Business Model Canvas (BMC)
Business Models What is a business model? It’s the way how a company can create value for itself, by delivering products or services to customers. This means you make a plan on how to run your business succesfully: your revenue streams (the money coming in), you think about who your customers are, what products you will offer, the costs et cetera. In this online course we are going to use a powerful tool to design your business model in only one page! This tool is called the Business Model Canvas (BMC).* The model consists out of 9 blocks, which all need to be filled with information about your business, organization or project. On the next page you will see what the BMC looks like. *It is designed by Alexander Osterwalder.
BMC
The 9 blocks of BMC As you have seen on the previous page. Below, you find a YouTube-movie with a short explanation on the 9 different blocks of the BMC. In the next pages you will find a longer explanation https://www.youtube.com/watch?v=IP0cUBWTgpY At the end, you will also find some examples of BMC’s of well known companies, which can help you to understand the model better and use it for your own organization. When you are reading, you can start filling in your own BMC right away. You can do this on paper or you can use a digital tool like Canvanizer. Use the right order to fill in the blocks (like in the movie or in the explanation). Then you start with the most important blocks which you need to fill in the others.
1. Customer segments To be able to offer the right product/service to your customer, you have to know who the customer is. Therefore many companies divide their customers into groups. Different groups might have different needs; want a different approach; are willing to pay for different products et cetera. There are many ways to divide customer segments. Examples of characteristics of a customer segment: ● Age (for example: 15 – 20 years old) ● Sex ● Place of residence ● Type of job/study ● Type of car someone owns ● Amount of money they can spend ● Sports/hobby’s ● Et cetera
2. Value Proposition I When you have a first idea of who your customers are, it’s time to think about what value you are going to offer to you customers. That is called the value proposition. Questions to ask: ● Which value do we offer to the customer? ● Which problem of the customer do we solve? ● Which need does the customer have that we help to satisfy? ● Which products/services do we offer to the customer segments? For example: A customer needs an easy way to communicate with my friends, which can be used when on the road.. WhatsApp offers a solution which fulfills the need. The value proposition of WhatsApp: it’s easy to use on your smartphone. Besides it’s for free and there are no annoying ads in the app.
2. Value Proposition II When you’re not sure what value you offer, think about the next characteristics: ● New: to fulfil a need the customer didn’t have before because there wasn’t such a product. Think about the iPad. ● Performance: to improve the performance of the product/service. ● Customization: to customize your products to the needs of individual customers. Adidas sells sneakers that you can customize yourself online (choose a print and colour). ● Getting the job done: when you get the job done for your customer, you make life/work easier for him, so he doesn’t have to worry about this part of the work and can focus on more important details. ● Design: the way your product looks. Think about the fashion industry and electronics. ● Brand/status: some customers find it very important to show off brands: for example a car or clothes. ● Price: a lower price compared to others. Take for example RyanAir: the costs are really low but service is limited. ● Cost reduction: help your customers to reduce costs ● Risk reduction: help your customers to reduce risks. For example an insurance for your new cell phone to make sure the phone will be repaired or replaced when it’s broken. ● Accessibility: to make products and services available for people who did not have access to it before. ● Convenience/usability: to make things easier to use or increase the convenience. One example: APple introduced the iPod and iTunes, through which it was very easy for people to search, buy and listen to digital music.
Channels Channels describe the way your value proposition reaches the customer segments. When filling in this block, think about the next topics: 1. Awareness: how do you make sure that (possible) customers are aware of our products and services? 2. Evaluation: how do you help customers to evaluate your value proposition? “Try me before you buy me�, help them to compare your product to competitors. 3. Purchase: how do you make it possible for your customers to buy your products or service? Online? In a store? 4. Delivery: how do you deliver your product/service to the customer? Is it delivered by the mailman? Does the customer take it with him right at the store? Is it sent by e-mail? 5. After sales: how do you offer support to your customer after the purchase? For example: a person to call when there is something wrong or the customer has a question
Customer relationships Companies have different relationships with their customers. Why would you invest in building a relationship with your customer? Of course you want to be attractive for new customers. Also you’d like to keep the customers you already have. Examples: ● Personal assistance: the customer can get help from a real person when or after purchasing the product or service. This can be in real life, by phone or email or by social meda. ● Dedicated personal assistance: when a representative of the company is assigned to a customer. This happens for example in banks, because they want to retain a longterm relationship with the customer. ● Self-service: ‘Do-it-yourself-model’ the customer receives all the tools from the company to do it himself: for example Ikea provides you with everything possible to put your bookcase together. ● Automated service: this is often used online. Customers make an online profile and the automated service proposes other products that might be interesting for the customer. ● Communities: companies create communities among their customers to create a connection between the members of the community. ● Co-creation: a company creates the product together with the customers. An example is amzon.com or bol.com on which customers are asked to write reviews of books. Another example is YouTube.com, which depends entirely on its customers to create content which can be used by everybody.
