What is a business model?
Every organisation has a "business model": Mobistar, Barco, as well as your accounting firm, the hospital and even the fiscal administration.
The business model describes the way in which an organisation creates, supplies and retains its value (and capitalises it).
Many business models are currently under pressure due to the growing number of possibilities offered by ICT. Disruptive start-ups are crippling the hotel and music industries, travel organisations, retail stores, publishing houses and taxi companies. Therefore, it is essential that you continuously review your business model. If you don't bother to question your business model yourself, it is highly likely that someone else will do it for you, either directly or indirectly.
The Business Model Canvas
The method was developed by Alex Osterwalder. He also wrote a book on the subject in collaboration with Yves Pigneur. The Business Model Canvas is a tool for the visual creation of a business model.
On a large poster - the canvas - the 9 essential elements of any business model are indicated (this poster can be downloaded here). At the heart of the business model is the value proposition. These are the products and/or services offered to your customer base. The left section of the model is devoted to how you work ('how'): your partners, resources and activities? The right section relates to your customer base ('who'). Who are you selling your products/services to, how are they delivered and how do you maintain relationships with your customers? Enter your costs and income in the boxes at the bottom of the model.
How to fill in the different parts of the business model canvas?
To complete each part of the model, we recommend that you ask yourself relevant questions and write the answers down on yellow post-its.
1. CUSTOMER SEGMENTS
Customer segments and the value proposition form one of the business model's key elements. For this part of the model, you need to define the segments you want to serve. Who are your customers? Does your customer base include various groups of customers? What are the needs of your (groups of) customers? Who are your most important customers?
2. CUSTOMER RELATIONS
How will you contact the different customer segments? Online only, or will you have face-to-face contact with your customers? Which method is most profitable for each segment E.g. staff assistance. account management, self-service, automated services, communities, co-design, etc.
3. DISTRIBUTION CHANNELS
Enter your marketing and distribution strategy in this section of the model. How is your customer base kept up to date with your offer? How can they access your offer: in a shop or online? How are they informed about your product?? What is the best way for your customer base to experience your value proposition?
4. VALUE PROPOSITION
What distinctive or added value does your product or service offer the customer (innovation, reduced costs, performance, risk reduction, etc.)? What need or problem are you solving? Do your customers really need your product? Not every customer segment reacts the same way. This explains why the perception of value differs by customer segment.
5. STRATEGIC PARTNERS
Which strategic partners or external advisors provide essential added value to your company's management? Obviously, the reasons for their strategic importance may differ. Are they essential to the company's management in order to limit the risks? Do they offer knowledge and expertise? Is the latter essential to your service/product? Which partners are crucial to your success?
6. KEY ACTIVITIES
Which activities and production processes provide your company with added value at the end of the day? Clearly explain how you add value to the quality of your product, maintain customer relations and acquire new customers.
7. KEY RESOURCES
What resources do you need to create your product or value proposition? To maintain customer relations? To attract new customers? To get the product to your customer or to be paid? Consider physical resources (the company's equipment, such as a computer or a camera), intellectual resources (a patent or a brand) and human resources (staff).
8. SOURCES OF INCOME
Where does your income come from? In other words, what is your remuneration model (now and in the future)? Is your income proportional to the financial expectations of customers? How can you develop additional sources of income? Consider other remuneration models (subscription, basic model, tying, etc.).
9. COST STRUCTURE
The cost structure includes all costs required for the operation of the business model and the development of central activities. Which costs are fixed (commercial and industrial premises, machines) and which are variable (purchase of products)? Which company resources are costly, and can savings (economies of scale) be made or benefits obtained?
Reviewing your existing business model
Don't think your value proposition is distinctive enough? Do you feel as though market needs have changed? Or do you want to create new sales or distribution channels, try to establish partnerships or take a detailed look at the company's management? If so, then the Business Model Canvas is also a very useful tool. You can quickly and visually identify which parts of your company are essential for increasing success, which parts can be improved and which modifications and innovations are required.
When the canvas is complete, you can focus on various elements and ask yourself the question: "What would I do if ...? "
For example, what would you do if this customer no longer existed or these resources were no longer available? Conversely, it is also possible to add elements which were not previously part of your business model. For example, an additional sales channel or a partner who you hadn't considered. In this way, you can renew your business model. After a little practice, you will quickly become an expert.
Preparation is the key
The Business Model Canvas will allow you to consider your business model in a structured manner. You can find explanations and instruction videos online which will help you apply this technique. You do not need other tools to develop simple ideas related to strategic decisions with a low financial impact, which will not affect the business strategy.
However, you can't start without being prepared. You should consider the following before beginning:
- Your objective or the final outcome: which question do you need a precise response to? What problem will it help you resolve? The model is perfectly adequate for studying an existing situation. However, if you want to develop a new service/product, a market analysis may be required.
- Scope: which business model do you want to review? The model for the whole organisation, a department or a team?
- Follow-up: after having completed the canvas, you will inevitably ask yourself "What do I do with this document?? More often than not, the business model is a theoretical exercise which is not subsequently used. Consider subsequent stages, who will be responsible for these stages and which resources will be required to carry them out.
It is certainly a good idea to read the Business Model Generation book to determine the best way to apply this canvas model, as it forms part of a much broader approach, the ‘Business Model Generation’. Set aside enough time to brief your team.
However, this canvas model cannot provide answers to all your questions and cannot solve all your problems. A 'Lean Canvas', which is better suited to the specific issues affecting a start-up, has already been developed. The subsequent model, 'Value Proposition Canvas', is more appropriate for the design of new products, service and value propositions. There is also a Social Lean Canvas which includes aspects required for the creation of a social business model.
Online tools available
- There is an application which helps you complete the business model canvas (€25).
- The collaboration tool Tuzzit, launched by a Belgian start-up, can be used to complete a pre-filled canvas, create others and add and pin post-its, photos and links.
- Youtube : Osterwalder explaining the Business Model Canvas (video) & Business Model Canvas explained in 2 minutes