Business Model Canvas

Link to slides from live session.

Business Model

What is a business model: https://youtu.be/xRyXo7mWj3A (view time: 1:00)

Download the Business Model Canvas (BMC) here.

It’s important to have a shared understanding of what a business model actually is. A business model describes the rationale of how an organization creates, delivers, and captures value. The business model is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems.

Business Model Canvas

The Business Model Canvas (BMC) is the framework that allows us to describe and think through the business model of our organizations, our competitors, and really any other business. The BMC has become a shared language that allows us to easily describe and manipulate business models to create new strategic alternatives and identify opportunities for innovation.

A business model can be described through nine basic building blocks that show the logic of how a company intends to make money. These nine blocks cover the four main areas of a business: (a) customers, (b) offer, (c) infrastructure, (d) and financial viability.

Business model canvas: https://youtu.be/QoAOzMTLP5s (view time: 2:19)

Customer Segments: https://youtu.be/Q7_HU07fINo(view time: 0:49)
The group(s) of people a company aims to reach and serve. A company can have one or several customer segments. There are different types of customer segments, including:
- Mass market: Don’t distinguish between different customer segments because it focuses on one large group of customers with broadly similar needs and problems
  - Consumer electronics like TVs, cell phones, computers, video game consoles
- Niche market: Cater to specific, specialized customer segments
  - Pet owners (Rover); gamers; supplier-buyer relationships like cart part manufacturers who depend heavily on purchases from major car manufacturers
- Segmented: Serves different segments have slightly different needs and problems
  - Banks distinguish between customers with a net worth of < $100,000 and those with a net worth of > $500,000
- Diversified: Serves unrelated customer segments that have very different needs and problems with very different Value Propositions
  - Amazon’s value proposition and customer segment for its cloud computing services (AWS) are very different than those of its retail business
- Multi-sided platforms: Serve two or more interdependent customer segments; both customer segments are required to make the business model work
  - Airbnb, Etsy, Uber
Value Proposition: https://youtu.be/PHYKaRVGt3U(1:36)
An explanation of the value that your business brings to its customers. Solves customer problems and satisfies customer needs. It is the reason why customers turn to your company over another. Value Propositions can include things like: Newness, Performance, Customization, “Getting the job done”, Design, Brand/Status, Price, Cost reduction, Risk reduction, Accessibility, Convenience/usability
Customer Relationships: https://youtu.be/emEyD7vOSeI(1:04)
The type of relationships a company establishes with specific Customer Segments. There are different types of Customer Relationships, including:
- Self-service: Company maintains no direct relationship with customers; Company provides all the necessary means for customers to help themselves
  - Amazon
  - Venmo provides users with an onboarding guide and a Help Center with FAQs
- Automated services: Can recognize individual customers and their characteristics and offer information related to orders or interactions; Imitates human interaction and keeps customers engaged
  - Amazon’s “Frequently bought together”
  - Any company: “based on your recent purchases, we recommend this product”
  - Netflix “Recommended shows” based off your viewing history
  - Spotify’s music recommendations
- Communities: Companies maintain online communities that allow users to exchange knowledge and solve each other’s problems; Helps companies better understand customers’ struggles and facilitate connections between users
  - Facebook community forums
  - Reddit
- Co-creation: Companies co-create value with customers; Companies engage customers for feedback, content generation (user-generated content), and the design of new and innovative products
  - YouTube invites users to create content for public consumption
  - Amazon invites customers to write reviews, which creates value for other customers
  - Tik Tok user-generated content
Channels: https://youtu.be/nezvK969xac(0:50)
How a company communicates with and reaches its Customer Segments to deliver its Value Proposition. Includes communication, distribution, and sales Channels. The 5 channel phases are:
1. Awareness: How do we raise awareness about our company’s products/services? (e.g., Advertising, sales team, word of mouth, referrals, social media, blog, etc.)
2. Evaluation: How do we help customers evaluate our company’s Value Proposition? (e.g., Reviews, sales team, blog, surveys)
3. Purchase: How do we allow customers to purchase specific products/services? (e.g., Website, sales team, app store, app, brick-and-mortar store, self checkout, incentives)
4. Delivery: How do we deliver our Value Proposition to customers? (e.g., Delivered, sales team, over the counter, app store)
