A Business Model Canvas provides direction for an organization’s go-to-market strategy. Initially proposed by Alexander Osterwalder, it is a visual template used by an organization to document its business model by addressing nine key components.
The first component, Customer Segments, define those homogeneous market segments with a high probability to purchase the organization’s offering and derive value from it.
But because an organization has limited resources, it must rank and prioritize which segments to serve (served market) and which to ignore. This is a crucial step (particularly for start-ups) as there is a temptation to adapt (development, service, support) to customers offering to make a purchase. Unfortunately, pursing an opportunistic versus a disciplined market focus will splinter resources and deter an organization from achieving its vision.
Business Model Canvas – Value Proposition
The second component, Value Proposition, should focus on solving a customer problem. Specifically, a value proposition is a promise of value and, most importantly, the realization of value, from the customer’s perspective.
The Value Proposition, or sometimes referred to as the Unique Selling Proposition, should be thought of as an umbrella concept for communicating key messages while also providing context for the organization’s relative market position.
Value Drivers support the umbrella Value Proposition but focus on the key personas in the customer buying process. They provide specific, meaningful and relevant messaging. Also, acknowledging the strategic and operational perspective and the functional area (Sales, marketing, Finance, IT, etc.) is imperative. In addition, there must be significant economic benefit so the customer sees a compelling reason to act now.
Business Model Canvas – Content Platform Channels
The third component, Content Platform Channels, is important because individuals learn differently — so it’s critical to utilize the right type of content and channels when communicating. There is no one-size fits all approach nor can the optimal learning style be served to each and every individual. Seven common learning styles exist and these styles should be considered before content platform channels are chosen for pushing content through channels. Addressing multiple learning styles increases the probability of making a connection.
It’s important to understand Content Types when building the content marketing plan to support the go-to-market strategy. Things to consider when creating and communicating content include:
- Content Types should align to the phases in the customer buying process.
- Content Format refers to the medium used to communicate: digital, printed or verbal.
- Content Platforms are the channels or vehicles used to deliver and present the content or communications to the buyer.
Business Model Canvas – Customer Relationships
The fourth component, Customer Relationships, refers to the relationship between the customer and the organization. It’s important to think through what type of relationship the organization wants with each segment, how it can build that relationship, how much that will cost, and how best to manage it and the corresponding timeline.
Here are five types of Customer Relationships:
Prospect – prospects fit the Target Account profile and by definition fall within an organization’s served market definition. The focus is to nurture relationships with prospects and convert them to customers.
Customer – customers have purchased one’s offering. The goal should be to manage this relationship so that customers are net-promoters.
On-boarding – on-boarding is the first stage of being a customer and is critical for a successful relationship. Once a purchase decision is made, it is paramount that the customer realizes the value they believe they were promised through the value proposition and the value drivers.
Up-sell – up-selling is really focused on increasing share-of-wallet by the customer buying more or increasing the level or tier of the initial purchase.
Cross-sell – cross-selling is also focused on increasing share-of-wallet but is done by introducing new offerings for the customer to buy that are outside of the original purchase.
Business Model Canvas – Revenue Streams
The fifth component, Revenue Streams, is defined by each customer segment.
There are primarily two different types of revenue streams:
- Transaction Revenues that result from one-time payments
- Recurring Revenues that result from ongoing payments.
Revenue streams can be generated in a number of ways:
Basically, ownership rights are sold to a physical product.
The use of a particular product or service is sold and the amount paid is dependent upon the usage.
Continuous or repeated access to a product or service is sold.
Granting the exclusive right for a particular asset for a fixed period of time in return for a fee.
Owners retain a copyright while selling licenses to third parties (organizations or individuals) to use protected intellectual property for a fee.
Intermediation services performed on behalf of two or more parties.
Fees for advertising (physical or digital) a particular product, service or brand.
Business Model Canvas – Key Resources
The sixth component, Key Resources, refers to the must-have resources an organization needs to be successful. These resources can be financial, physical, intellectual or human and can be owned, leased, licensed or acquired.
Having a True-North mentality and laser-like focus is required for this exercise, otherwise the Key Resources can become overwhelming and unattainable. The use case, unique differentiation and value drivers for the key personas in the customer buying process will serve as a regulating mechanism to rank and prioritize the list of Key Resources.
Business Model Canvas – Key Activities
The seventh component, Key Activities, means the things or actions an organization must take in order to be successful.
Key Activities will vary from company to company but a best practice is for the organization to establish a goal. Emanating from the goal are SMART objectives supported by the appropriate strategies and tactics. Best-in-class companies cascade these organizational objectives, strategies and tactics down to each organizational function, department and individual.
It is said that Google use to, and may still, “Manage by Three.” Each employee has three priorities for the week which cascade down from their tactics. Interestingly, the rule of thumb is that employees should only attain two of the three each week. The thinking is that if all three tasks are attained then the tasks were not challenging enough.
Business Model Canvas – Key Partnerships
The eighth component is Key Partnerships which refer to the supply chain required for the organization’s success. Key Partnerships are often entered into to optimize the business model, reduce risks or to acquire key resources.
Optimizing the Business Model
For some organizations it is critical to optimize the allocation of resources and activities. Management guru Geoffrey Moore has schooled us on Core versus Context, the net of which means “stick to your knitting”. And, since every organization should be focused on fiscal responsibility and reducing costs, partnerships can help achieve those goals.
Obviously, it’s always a good idea to reduce risk whenever possible. And sometimes, in order to do this, it is in the best interest for competitors to band together to create a stronger force in the market which can benefit all while minimizing downside risks.
Acquire Key Resources
It’s almost impossible for any organization to possess all the resources needed or perform all the activities required in their business model. Many organizations create an eco-system that requires reliance on other organizations to provide resources or activities. The best relationships are mutually beneficial, plus it is never wise for an organization to be totally dependent on a partner—that would be a Key Resource or Key Activity.
Business Model Canvas – Cost Structure
The ninth and final component is Cost Structure which includes all the costs to operate the business model. Cost Structures vary by industry and also within industry. On one end of the spectrum an organization may choose to be the lost cost provider, while and on the other end an organization may choose to be the premium product and/or service provider.
Of course it is important to identify the most important costs necessary to run the business. However, the exercise to identify the most expensive resources and activities can lead to disaster if the analysis does not extend past a spreadsheet. For example, if an organization offers a premium product it should be extremely cautious when trying to substitute cheaper resources. This is because the cheaper resources may be diametrically opposed to the brand promise.
Addressing each of these nine business model components forms the basis for the Business Model Canvas. The Business Model Canvas is a perfect backdrop to formalize the Go-to-Market Strategy.