A business model is comprised of two sides:
All the elements of these need to work together cohesively for the business model to be successful.
An incredibly helpful tool, and one that has revolutionised the way people look at and design business models, is the Business Model Canvas (BMC). The BMC was developed by Alexander Osterwalder and is based on his earlier work on Business Model Ontology.
The Business Model Canvas (Source)
Together, these elements provide a coherent view of a business’ key drivers. Each component of the business model contains a series of hypotheses that you need to test.
The components below, and their respective hypotheses, combine to form the cost structure of the business on the left side of the canvas.
The following components and their respective hypotheses represent the right side of the canvas and combine to form the revenue generating mechanism of the business.
This video is useful for understanding more about value proposition.
Watch this video for more information on how to sketch out your business model hypothesis.
The BMC is hugely popular with entrepreneurs and corporate organisations who embrace entrepreneurial thinking. It is a tool that embraces innovative thinking and delivers three key elements for those who use it correctly:
1. Focus: The BMC forces users to improve their clarity and identify elements that will help or harm the scalability of the business.
2. Flexibility: Visually, the BMC sits on a single page, which makes planning and adjusting a lot simpler.
3. Transparency: it’s easier to explain your thought process and vision to your team or potential investors when it’s all on a single page.
The BMC is a really useful tool when developing your business. It is best to work through the model systematically, reviewing each of the nine elements individually. Play with different scenarios while building your model – this is a great way to innovate and think differently about things. While you’re doing this, think back to earlier in this module dealing with spreadsheets and “what if” questions. Once you’ve completed the first round of your proposed BMC, push yourself by asking probing questions that force you to think differently. These might include:
Now that you know what a business model canvas, let’s look at 7 tips for using it effectively.
1. Constantly adjust: The more you put into the canvas, the more you’ll get out of it. Don’t think that quickly filling it in will solve all your challenges; it doesn’t work that way. A business model is a live document that needs to be adjusted and tweaked constantly. View it as a testing ground for your thoughts and hypotheses.
2. Value proposition: Located in the center of the canvas is the Value Proposition block. Begin by working on the problem you’re solving for your customer. Think back to Module Two and start putting down your value propositions for each customer segment here. While doing this, think about what current alternatives might be available to your customer. Keep developing your value proposition to speak past those alternatives.
3. Be specific: Avoid writing down generic statements, especially for your value proposition. Generic statements are difficult to explain and motivate others with. It’s also difficult to test assumptions when you don’t have a clearly defined channel, customer, or resources, for example.
4. Test: It should go without saying, but put time and effort into this process. Fill in all the customer segments and their relevant value propositions, and then test your assumptions. Would one segment prefer being able to communicate with you via email or face to face? Testing helps clarify the canvas and your business process.
5. Brainstorm: Try to create at least two canvases. Brainstorming different scenarios will help you delve deeply into the challenges, test your assumptions, and possibly uncover areas of your business you never knew existed.
6. Keep your BMC close: Always refer back to your BMC. While it might be tempting to rush off and start developing, building, or manufacturing your product or service, keep your BMC on hand and think of it as that all-important blueprint.
7. Have a weekly BMC Video: Watch online content. Start with this video: