Do you have a startup that you would like to build ? Are you struggling with trying to writing up a proper business plan. Check out the BUSINESS MODEL CANVAS.
WHAT IS BUSINESS MODEL CANVAS
Business model canvas is an entrepreneurial tool originally proposed by Alexander Osterwalder. It is a visual chart displaying all the most important elements in a business.
Traditionally, if you want to go from an idea to a business, you need to first research and write a business plan. The next step will then involve showing that plan to family and friends, investors, banks etc to get funding. With the introduction of the Lean Startup methodology, things have changed substantially.
People who have written up a business plan would know that a lot of figures and facts we put into the business plan are mostly ASSUMPTIONS. We include the projected sales for the next 10 years, we deduct the PROJECTED expenses and get an estimation of profit over the next few years.
Now, somewhere at the back of the head, you would say to yourself, this doesn’t make any sense, because you don’t even have a business yet. To build a business based on an assumption that the business is going to generate profit is itself …insane.
Anyway, for the past twenty years, businesses have been built this way. You spend weeks researching your market, you then design a product that you think can penetrate the market, make some calculations to make sure it can provide a positive return on investment, write a business plan, get funding, mass producing the product and then you launch (& cross your fingers hoping that the market will accept your product).
What if the market doesn’t respond the way you want it to be?
Lean Startup changes the whole product development process. It proposes that businesses should launch their product with minimal features as soon as possible. Once it’s launched, learn from as many customers as you can, and change your product or add-in features (based on customer feedbacks) along the way. Once you have reached product/market fit, you can start getting funding and start scaling your business (some use the word Growth-hacking).
Business Model Canvas is a tool to help visualise your business plan. It contains nine important blocks and each of the blocks describes an important element (building block) of the business. By writing a business plan this way, you get to see the whole picture, rather than having to read through pages and pages of business plan.
The nine building blocks:
1.) Key Partners: Describes the key partners (normally suppliers) that will be assisting in the business. All the import key business partners (e.g suppliers, marketing agency, logistics providers etc) should all be listed here.
2.) Key activities: Describes the most important things a company MUST DO and DOES BEST to make its business model work. For example, a logistics company’s key activity is delivery chain management.
3.) Key Resources: Describes the most important assets or advantages that a company has or need to get in order to make the business model work.
4.)Value Proposition: One of the most important blocks in the business model canvas. It describes the value created by the company’s products or services. Everything listed in this block should address at least a problem/pain experienced by the TARGET CUSTOMERS described in the customer segments. Together these two blocks make up for a product/market fit assumption.
5.)Customer Relationship: This is the block which describes the company’s plan to acquire, retain and grow a customer base
6.)Channels: Describers the channels which enable the company to reach their target customer segment. For example, if a company plans to acquire customer through Google advertising, the channel would be Google advertising platform.
7.) Customer Segments: Another important block in the business model canvas, it describes the target customer segment(s) which the company is trying to tackle. The more you understand about your target customer, and the pain point that they are experiencing, the higher chance you have for achieving product/market fit.
8.) Cost Structure: Describes all costs incurred to OPERATE a business model. Costs can be calculated relatively easily after defining key resources, key activities, and key partnerships.
9.) Revenue Stream: Describes the ways the company plans to generate revenue. When paired with Cost Structure, it allows easy calculation of the Breakeven Value.
How to use the Business model Canvas
To use the business model canvas, you just have to plot the canvas on a poster, put it on the wall, and start sketching your business plan using sticky notes. Write down every assumption on a piece of sticky note and stick it on to the Business model Canvas.
Try to get the business model sketched as soon as possible, and start testing those assumptions. Go reach your target customers, interview them and change your plan along the way.
Business Model Canvas is designed this way to allow easy modification of the plan as you go. Simply get another sticky note and stick it on top of the old one on the business model canvas.
If you are using an Ipad, you can download this business model canvas app for free.
So there you go, a useful and simple business planning tool for you. Stop wasting too much time on writing a formal business plan filled with assumptions. You should spend more time understanding your customers out there, out of the office!
For more information about business model Canvas, go buy this book now.
Also, a course on building a startup using the lean methodology and business model Canvas is available for free at Udacity.