Revenue streams When running a business,, there have to be revenue streams. For now you will figure out in what way you’re able to make money out of the value you sell to your customer segments. You don’t have to describe now how much you want to earn. Different ways to generate revenue streams: ● Asset sale: when the customer buys, the ownership of the product is transferred from the company to the customer. ● Usage fee: the customer pays more when he uses the service. At a hotel, you pay for each night you stay. ● Subscription fee: you pay for the use of a product for a certain period of time. E.g. the gym, mobile phone, library.. ● Lending/renting/leasing: for a certain period of time you have the exclusive right to use a certain product. One example is leasing cars or a platform like Snappcar on which individuals can lend their car to other individuals. ● Licensing: the company has the intellectual property of the product. It happens with software (like Office, Adobe). ● Brokerage fees: charging a brokerage fee for matching, for example between a company that has a job vacancy and a candidate or a between the owner of a house and someone looking for a new house. ● Advertising: when a company gets revenue streams from advertising. Prices can be fixed or dynamic. Dynamic prices you can find when there can be bargained about the price of you can find it in auctions. Another one is yield management: the price is dependent on the stock and the time of buying (well known examples are hotel rooms or plane tickets). Think about whether your price is fixed or dynamic.
6. Key resources To run your business, you need several assets. There are 4 types of resources: ● Physical: a building, equipment, laptop and other electronics et cetera ● Human: your employees, including yourself. In every business you need people with certain qualities. ● Financial: money to invest and buy things for your business, money for salary et cetera. ● Intellectual: copyright, patent, brand → so no one steals your intellectual property (this one is probably not relevant for most of the participants).
7. Key activities The key activities are the most important things a company has to do, to make sure the business model works. The list below describes types of key activities that are commonly practiced. ●
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Production: designing and producing the product but also maintenance of the machinery, building et etera. When you sell a service, you don’t really produce a physical product but you invest time in the service (for example: you give a training, which you develop in advance). Marketing: making sure the ‘world’ knows about the company and their products/services Research and development: develop new or improve existing products Sales and customer services: selling the product/service and providing good service for customers who have questions/problems about the product they bought from you Administration and finance department Transport
8. Partners There are different reasons to look for partners to run your business more successful. Partnerships can ● reduce costs (by making a deal with a supplier for example) ● reduce risks ● can increase /revenue streams ● can give access to new resources, new partners, new customers et cetera. For example: if someone gives you a discount on the rent of your office, your costs will become lower. Or a company is willing to share his/her network with you, through which you can find new customers. Write down on your BMC what partners you already have or would like to have.
9. Cost structure Costs come along with your business model. When you have defined the key resources, key activities and the key partners, you’ll be able to calculate the costs. Look through your business model and describe which costs you have. The next type of costs can be found: ● Fixed costs: those costs stay the same whether you produce one product/service of whether you produce one million products. For example salary and rent. ● Variable costs: those costs depend on the amount of products you produce. For example when you produce more bread, you need more grain.
Examples You just got all the examples to fill in your own business model canvas. If you’d like some inspiration on how other companies have used the BMC, check out the following BMC’s. Of course there are plenty other examples available on the internet. As you can see in the examples, they use different colours. The reason is they use a different colour for every customer segment. As a different customer segment may have a different value proposition or other blocks may be different. It’s easier for yourself and for others to see to which customer segment the other information belongs.
BMC: Uber
Source: https://www.youtube.com/watch?v=gvEU656kVCQ
BMC: Nespresso
Source: https://www.youtube.com/watch?v=dhQh-tryXOg
BMC: DuoLingo
https://informationstrategyrsm.files.wordpress.com/2015/10/duolingo-business-model.jpg
What’s next? When you finished your BMC, you can use it to discuss your business with colleagues, for innovating your organization/business, for marketing purposes et cetera.