Before reading this article, I VERY strongly recommend first going through the principles of business model innovation. Indeed, the business model canvas is the CONCLUSION of a long and fruitful process, which will ultimately inform a company’s entire strategy. As with many things in life, the journey matters more than the destination; the same can be said of disruptive business models.
With that said, the business model canvas is an incredibly powerful tool, as it brings together many elements to give a snapshot of the company’s business model at a specific moment in time (more on the recurrence of the process a bit later). As you can imagine, the exercise is a lot more complex than just filling in the boxes during a 15-minute brainstorming workshop… A typical (empty) business canvas looks something like this:
Let’s go through each sub-category before going into my favourite part (tearing this model apart):
Partners
Let’s start off with a bit of a curve-ball: what’s a partner? Go on, take a minute to think about it.
I generally like to offer the following list for brainstorming:
- Suppliers
- Distributors
- Solution providers
- Researchers
- Consultants
- Associations
- ...
Filling the “partners” box means digging deep to not only answer the question “Who are our most important partners?”, but also to find an answer to “What is their relation to our business and what do they bring us?”. Beyond this thought process is yet another level of introspection: “What essential competencies do key partners have ?” If these competencies can be developed internally, supply chain integration might be a good idea. Other actions are worthy of consideration: Open innovation, M&A, franchising, collaboration, coopetition… Each partner calls for a specific strategy.
This box squarely (get it?) fits in the “WHO” part of the business model quadrant.
Activities
It’s always bothered me that activities had such a small box in the typical examples of a Business Model Canvas. As it answers to the “HOW” of it all, it’s always seemed to be paramount to spend as much time on it as possible. Put simply, the sum of all activities amounts to a company’s value chain, which can be altered to offer a strong value proposition to customers. That can mean a LOT of different things (millions!), but below are a few select examples :
- Crowdsourcing
- IP monopoly
- Supply chain optimisation
- Dynamic pricing
- Standardisation
- Flexible manufacturing
- …
Remember to take into account all aspect of the business. Amazon is incredibly successful not because of its great platform, but because of its punitively complex supply chain and accounting processes.
Resources
What do we have at our disposal, right now? What can be acquired in the near future? Intellectual property, for example, is a great resource. As are loyal customers. If you don’t see a clear connection between the two… same. The business model canvas is imperfect, and your scepticism is healthy. Below is a very short list of resources to be aware of:
- Physical resources
- Labour
- Financial resources
- Intellectual property
- IT Integration
- …
Two things are very important to keep in mind here: what is the company’s resource velocity (profit mechanism), and what resources are essential to the value proposition? Improving the former and protecting/optimising the latter is key to a successful company. Take AirBnB, for example: their key resource is other people’s homes. By creating a stickiness between them and these assets, they’re able to create a moat that few competitors can cross.
Value Proposition
This is the heart of any model/company: what are we selling? If I oversimplify the theory, a company has 4 jobs: Create value, Communicate value, Deliver value, Extract value. If one of those 4 does not work out, the company itself does not work out (save for a few exceptions). The first 3 are pretty self-explanatory, but the latter requires an explanation.
When we talk about extracting value, we highlight that the customer may not necessarily buy what you think you’re selling. A simple example: tool companies may sell drills, but their customers buy holes. Value has 3 dimensions :
- Core: the value of the product or service itself. Is it safe, easy to use, environmentally friendly, stylish, superior in quality…?
- Packaging: this includes the physical and intangible packaging such as the brand.
- Support: delivery, warranty, repairs, installation, add-ons, bundles…
In order to optimise a value proposition for the targeted customers, one must understand exactly what mix of those three components they’re buying. It’s also important (and obvious) to remember that the value proposition needs to differ from that of a competitor.
Customer Relationship
Fairly straightforward once a customer is well understood (WHO) (see below), and we understand what they buy (WHAT) (above). Working on the relationship is an opportunity for easy differentiation from competitors, even if the offering is similar. To optimise this part of a business model, it’s important to remember what relationship customers expect AND how those relationships are maintained: different segments call for different relationships!
The customer relationship can be created in a plethora of ways:
- Try-before-you buy
- Self-service
- Loyalty program
- Personalised services…
The list goes on.
Channels
HOW do you communicate and sell to various customer segments? What are their expectations? Are these channels integrated into the company’s other activities? Those are all key questions that need to be answered very quickly, as we see the rise of digital channels multiply selling and messaging possibilities.
Here are a few staples of the channel box:
- Direct to consumer
- Online sales
- Multi-level marketing
- Indirect distribution
- Diversification
- Supermarket model
- Specialised stores
- …
You may have the greatest product in the world. You may have the greatest customers in the world. If you can’t link the two, it will all be worth nothing.
Customer Segments
WHO? This is what we’re asking through this key box. Who are we targeting? Which group/segment? Which group is the most important to the business? How can we best understand these people? Who is behind them pulling the strings? Will they still be here/the same in 10 years? Personas are key here: what are each group’s pain points? How does the offering answer it?
Customers (obviously), come in very different shape and forms:
- Potential customers
- New customers
- Impulsive Customers
- Discount customers
- Loyal customers
- Opportunistic customers
- Unexpected customers…
Planning for each of these is key to success. It’s important to remember that we’re discussing real people here: experience, quality, autonomy, community, recognition are all keywords to keep in mind.
Costs & Revenues (Profit model)
One of the key issues with the business model canvas is its obsession with costs and revenues, and the omission of profits. Let’s make one thing clear: the current philosophy of the corporation is that it exists to rewards shareholders with profits (I know, I hate it too).
There are few costs in the wild (fixed, variable and indirect), and only 3 ways to increase revenues (more customers, higher price, customers buy more often). Not much we can do with this. A reminder: it is mathematically impossible to optimise both revenues and profits (higher profits = less variable costs = lower production = lower revenues). It is by finding the right profit formula (WHY a company does business in a specific way) that success happens.
There is enough to be said here to fill an entire book, so the best thing to do is to have a look at all the business model out there to understand how each creates a unique profit mechanism.
At the end of the exercise, a business model should be filled with all of the information offered above, as shown below. It is not an easy exercise. It is an imperfect framework. This is why it’s important to seek the support of experts with experience in business transformation, to ensure that no aspects of a company’s strategy are missed.
But wait, there’s more! Read the next chapter: Everything wrong with the Business Model Canvas.
This article was originally posted on my blog, The Pourquoi Pas. Come say hi!