If strategy is like a map to use for navigation, the business model is a snapshot in time of how the business currently is working to put strategy into practice. That’s a literal quote from our first post, “An Overview Of Business Strategy For Small-Business Owners”, in this blog series “A Business Strategy Primer”. Strategyzer have published several books by now and their first one, “Business Model Generation”, is hugely popular among business people today, so let’s walk through its nine building blocks now. In this post:
- Building Block 1: Customer Segments
- Building Block 2: Value Proposition
- Building Block 3: Channels
- Building Block 4: Customer Relationships
- Building Block 5: Revenue Streams
- Building Block 6: Key Resources
- Building Block 7: Key Activities
- Building Block 8: Key Partnerships
- Building Block 9: Cost Structure
The Business Model Canvas by Strategyzer visualises in a clear way where your thinking may have gaps still with regard to creating your own business model(s), so register on their website to get this incredible tool for free.
The content of this post was first published on our Instagram account starting September 2019 with one building block appearing each week as part of our Tuesday theme business strategy. Content tends to disappear a bit in the depths of the feed though, so please enjoy this post instead!
Building Block 1: Customer Segments
Since the book is about business models, when you think about who could be a possible customer, it’s good to recall that it means not only consumer (B2C and C2C) but business (B2B) and government (B2G) as well. This means selling to other than consumers can require vastly different ways, which would look like very different building blocks below. If you want more information about the meanings of customer, please read our “What Is Customer Experience Or CX?” blog post.
Among small-business owners it’s frequent to serve niche markets with very narrow customer segments or groups of customers, who share similar features such as location or profession. We have a post coming up on segmentation in just two days, so check back if you’re new to the topic.
But it doesn’t end with niches. Apple and Microsoft serve mass markets. Yet another type of business model is diversification, which means you sell to two entirely different segments. It could be as extreme as when Amazon is selling consumer goods B2C, whereas their S3 cloud servers represent B2B. There’s no reason you couldn’t find ways to get creative with your own business model, too!
Building Block 2: Value Proposition
Value propositions are among the hardest to get right in marketing. You may have some thing awesome to sell but it isn’t translating as well in sales as it could. Maybe it’s how you communicate it to your audience and they don’t understand, or they think the offer is perfect–for someone else. When things feel frustrating, go back to “proposition”.
Partly it insinuates you suggest something to a potential customer without knowing the outcome (will it convert into a sale or not), partly that you know fully what it is you’re trying to get them to buy. But what if you don’t?
You may have viewed your offering as simply as a set of features and benefits, but forgot the more uncomfortable part that is the emotional response in said customer. What do you think they will feel when using your product or service? You could explore if there’s something missing in your communication. If this still feels foreign, maybe it would help to brush up on this by reading our “Marketing Basics: The Marketing Process In Five Steps”?
Building Block 3: Channels
The third building block of Business Model Canvas is quite simple. It simply states all the Channels through which you deliver your value to the customers.
Building Block 4: Customer Relationships
The fourth building block is Customer Relationships. Which season of business are you in: acquisition or retention? Or maybe you have different segments in different phases right now? Have you outlined in greater detail what type(s) of relationship(s) your business has with customers? You can read more about the meaning of these three concepts in addition to customer switching in our “The Happy Customer: Customer Acquisition, Retention, Switching And Relations”.
We find automation of particular interest in today’s tech-driven world, but don’t forget good old self-services such as a laundromat operated by nobody, or the community type such as Tripadvisor which would be nothing without use-generated travel reviews.
With regard to automation, a good example is an automated service reminder six to twelve months after buying a new car. You interact with a sales rep in-store, but get the service reminder via automated email without any human element necessary. Can you implement automations in your own business too, where you have neglected to see potential yet?
