business Plan should include the business model and the economic and financial projections for the venture, which should be reviewed regularly.