Introducing the Business Model Canvas

FEATURE ARTICLE

Luke Burns

CIB Accountants

An excellent tool for evaluating your current business model and for exploring alternatives is the Business Model Canvas (BMC).

In summary, the Business Model Canvas is a strategic management template for developing new or documenting existing business models. It is a visual chart with elements describing your business’ value proposition, infrastructure, customers, and finances. It assists in aligning your activities by illustrating potential trade-offs.
The Business Model Canvas will:

  • Map Existing Business Models – Visualize and communicate a simple story of your business model.
  • Design New Business Models – Use the canvas to explore new business models even for existing business.
  • Manage a Portfolio of Business Models – Use the canvas to easily juggle between “Explore” and “Exploit” business models.

A major benefit of the BMC is its ability to essentially break down your business model and draw into various sectors. It enables the user to grasp and develop particular areas of a business, all while having it displayed on a one page document. It allows the user to work through the fundamental elements of a business or product, structuring an idea in a coherent way.

The BMC targets the key elements that harness a successful business model, with the right side of the BMC focused on the customer, and left side is focused on the infrastructure and categorizes the processes and internal activities of a business into 9 separate categories:

1. Value proposition – 

  • The key foundation to any business is your Value proposition, it is the fundamental concept of the exchange of value between your business and your customer/clients.
  • It refers to the benefits that your business brings to each customer segment, should they buy your product.
  • In short, the value proposition answers one important question, “what compels customers to buy from us?”

2. Customer Segments –

  •  Customer Segmenting is the practice of dividing a customer base into groups of individuals, business’ and industries that are similar in specific ways.
  • Things to consider when determining your Customer Segments:
    • Who are we solving the problem for?
    • Who are the customers that will value my value proposition?
    • What are the characteristics of those customers?
    • Another thing to gauge and understand is your market size, and how many people there are in the Customer Segment.
    • This will help you understand your market from a micro and macro perspective.

3. Customer Relationships –

  • Customer Relationships is defined as how a business interacts with its customers.
  • This segment is highly connected with the Channels, as it delves into the points of engagement between your business and its customers.
  • It helps you determine the avenues for your company to get, keep and grow customers:
    • Getting customers: How does your company incentivise customers to make their first purchase?
    • Keeping customers: How does your company keep your customers coming back?
    • Growing customers: How do you get your customers to spend more?

4. Channels –

  • Channels are the means you use to sell your products or services to your customers, how customers first come into contact with your product, and how your product ends up with the customer.
  • Your knowledge of your customer segments is especially important when determining what channels to use to reach them.

5. Key Activities –

  • The key activities are the strategic actions your team must undertake to make the business model work, and achieve the value proposition you have set out to achieve.
  • Some activities include building and delivering a product or service, marketing the product to potential customers, and maintaining a steady growth in revenue.
  • Key activities will generally coincide with revenue streams and it is important to evaluate which activities are key by adding or removing some and evaluating their impact.

6. Key Resources –

  • These are the assets of the organization fundamental to how it provides value to its customers. Resources can be categorized as human, financial, physical and intellectual.
  • These resources should be mapped to the key activities as they are considered as an asset to a company, which are needed in order to sustain and support the business.
  • In turn, the BMC can also show how a business may not be utilising the resources effectively or show ones that are dispensable.

7. Key Partners –

  • Key partnerships are the network of suppliers and partners who complement each other in helping the company create its value proposition and perform its key activities.
  • Partnerships can be categorized as follows;
    • Strategic alliance between competitors (also known as coopetition),
    • Joint ventures and
    • Relationships between buyers and suppliers.

8. Revenue Streams –

  • This area goes beyond the price of the product. It asks the question, how is the business generating its income and where is it coming from?
  • It helps assess the value customers are willing to pay, how customers pay for products, what type of product you are selling, and what type of market you are entering.
  • There are various ways to generate a revenue stream for your company such as asset sales, subscription fees, leasing, licensing, advertising etc. Ideally these revenue streams should be linked to the personas or segments and the value propositions.

9. Cost Structure –

  • Cost Structure defines all the costs and expenses that your company will incur while operating your business model.
  • Businesses can either be cost driven: focused on minimizing investment into the business or value driven: focused on providing maximum value to the customer. This defines the cost of running a business according to a particular model.
  • It will identify which key resources and activities are most expensive and help make decisions around costing and planning.

With the above elements in mind, it becomes apparent that the Business Model Canvas is designed to bring the finer details to light and help closely examine your value proposition and discover new and better ways to position your product or service to customers. It exposes the opportunities that exist underneath your current business model and moves ideas from the ‘in theory’ stage and into the planning stage.

CIB Accountants & Advisers utilise the Business Model Canvas to really understand the fundamentals that drive a business.

For further assistance in analysing the details and visualising your business model, our dedicated Advisers can assist in extracting the potential that your business holds.

Download the Template Below:

Download a BMC template