Building Block 5: Revenue Streams
Revenue Streams are the different ways in which your customer exchanges money for your value proposition and can be one of two types:
- Transaction revenue, one-time payment
- Recurring revenue
The reason for our chosen image (below) being from a car-repair shop is because when you buy a new car, it’s possible to keep paying quarterly or yearly fees. This way you finance regularly scheduled maintenance whether the whole sum is used or not. As for your business, whether you serve a niche market or not, think about options to create more revenue streams from the same segment. This could be:
- a subscription to a resource library or a discussion forum on your website
- a licence fee to your copyrighted digital product such as a font or an ebook
- a brokerage fee such as being the facilitating third party between another business selling a product your own customer could be interested in purchasing, and said customer, which results in a commission for you (e.g. affiliate marketing)
but there are other types of streams too. Since you have the ear of a loyal customer already, why not work out new ways to offer value?
Building Block 6: Key Resources
Key Resources are reasonably easy to figure out when it comes to the physical ones. My example in the image below is a sewing machine because as a parallel entrepreneur I need mine to work flawlessly in my other business.
But what about the intellectual ones? Strategyzer mentions examples such as brands, trademarks, software and customer databases. Do you sell digital products? We are about to launch our first ones very soon and there is always the fear of people ripping them off. Legally, there are very few options to fight back still which is unfortunate. Can you relate?
The two other types of key resources they mention are the human and financial ones. Most people know of the explosive need for architects and builders called to Dubai over a decade ago now, but think of any specialty skill such as the person crafting watches. You’re screwed if that employee walks out. Do build your business up from scratch with excellent HR in mind, and nobody will want to leave. Here in Finland there are over 400.000 people on financial governmental aid despite many being employed.
We find that a central part to owning a business is building it such that any employee would never have to work a second job, apply for financial aid or go bankrupt due to illness because of not having access to reasonably priced healthcare. We believe it is part of responsible leadership to create a safe and financially secure everyday life for loyal team members. We hope you agree in this view on social responsibility as business owners. You have no business without your employees after all.
Building Block 7: Key Activities
Key Activities may seem obvious and simple at first. However, think beyond product manufacturing, problem solving as a consultant, etc. and you will arrive at the core of business struggles: what you should *not* be doing.
What is completely irrelevant?
Nice-to-have aka could have?
Should have (with more time or other at hand)?
Busy work is the nonsense work we do when procrastinating, perhaps due to fear or the simple yet sad reason of not having voiced clearly enough what we need to prioritise. Think carefully and learn to jump between low- and high-level perspectives to catch your possible procrastination sooner rather than later.
Building Block 8: Key Partnerships
The eighth building block is Key Partnerships. Immediately you might think of suppliers, but this also includes collaborative work with both non-competitors and competitors.
Have you thought of reasons yet to reach out to the direct competition? One would be the reduced risk and acquired know-how etc. of pooling various resources. We think there is great potential in opening up to help, both receive and give. Unfortunately, today the concept of success often means boasting your solo achievements, but going against this fad could turn into a fantastic competitive advantage.
Building Block 9: Cost Structure
Cost Structure, the ninth and final block on the Business Model Canvas by Strategyzer, covers costs related to operating your business model. This builds upon decisions made in the previous blocks. The two extremes of cost structure are:
- Cost-driven: minimise costs, maximum automation, extensive outsourcing (think airlines which rent the planes they use)
- Value-driven: premium services with focus on highly customised/personalised value propositions
As for characteristics of costs, I’ll use the laundromat from earlier as example:
- Fixed costs: salaries (whether self-operated laundromat or not) and rent (regardless of number of machines in particular space)
- Variable costs: proportional differences in costs, their example is a music festival and here it could be an electricity bill depending on number of washing done
- Economies of scale: cost advantages, in this case lower total price on washing machines and dryers when bought in bulk, perhaps to more than one facility if expanding the business
- Economies of scope: cost advantages such as the same marketing activities for more than one product
The purpose of Business Model Canvas is to help you build a business model with optimal function: to maximise value captured by your business. Strategyzer’s second book “Value Proposition Design” aims to build a value proposition, which in turn maximises value for the customer. To recap, your business model is like a snapshot of how you function in the present to bring the strategy of your firm to life. It makes sense to spend time covering all gaps you may find in it to ensure longevity and prosperity.
Please let us know in the comments what you think of this way to generate a business model and whether we’ve managed to clarify possible questions about it!
This blog post is the third in our beginner-level series A Business Strategy Primer.
Photo credit: Elodie Oudot.