How to define your business model

One of the main tools for both creating and reforming a company’s business model is the bussines model canvas. This tool allows in a visual and simple way to reflect on the key areas of the company and how they should relate to each other. The business model canvas also called business model canvas was unveiled thanks to the book “Business model generation” written by authors Alex Osterwalder and Yves Pygneur .

«A business model describes the bases on which a company creates, provides and captures value»

If we want to apply the bussines model canvas to define a business model, it is necessary to cover four main areas within a company: infrastructure, supply, economic viability and customers. To do this, we divide these four main areas into nine basic modules, in which each one represents a key point .

 

1.MARKET SEGMENTS

In this first point we have to define the market segments that we are going to target. The clients we target are the basis of our business model, therefore it is absolutely necessary to thoroughly understand their characteristics and needs. If you want more information on how to segment the market, you will find an article on the blog by clicking here .

Who do we create value for?
Who are our most important clients?

2.VALUE PROPOSALS

The objective of the value proposition is to solve a problem or a need of a determined market segment through a series of products or services that the company offers.
There are many value propositions, although the most used are those based on: solving new unmet needs, improvements in products and services, customization, price reduction, brand that represents status, design …

A clear example of a company working on its value proposition is the online travel company GetYourGuide . This startup  offers a different value proposition on the trips of its clients. From exploring Rome by Segway, discovering cities by tourist bus, cooking classes, to canal and river cruises. As they themselves claim, their clients when traveling alone need to worry about having a good time.

What value do we offer to our clients?
What problem do we help solve?
What products / services do we offer to each market segment?
What customer needs do we cover?

3.CHANNELS

Channels allow the delivery of value from the company to each market segment, that is, the channels establish contact between the company and customers, to offer their products and services. Our mission at this point is to find the most effective and profitable channels for our business model. In addition, special care must be taken at this point on the canvas, since the channel is part of the customer’s experience with the brand.

Which channels do our market segments prefer?
How are our channels integrated? Which ones work better? Which ones are more profitable?
How to integrate them into the routine of our clients?

  1. RELATIONSHIP WITH THE CLIENT

At this point the company must define the type of relationship that it wishes to have with each market segment. There are several types of customer relationships: personal assistance, exclusive personal assistance, automatic service, self-service, communities, crowdsourcing …

What kind of relationship do our clients expect?
What relationships have we established?
How much do they cost us? How are they integrated into our business model?

  1. SOURCES OF INCOME

It is necessary that in any business model one or more income streams of the company be defined for each market segment. There are different ways to generate income: sale of assets, usage fee, subscription, licenses, loan, rent, leasing, advertising.

What is the value that our clients are willing to pay?
Why do they currently pay? How do they currently pay? How would you like to pay?
What is the contribution of each source of income to the total?

  1. KEY RESOURCES

Key resources are a necessary point for the company to create and deliver its value proposition. The key resources can be physical, economic or human depending on each company. These resources can not only be owned, but you can also subcontract or find strategic partners to obtain them.

What key resources does our value proposition require?
What key resources do our distribution channels require?
What key resources does the relationship with our clients require?
What key resources do our sources of income require?

  1. KEY ACTIVITIES

At this point of the business model canvas, we describe those fundamental activities that a company must carry out for its business model to be successful. All companies have to carry out a series of activities necessary to create and deliver their value propositions.

What key activities does our value proposition require?
What key activities do our distribution channels require?
What key activities does the relationship with our clients require?
What key activities do our sources of income require?

  1. KEY ASSOCIATIONS

Companies need strategic partners and suppliers that help the proper functioning of the company. There are different types of partnerships, such as strategic alliances between companies, joint venture commercial agreements or classic business relationships between customer-supplier.

Who are our key partners?
Who are our key suppliers?
What key resources are we acquiring from our suppliers?
What key activities do our key partners carry out?

9.COST STRUCTURE

In this last point we detail all the costs necessary to work with our business model, we will distinguish between fixed and variable costs. On the other hand, there are two different approaches to the cost structure of a company. On the one hand we find models based on reducing costs where possible, such as the one adopted by Ryanair. On the other hand we find other models where costs are not a priority and are based on value creation, usually premium proposals such as the Cartier firm.

What are the most important costs?
What are the most expensive key resources?
What are the most expensive key activities?

Below you can see a template of the business model canvas. Download it by clicking on the image, print it in large size and work on it. I recommend using post-its to work the areas of the canvas, if we are targeting various market segments it is advisable to assign a color to each of them.

As we have seen throughout the article, the business model canvas is a simple but effective strategic innovation tool that allows us to design or define the main areas of a company and how they relate to each other. We must not fall into the mistake of completing each area by inertia, since the objective of the canvas is to seek an integral reflection when defining your business model. If you consider it appropriate, you can also put yourself in the hands of a business consultant , on this website in the services section you will obtain more information.

 

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