Completing your very first Business Model Canvas can be quite overwhelming. This is why we have put together a comprehensive guide to walk you through it step-by-step.
Here's where you should start:
1. Customer Segments
Your customers are the main focus of your business as everything you strategize and implement is targeted towards them. Therefore, it is important to understand your customers as thoroughly as possible from the very beginning.
Treat the Customer Segments section as if you were describing your "user" or potential customer to someone outside of your business. Consider the following:
- The users goals towards finding a solution to their problem
- How much the problem affects their day-to-day life
- Their attitudes towards business practices
- How much are they willing to spend in time and/or money
- How loyal they are towards other brands in their lives
- Are they the end user, or simply the person completing the transaction
A User Persona is a fictional character created precisely based on your business and potential customers. User Personas are one of the most important and commonly used tools for customer segmentation and identifying ideal customers.
A goal would be to create at least 3 User Persona's as not every user is the same, but they will share some similar values.
2. Value Propositions
A Value Proposition is a simple statement that summarizes the main differentiating factors and benefits that your business offers to its customers and why customers should choose your business. Think about why customers should pick your products or services over your competitors.
Focus on the key characteristics that are unique to your business and make you stand out compared to other similar businesses.
There are 5 steps you can follow to create an effective Value Proposition:
- Identify all the benefits your product offers.
- Describe what makes these benefits valuable.
- Identify your customer's main problem.
- Connect your product to your buyer's problem.
- Differentiate yourself as the preferred provider of your product.
Now you are ready to write your value proposition statement. It can be slightly challenging at the beginning. Give it a try and pick one that represents your business best.
You will want to tweak your Value Proposition based on the specific user you are speaking to.
The Channels section of your business model canvas describes the means, ways, and paths by which you deliver your service or product to your customers. A distribution channel represents a chain of businesses or intermediaries through which the final buyer purchases a good or service. Distribution channels include wholesalers, retailers, distributors, and the Internet.
There are 3 major types of Channels
- Hybrid (Omni-channel)
Direct selling is the producer or maker of the product selling directly to the end user without the need for a wholesaler or middleman. Here are some examples of Direct Sales Channels:
- Open a retail shop
- Door to door sales
The benefit of direct selling is that the path to the consumer is the fastest and the entire process can be controlled by you. Often this limits the amount of customers you can sell to, but you retain the most margin.
Indirect Selling means you sell your product to any of the following before the user has the opportunity to purchase:
- Retail chains
There are pros and cons to Indirect Selling similar to direct. You should be able to reach a wider audience as most of the distribution is handled by the second or third company. Orders will be larger and you will be able to serve a wider area. Unfortunately you will sacrifice some of your margin as the sale also needs to be profitable to the middleman.
Hybrid Selling (Omni-Channel)
Hybrid Selling is becoming more and more feasible with the advancement of ecommerce. Hybrid Selling is offering both a Direct and Indirect Sales Channel for purchases.
The pros and cons are consistent with both options above, however not all Wholesalers, Agents and Retail chains will permit you to sell direct to consumer. Wholesalers may want exclusive rights. The complexities of offering an Omni-Channel approach can be more challenging. You will have the added expense of creating a consumer facing retail store or ecommerce site, while still being responsible for managing your Indirect channels.
Omni-Channel can be the best way to limit your risk as a manufacturer. You can increase your economies of scale, increase your brand awareness and have direct contact with your customer base.
Completing Section 3
Make a list of all your distribution channels and analyze each channel to find what is best suited for your business.
Compare the pros and cons of each option. Which do you value more? Margin or volume? Flexibility or simplicity? etc.
4. Customer Relations
In your very first step, you defined your target audience and created your user persona(s). Based on your notes from section 1, think of the best ways to communicate with your customers.
Think of the best ways to get in touch with your customers and effectively respond to their needs, questions, and expectations. This helps you strategize an effective customer relationship plan and by extension raise customer satisfaction.
Customer Relations can be directly tied to your brand values. How do you want your users to feel about your business? Here are a few examples how larger companies influence consumer perception:
If you are a smaller business here are a few things to consider:
- How is your audience reacting to your social media posts?
