What Is A Business Model Canvas & How to Use It?

So what exactly is a Business Model Canvas (BMC) and why is it important to your business? Well, it is a strategic management tool used to quickly and easily define and communicate a business concept or idea.

It is a one page overview which works through the fundamental elements of a business or product and structuring an idea in a coherent way.

For a better understanding, the left side of the BMC focuses on the business which is internal factors, while the right side of the canvas focuses on the customer which considers external factors.

Bare in mind that both of these factors meet around the value proposition, which is the exchange of value between your customers/ clients and your business (product or service).

WHY BMC?

• Able to quickly draw a picture of what the idea entails which lead to a clearer goals
• It allows us to get an understanding of our business and also enable us to go through the process of connecting between our ideas and what action needed to make it into a business.
• It allows every prospect to get a clearer idea of the business nature.
• It looks at what kind of buyer decisions influence the use of your system.

HOW TO USE IT

1. Value Proposition

Every business or product must start with a clear Value Proposition.

It is considered the fundamental concept of the exchange of value between your customer or clients with your business.

Generally, value is exchanged from a customer for money when a problem is solved or a pain is relieved from them by your business.

Ask yourself these when defining your business or product:

• What is the problem am I solving?
• Why would someone want to have this problem solved?
• What is the motivator (pain point) for this problem.

Bonus

The best way to  approach this for customers or clients is by viewing your customer avatar and finding out where your service or product solves the problem for your customer, based on Maslow’s Hierarchy of Needs.

However if you are selling your service or product to another business, you are a key partner in order for them to achieve their Value Proposition for their prospects.

It is very important to have context around the goals the company is trying to achieve for their Customer Segments and where you fit in the value chain.

2. Customer Segments

Next is customer segmentation – it is the practice of dividing the customer base into groups of individuals that are similar in specific ways based on their demographic and psychographic.

Things to consider:

• Who are you solving the problem for?
• Who are the people that will value your value proposition?
• Is it Business-to-Business (B2B) or Business-to-Customer (B2C)
• What are the characteristics of those businesses?
• Does your value proposition appeal to men or women or both?
• What is their age range?
• What are the characteristics of the people who are looking for my value proposition?

However, there is another thing to gauge and understand is your market size. This will help you understand your market from a micro and macro perspective. A great place to start understanding your customer is to create customer personas or customer avatar for each of your Customer Segments.

3. Customer Relationship

Alright, now that you already know your Value Proposition and have developed Personas to better understand your prospects (customers), but what is the relationship we have with your prospects?

After knowing all that, it’s time to define how your business interacts with your prospects. So, do you meet them in person? Over the phone? Or through online channels?

Some examples are:

• In person (one-to-one)
• Third party contractors
• Online
• Events (one-to-many)
• Phone

Start creating a Buyer Journey Map of your customers as they interact with your business. It will help you to clarify the points of engagement between you and your customer. This will allow  you to start defining your operations as business and identify opportunities for automation.

4. Channels

Channels are also known as the avenues through which your prospects come into contact with your business and because part of your Buyer Journey.

Usually this will be covered under the marketing plan for your business.

Question to ask when identifying the channels to reach your prospects are:

• How are you going to tell your customers about your value proposition?
• Which channels they are in?
• Are they on social media?
• Are they radio listeners?
• Are they at an event or conference?
• Do they watch TV? Or are they watching YouTube?

Examples of Channels: 

• Social media
• Public speaking
• Electronic mail (email marketing)
• Networking
• Affiliates
• Existing platforms
• PR
• Unconventional PR
• Social advertising
• Trade shows
• Content marketing
• Community building
• Offline advertising (billboards, TV, radio)
• SEM (Search Engine Marketing)
• SEO (Search Engine Optimisation)
• Engineering as marketing
• Viral marketing
• Targeting blogs
• Sales and promotions for commissions

It is utterly important to your business in order to understand how to reach your customers

5. Key Activities

The Key Activities of your business, products or services are the actions that your business undertakes to achieve the value proposition of your customers.

Question to ask when identifying your key activities:

• What activities does the business undertake in achieving the value proposition for the customer?
• What is the resource used?
• Time?
• Expertise?
• Distribution of product?
• Technical development?
• Strategy?
• Offer resources (human/physical)?
• What actions does it take you and/or your staff to achieve value exchange?

Examples:

• Consulting
• Managing
• Designing
• Web development
• Digital Marketing
• Baking
• Driving

6. Key Resources

Next, you should think about what practical resources are needed to achieve the key activities that you’ve stated for the business.

These resources are what is needed practically to undertake the action/activities of your business:

• Office space
• Computers
• Hosting
• People (staff)
• Internet connection
• Car
• Bike
• Electricity
• Digital System

7. Key Partners

Key Partners are another important factor to look at, they are a list of other external suppliers, companies or parties that you may need, to achieve your key activities and deliver value to the customer.

This moves into the time when “if my business cannot achieve the value proposition alone, who else do I need to rely on to make it happen?”.

For example, if you are running a grocery stall, you may need to find a local baker to supply fresh breads to your store. They are a key partner to achieve the value of your business promises to your customers.

8. Cost Structures

This is defined as the monetary cost of operating as a business. This is something that you want to optimize for a sustainable business.

• How much does it cost to achieve my businesses key activities?
• What are the costs of my key resources and key partnerships?
• How much does it cost to achieve the value proposition for my customers/users?
• Are there additional costs to running a business?
• Legal?
• Insurance?
• What is the cost of my business?
• It is important also to place a monetary value on your time as a cost.
• How much would it cost you to hire you?
• What is the opportunity cost of running your business?

9. Revenue Streams

Lastly, the Revenue Streams are defined as the way by which your business converts your Value Proposition to the customer’s problem into financial gain. It is very important to understand the pricing of your business according to the pain of purchase in exchange for the pain of solving the problem for your customer. This is undoubtedly the best part of the BMC when you’re doing it right.

But the question is how do you gain revenue?

There are many different revenue models that can be implemented:

• Pay per product (pay per view)
• Fee for service
• Fixed rate
• Subscription
• Dividends
• Referral feeds
• Freemium
• Equity gain

Hope that after knowing what is Business Model Canvas and how to use it, you can start scaling up your business.

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