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Tuesday, February 14, 2012

Business Model Canvas

6:52 PM Posted by Deepak Nayal , No comments
Before we begin, a disclaimer - I am not an expert of business models; it is not like I have studied hundreds of them. In addition to that, there is no general consensus on what exactly the term "business model" means, and so in this blog I am using the version that I find most suitable. 

I have always found business models interesting. Successful businesses are a combination of a product or service that serves customers' needs/wants, wrapped up in a business model that works well. Some of the best examples of business models I have come across explained them like short stories that quickly and clearly explained how the suppliers, product developers/service providers, customers/users and markets fit together. You can think of them as executive summaries to thick documents. They give you a quick, comprehensive and a very high level view of how things work in a particular business. Every business has a business model; though, it might be explicit or implicit.  

Given the usefulness of business models (and the general sexiness attached to them - especially in consultant and management circles), it is not surprising that you will find thousands of business model frameworks on the internet. However, I never found a framework which fit well with the way I see business models and covers businesses in a [as much as possible] holistic yet concise and comprehensive manner. That is, until recently. Few months ago I came across a framework called Business Model Canvas. Initially proposed by Alexander Osterwalder, Business Model Canvas is like a mixture of different models put together. The best thing I liked about it was its simple yet powerful approach towards articulating how a business works. It is a great tool that can be used by a company of any size, type and industry. After trying it out a few times, I can now appreciate its usefulness, and thought of sharing how I went about using it - which has a slightly different spin than how its creator suggests. 

The nine sections of this model are interdependent, and the best place to start is by defining the customer segment. Once you have a clear picture of who your customer/users are, things start to fall in place from there. The next thing to define is the value proposition for your business - articulate the value that you are providing to the customers. This will require you to identify the problems and pain points that your product or service will resolve. A clear understanding of target customer segment and value proposition will help you define the kind of relationships you want to manage with your customer and the channels through which you will maintain them. Now, I prefer to identify the revenue streams once all customer related items have been identified , but some people might want to work on it directly after the customer segment or value proposition, while others might work on it at the end along with the cost structure. Once you have the customer related items (segment, value, relationship and channel) and revenue streams identified, you will have a much clearer idea of what are the key activities that you need to perform in order to serve your customer and to generate revenue. You will then have to identify the key resources that you will need to perform these activities. Based on this you will need to understand which resources and activities will be undertaken by you and for which will you partner with others. And then at the end you derive the cost structure of the business based on the previously mentioned components. 

What I like best about this framework is that it works as a great checklist but also allows you to explain your business model as a story (end-to-end). Alexander (along with Steve Blank) does a better job of explaining how one can use this model in this Stanford speak. 

While Business Model Canvas is a brilliant and simple tool, it is still a tool, and is only as good as the person using it. It should be taken up just as any other model should be, and that is as a framework to help you articulate your thoughts.


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