Do You Really Need a Business Model Canvas To Grow Up Your Company ?
Basing on the masterpiece “Business Model Generation” of Alex Osterwalder and Yves Pignur, we can analyze the reasons why every small and large company needs to develop a canvas model to innovate.
If you want an answer to the question before reading the rest of the story, well then the answer is YES! The canvas model is a very useful tool to structure the idea of a new company, startup or something that already exists but that you want to reinvent. In fact, when you want to make an aggregation of people with differente skills and knowledges there is the necessity to have a starting point. So the canvas model could be a good candidate, because it allows people from different fields to communicate each other with the same language and to make decisions easy to understand.
Usually the Canvas model is formed by 9 elements that we can briefly describe one by one.
1. Customer Segments
This should be the first section to consider, because all the other parts depend on it and are developed based on the customer segments chosen. Customers are grouped by common needs and behaviors, such as the same willingness to spend an amount of money for a specific service offered,reachability through the same channels or to prefer a specific relationship with the company.
2. Value Propositions
The individuation of customer segments depends according with the choice of specific value propositions. This is the hearth of the business model, in fact from this section all the others branch out and are directly dependent on it. In this section we try to identify what the customer’s needs are and how we can satisfy them. If we are considering a startup, it is necessary that the needs identified have never been seen before or at least competitors resolved it differently.
3. Channels
As previously said, customer segments need to be reached in some way. For this reason to define channels is essential. They explain how the company reach clients to offer value propositions.
4. Customer Relationships
In this section, kinds of relationships enstablished between the company and customers are defined. In fact, nowadays customer relationships can be enstablished in different ways and for several reasons. Client engagment is obtained with marketing strategies and often can lead to sales growth.
5. Revenue stream
This is probably the most interesting part for the company, because it describes in what way money are potentially earned. But, it’s important to analyse for what reason a customer should use our service rather than another and also the favorite customer ‘s method to purchase a product or a service offered.
6. Key Resources
In this section all the resource that can give value to the company and be useful for customers are included. Each business model own its specific key resources, in fact they could be people, objects or even money.
7. Key Activities
As we know, each company need to take right decision but also to do the right actions to grow up. In this part, most important activities are introduced. As well as for key resources, depending on the company, activities differ greatly from each other, especially in these times when revenues are no longer generated by the sale of physical products, but rather by consultancy or sale of dematerialized services.
8. Key Partners
One of the most important aspects for the growth of a company is the capability to create good collaborations with external partners. Alliances born when a company couldn’t incur certain expenses for key resources or activities or perhaps to reduce risks coming from competitors.
9. Cost Structure
This is the last section to consider useful to undestand the costs to be incurred for a company to exist. Obviously the costs can be both fixed and variable and can concern both the key resources and the key activities.
How the nine sections are connected together
Now that we know how to develop a Business Model, it’ s important to understand how the nine sections are linked all togheter. For example, each value proposition in the model is directly linked to each customer segment for obvious reasons. In fact, different services offered as value proposition are addressed to different customers, and moreover customer segments prefer to be reached in different way (as using different channels). For this reason it’s better fill in each section in parallel, instead of focus on one by one. When we include a new value proposition we need to ask ourselves which customers it refers to, by which channels it is possible to reach that specific customer, what resources or activities need to be introduced to activate the value proposition and so on.
Make improvements to a model
Improvements to the model can be driven by the section of the model that you want to modify. In fact, looking at the model, four macro-sections can be identified:
- Left part (Resources): Starting from the modification or integration of new partners, a change that influences the whole model is propagated.
- Central part (Value propositions): New value propositions are included in the model, so each section will be changed according to the new services offered.
- Right part (Customers): Over time, customers’ needs change and they evolve accordingly. For this reason, it is sometimes necessary to make changes to this section of the model that propagate to the other sections.
- Bottom part (Finance): As we saw, the downside part of the model is formed by section that deal with the company’s revenues and costs. Therefore, appropriate changes to the prices of services / products or the reduction of company costs can lead to the change of the whole model.
Conclusion
As we have seen following this brief guide, it is better to always have your business model ready and face problems by making small changes to the model that can lead to completely turn upside down the way you operate and your strategies. Over the years several patterns for business models have emerged, but we will reserve the discussion of these in another article. Some examples of them are: Unbundling models, Long Tail models or multi-sided models.
References:
“Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers”, Alexander Osterwalder, Yves Pigneur