A business model is how you create, develop and deliver value to your customers. It is a clear roadmap to value proposition and delivery to customers. One of the tools to develop and create a business model is called the business model canvas (BMC). It was created by Alexander Osterwalder.
We have mastered the art of developing successful business models that generate revenue. The goal of every business is to generate enough revenue that will cover expenses and make a profit.
We are going to look at the nine building blocks of a business model canvas below.
Building Blocks of a Business Model Canvas.
There are nine building blocks in a business model canvas (BMC), and they will be explained below, showing the interrelationship between them.
If you also want experts to write your business model plan for you, reach out to us. We develop sustainable business models making sure we input the revenue aspect of your business right from the onset of the plan, so you are not going to be running helter-skelter thinking about how your business is going to make money.
1. Value Proposition.
What is a value proposition? This is the value you are delivering to your customers by solving their problems or relieving their pain points. You need to understand that what you consider a value may not be seen as such by your customers. Hence, you need to go out there and find out from them how best they would want to be served instead of engaging in endless and fruitless strategic sessions.
Questions to Answer Before Deciding on Your Value Proposition.
- Am I delivering value to my customers?
- What pain am I relieving them?
- What problem am I helping them to solve?
2. Customer Segment.
Customer Segments are the different groups of people or organizations that your business provides services for. There are different segments – the mass market, segmented market, and multi-sided market segments. And you have to make a conscious decision on which segment of the market to target and which ones to ignore because everyone cannot be your customer.
Questions to Answer Deciding the Customer Segment to Target
- How well do you understand your customer segment?
- Who are your most important clients or users (target audience)?
- Which market segment are you serving?
3. Channel
Channel describes how your company communicates and reaches your customers and delivers your value proposition. In other words, they are the avenues through which your customer comes into contact with your business and becomes part of your sales cycle.
Sometimes your customers may prefer to be reached through a particular channel, but you may be busy implementing another channel that, in reality, is ineffective. This mismatch in the right channel to use to reach your customers has to be resolved before proper communication can take place between both of you.
Questions to Answer Before Choosing a Channel
- Which channels do your customers want to be reached on?
- Where do you meet your customers: online or offline?
- Which channel are you using to reach them?
- Are the channels cost-effective?
4. Customer Relationship.
Customer relationship describes how a business interacts with its customer segment.
Relationships with your customers can be personal or automated. For instance, if you have an app with millions of users, it’s then safe to say that your relationship with these users (customers) will be automated.
To illustrate this point further, during the COVID-19 pandemic, a lot of co-working spaces shut down due to no patronage. We didn’t because of a tweak to our customer relationship. We took our relationship with our customers a notch higher by reaching out to them every week and reassuring them that we all are in this together. This personal relationship strategy paid off as we had paying customers through the pandemic period even when they were not physically present at their workspaces.
Questions to Answer Before Deciding How to Build Relationships with Customers
- What type of relationship do you have with your customers: in-person or online?
- Is this relationship cost-effective, compatible, and integrated with your business model?
- What type of relationship does your customers want you to establish with them?
5. Revenue Stream.
This represents the way your company generates cash or revenue from customer segments. And to optimize your revenue streams for better performance, you need to streamline and simplify the customer journey with your products and services.
For example, you can provide customers with multiple checkout and payment options to make the sales conversion process seamless if the current checkout process is not efficient.
It is also important to understand that you should discontinue your low revenue contributing streams with high running costs in order to free resources that can be redirected elsewhere for maximum impact.
Questions to Answer Before Choosing a Revenue Stream
- What value are your customers willing to pay?
- How do your customers pay for your service?
- How would your customers prefer to pay?
- What is the contribution of each revenue stream to the overall business revenue?
6. Key Resources.
These are important assets that you need to execute your business model successfully. Key resources allow your business to create and offer value propositions. They allow you to reach your target market. They help you to maintain your relationships, and also help you to generate revenue.
In addition, key resources are dependent on your industry and business model, and they could be human or financial.
Key resources could also be intellectual property. For example, for people in the pharmaceutical industry, if you produce a drug, you can patent it and it becomes intellectual property. They (key resources) can also be your technology, for example, Uber. And they may belong to your company or acquired from your partners.
Questions to Answer to Know Your Key Resources
- Does your value proposition require key resources? Can you identify these resources?
- What key resources does my distribution channel require?
- What key resources do my revenue stream and customer relationship require?
7. Key Activities.
These are the important things or business activities that you have to do daily to run a successful business. They help you to create a value offering to your customers.
Key activities are the things you need to do to make sure you are delivering value and that your business model works. Key activities also depend on your business model and the industry you are in; for instance, a manufacturing business’s key activities could be the production of physical goods, while that of a consulting firm could be problem-solving.
Questions to Answer to Decide on the Key Activities for Your Business
- Does your business value proposition require key activities? Can you identify them?
- What are the key activities that your distribution channel requires?
- What key activities go into your revenue streams?
8. Key Partners.
You need first to determine who your key partners are and what key resources you need to work with them. In addition, you need to also find out what key activities your key partners will be performing for you.
Business organizations go into partnerships to either scale up their output, reduce business risks, and/or acquire more resources. Also, businesses can forge partnerships with both competitors and non-competitors.
Questions to Answer Before Your Partnership
- What key resources do I need from my partners?
- What key activities will they be performing for my business?
- Is the partnership mutually beneficial for both parties?
- Am I going to lose money from this partnership
- Am I going to make additional revenue from this partnership?
- Is the partnership going to help me scale and reach a new market?
9. Cost Structure.
Lastly, your business cost structure is the monetary cost implication of operating your business. The goal of every business is to minimize costs; hence, you need to understand the cost structure for your business to be successful.
It is important to note that low-cost structures are essential to cost-driven businesses, unlike others that are value-driven in their service offerings. And as a result, running costs must be monitored so that they do not skyrocket and put your business profitability in jeopardy.
Uses of Business Model Canvas (BMC).
- You can use a business model canvas to develop a new business.
- You can also use it to improve existing businesses by identifying and fixing malfunctioning business segments.
- To analyze your competitors’ business to see what they are doing well or not. And how you can re-strategize in order to beat them.
- For your new team members’ onboarding exercises, you can use a business model canvas so that everyone will be on the same page.
- It provides clear expression and communication of business ideas from concept to product.
- You can use it for mergers and acquisitions. When a new company is acquired, a business model canvas can be deployed to see if the business interest of the merger parties can align together.
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