The BMC (business model canvas) is a tool for visualizing a business model in a simple, structured manner. This method can lead to a better understanding of your clients, how product innovations are distributed through what channels, and what brings the most profit.
Simply put, the term “business model canvas” means a single sheet of paper which can comprehensively present everything about your business idea. It enables simulation of your business model, identification of flaws, and checking if it can function.
The BMC was created 14 years ago by Alexander Osterwalder, a Swiss economic thinker, and Yves Pigneur, a computer scientist. Since then, the simple tool has gained increased popularity.
The Canvas has revolutionized the industry in many aspects:
- Focus. Unlike the traditional business plan with up to 50 pages, BMC clarifies what powers the company, and what’s trivial and gets in the way.
- Smoothness. It’s a lot easier to improve the process and test ideas with something that’s sitting on a single page.
- Transparency. The employees will find it much easier to grasp your business model and embrace your dream when it is mapped out on a single sheet of paper.
- Connections. The visual design of the canvas explains how the multiple pieces of the template interrelate. On the contrary, a traditional business plan makes it difficult to comprehend.
Customer Segments: Who are the customers? What do they think and do?
The total number of clients is divided into segments based on how the products or services of an organization address a particular segment’s needs. In order to perform an efficient segmentation of consumers, a business must first understand its clients via their current and future needs. Then the company needs to prioritize existing clients and think of potential clients in the future. Try to create at least one persona for each segment for better visualization.
Value Propositions: What’s compelling about your proposition? Why do customers need you?
It’s not about your particular idea or service; it’s about filling out your customers’ needs. It’s also about how you solve this problem. When you understand what the main issue is and for whom you fix it, you will find out exactly what the essence of your product is. This is where you mention all of the product’s advantages and functionality and what they do to solve the issue. As a result, you should get a prioritized list of Value Propositions and their linkages to customers.
Channels: How are these propositions promoted, sold, and delivered? Is it working?
Channels are basically the instruments and entities that you use to reach your customers, as well as those through which you sell a product and ultimately provide service. In this part of your BMC, you should get a collection of essential networks that are connected to Customer Segments. You can also make notes about what actions are crucial for marketing, sales, etc.
Customer Relationships: How do you interact with the customer through their ‘journey’?
It is important to identify what kind of relationship you have with your customers. Then you can evaluate your clients in terms of the frequency of their spending on your products or services. Loyal customers are worth of continuous investment as they produce steady income. So the output here should be an overview of customer relationships, including comments that distinguish between consumers (between segments or between people within a segment) or the whole customer experience.
Revenue Streams: How does the business earn an income from the value propositions?
A revenue stream is a strategy practiced by a business to sell a product or service to its clients. Different strategies can be used to establish a revenue stream (asset sales, subscription fees, usage fees, loan/lease/rent, brokerage fees, ads, etc.). Different price variations should also be identified and evaluated. Ultimately, you should think about potential streams that are available to you as a company.
Key Activities: What do you do to deliver the proposition?
These are the key things the business needs to do in order to deliver the proposition and power the business. For example, if you sell through 3rd parties, then channel management is likely to be quite significant. One problem this study will pose for you is whether or not those practices are central, the base of your company, something you’re going to want to work on.
Key Resources: Which specific strategic assets does the company need to succeed?
There are a few categories of resources: financial, human, intellectual, physical. The audit of your resources is something you need to do primary to everything else. This will give you a clear understanding of the final product or service and what resources are available, resulting in cost savings for your business. After such analysis, the company will be able to determine how much it will need to spend on those key resources to manage a sustainable business.
Key Partnerships: What can you delegate to focus on Key Activities?
Companies establish relationships with high-quality vendors to build secure, smooth processes, and reduce any risks. You should first recognize your main collaborators and then make future relationship arrangements. This can be achieved by reviewing the collaboration relationship to decide which aspects of the relationship need to be changed and what kind of potential relationships are required.
Cost Structure: What do you spend on? How is it linked to revenue?
This determines your expenses of running a business. Companies can either be cost-driven (based on reducing business investment) or price-driven (focused on providing the consumer with the highest value). It is necessary to mention all costs on the canvas to visualize them, and then plan for each cost. Many expenses may be minimized by specific steps. Others, however, may emerge as you determine them within a particular activity in the future.
Conclusion
BMC is a powerful tool to help you start a new company or revamp existing business strategies. The Canvas is a fuss-free way to structure your business plan and fine-tune your business strategy, whether you’re a beginner or a business owner.