5. After Sales: How do we provide post-purchase support? (e.g., Call centers, return policies, customer assistance)
Revenue Streams:https://youtu.be/i2frxfkIsFA(0:56)
The money a company generates from each Customer Segment. Revenue Streams result from Value Propositions successfully offered to customers. There are several ways to generate revenue, including:
- Asset sale: selling ownership rights to a physical product; most widely understood
  - Amazon sells books, music, consumer electronics online
  - BMW sells cars, which buyers can drive, resell, etc.
    - Note: “asset” is a useful or valuable thing, person, or quality; sometimes owned by another person or company
- Usage Fee: generated by the use of a particular service. The more the service is used, the more the customer pays
  - Phone company charges customers for the amount of minutes, text messages, and data it uses
  - Hotels charge customers for the number of nights rooms are used
  - FedEx charges customers for the delivery of a parcel from one location to another.
- Subscription fees:generated by selling continuous access to a service
  - Gym memberships (access to exercise facilities); Netflix (access to digital content); Amazon Prime (access to quick delivery)
- Lending/Renting/Leasing:generated by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee; lender receives recurring revenues while renters/lessees enjoy the benefits for only a limited time rather than bearing the full costs of ownership (home, car, etc.)
  - Zipcar allows customers to rent cars by the hour – customers can rent rather than purchase automobiles
  - Quupe allows customers to lend/rent items by the hour, such as drones, electronics, gardening equipment, etc.
- Licensing: generated by giving customers permission to use protected intellectual property in exchange for licensing fees; rights-holders can generate revenues from their property without having to manufacture a product or commercialize a service
  - Popular in the media industry; Disney is one of the leading licensors, leasing out its brands that include Marvel, ESPN, DisneyPixar, etc.
  - Warner Bros owns DC Comics. Toy companies, like Mattel and Lego, pay Warner Bros a licensing fee to make DC comics toys
- Brokerage fees: generated from intermediation services performed on behalf of two or more parties
  - Credit card / payments processors (PayPal, Stripe, Square) earn revenues by taking a percentage of each sales transaction between credit card merchants (businesses) and customers
  - Real estate agents earn a commission each time they sell a house and successfully match a buyer and seller
- Advertising: generated from advertising a particular product, service, or brand
  - Instagram (Facebook) generates revenue when companies pay for ad space
Key Activities:https://youtu.be/V7vr3JSx-yY(0:21)
The most important things a company must do to make its business model work, deliver its Value Proposition, and maintain its competitive advantage.
Key Resources:https://youtu.be/pLdWfcLNZ1A(0:55)
The most important things a company must haveto make its business model work, deliver its Value Proposition, and maintain its competitive advantage. Key Resources differ depending on the business model type; however, they can be categorized as follows:
- Physical: Includes physical assets, such as manufacturing facilities, buildings, vehicles, machines, systems, 3D printers, point-of-sales systems (restaurants), cash registers, distribution networks, credit card machines
  - Amazon: Warehouses, buildings, physical store locations (AmazonGo), robots, drones
- Intellectual: Includes intellectual resources, such as brands, proprietary knowledge, patents, copyrights, partnerships, customer databases
  - Difficult to develop, but offer substantial value when successfully created
    - Nike: relies heavily on its brand as a key resource
- Human:Every company requires human resources, but people are particularly important in certain business models, such as creative industries and knowledge-intensive industries (aerospace)
  - People have specific skill sets that businesses absolutely need in order to succeed
    - Stop motion films, like Corpse Bride, have thousands of moving parts that require humans: handmade puppets & character designs, painters, sculptors, screenwriters, film editors
- Financial: Almost all business models call for financial resources, such as as cash (photographer), lines of credit (retail businesses), or a stock option pool for hiring key employees (tech startups)
Key Partners:https://youtu.be/6vVGxUFcwsQ(0:44)
The network of relationships that makes a business model work. Companies establish Key Partnerships to reduce cost, reduce risk/uncertainty, and to outsource and/or acquire Key Activities and/or Key Resources.
Cost Structure:https://youtu.be/f_HEz1ET1JE(0:48)
Costs incurred while operating a particular business model.

The most important thing to know is that your BMC is a list of hypotheses. A hypothesis is an assumption. Startups make A LOT of assumptions–many of which are fatal–which is why testing these hypotheses is vital to success.

Assignment

(1) Complete a BMC for your startup, and be prepared to discuss in our live session. Please also email it to me so I can give more in-depth feedback.