- What is your engagement rate online (when you post, what percentage of your audience takes action)?
- How do you manage good and bad reviews?
- Are any of your customers advocating on your behalf?
- Do Key Partners fully understand your value?
- Is contacting your business easy?
It is important that each of your customers has a consistent experience. How should they feel after interacting with your business?
In the future you can start measuring the effectiveness of your Customer Relations by using our Customer Journey Map Quicksheet.
5. Revenue Streams
Make a list of all your revenue sources as well as the type of income. In other words, this list should summarize where your money comes from and how you generate revenue.
If there are any products or services that you offer for free, make sure you list them as well.
Each revenue stream should include the following:
- Collection time (at time of purchase, net 30, etc.)
- Frequency (one time, recurring, etc.)
- Margin (how profitable is the stream)
- Time management (how much time does the revenue stream take to manage)
This step gives you a clear idea of where most of your profit is coming from so you can invest, discontinue or outsource as you see fit. The goal is to focus on the most profitable, highest frequency, fastest collection times while not sacrificing revenue streams that are vital to the business but aren't as profitable.
Introducing new revenue streams can help to minimize risk, but new streams may require more time management and less margin to get up and running. Understanding how your business collects payments is important for future planning.
6. Key Activities
Key Activities are the tasks that make up the operations side of your business. Each product or service you create may have it's own process. Key Activities can be vastly different from business to business but understanding where your time and effort are being spent is extremely important to refining your internal operations. Here are some examples of general Key Activities:
- Attending trade shows (sales)
- Training employees
- Managing social media
- Client management
Here are more specific Key Activities:
- Ordering material from your suppliers every Thursday to ensure your production is on schedule
- Completing payroll or remitting taxes
- Quarterly employee reviews
- Updating your inventory online
- Scheduling social media posts
All the activities that you list here are activities that your business needs to perform in order to ensure income generation.
Look back at steps 5 and 2 and identify all the activities that you need to focus on to make sure you are delivering value to customers and ensuring the profitability of your business. It's a good idea to order the activities in terms of both importance and how they should be completed to maximize your efforts.
7. Key Resources
Look back at your value proposition from step 2 and think of all the resources that you need in order to deliver the value that you have promised to your customers.
Some Key Resources are operational expenses. These are typically required for each sale. Here are some examples:
- Software licenses
- Product packaging
Other Key Resources are assets that generate recurring value. Here are some examples:
- Manufacturing equipment
Each business will have very distinct Key Resources. Some resources need to be kept private while others can be publicly shared and can be a competitive advantage. Understanding which Key Resources can be shared should be highlighted in your Value Proposition and your Customer Relations.
8. Key Partners
Key partners are individuals, organizations, or other entities that allow your business to evolve and grow by providing important resources according to a mutual agreement. Keep in mind that your customers are not considered partners (example: buyer-supplier, joint ventures, etc.).
Some Key Partners should be advertised as part of your value proposition while others should be kept private to preserve your competitive advantage. Consider how your Key Partners are communicating with their audience as there may be additional areas of collaboration. It is common for manufacturers to lack product photography or video as they don't have access to the end user. Creating shared assets may help you build your partnerships.
Your key partners and your relationship with them are important as they are the foundation of many of your key activities.
9. Cost Structure
In step 5, you made a list of your income streams. Now, you need to look at your business expenses and see where your revenue goes.
This helps you understand your cash flow and budget your money wisely in order to run your business smoothly in the long-run.
Each business will have a different Cost Structure and it is advised to consult an accountant or financial planner to review your books to help avoid any unforeseen circumstances.
Here are some free resources to help you better define your Cost Structure:
Your Cost Structure will change as you grow. Understanding how your expenses change over time is extremely important to maintaining your profitability.
Keep in mind that as your business evolves and grows, you can always come back to your Business Model Canvas to make sure it's still up to date. We recommend revisiting your Business Model Canvas every 6 months or when large changes in your business occur.
We hope that our Business Model Canvas guide helped you understand your business in greater detail.