The image above portrays a Business Model Canvas for LinkedIn. The Business Model Canvas is a strategic management tool to quickly and easily define and communicate a business idea or concept. It was developed by Alexander Osterwalder based on his earlier book: Business Model Ontology. It is a one-page document with the right side focusing on the customer (external), while the left side focuses on the business (internal). These two areas meet around the value proposition, which is the exchange of value between your business and your customers.
You can download your blank Business Model Canvas here. Complete it using different coloured sticky notes. This way as your model changes and morphs you can simply move or replace the notes you have made.
Let’s take a look at the 9 elements that make up the Business Model Canvas.
1. Value Proposition
“Sell the sizzle not the steak” means to sell the benefits, not the features. People buy solutions to their problems. For example, when someone hires me to, say write a business plan, they aren’t buying a business plan, they are buying more time for themselves and knowledge on what is involved in writing the plan. So my value proposition includes increased time and increased knowledge. In the LinkedIn example they have four parts to their value proposition:
- Manage professional identity and build a professional network
- Identify and reach the right talent
- Reach the target audience
- Access to LinkedIn database content via APIs and Widgets
2. Customer Segments
Customer segments in the Business Model Canvas mean all of the different segments who will buy your solution. In my case, it is people who want to launch or expand a successful small business in the Okanagan and Similkameen valleys and small business owners who want to learn about Digital Marketing or implement sales and marketing automation in their business. For LinkedIn, their customer segments include:
- Internet users
- Advertisers and marketers
Value propositions are delivered to customers through communication, distribution and sales channels. How does each customer segment want to be reached? Where do they hang out online?
How will you connect your products and/or services to your customer segments? Will you have a storefront or sell online or both? Will you use a website? Social Media? I have 4 primary channels – my website, social media, networking, and word of mouth. LinkedIn has two – LinkedIn website and mobile apps, and field sales.
4. Customer Relationships
Customer relationships are established and maintained with each customer segment. What type of relationship does each of our customer segments expect us to have with them? How do they want to interact with us?
Some examples are:
- Personal assistance, for example, retail stores and restaurants
- Dedicated, like bankers working through personal family channels over generations
- Self-service, for example, gas stations
- Automated service, look at Amazon for an automated yet personalized relationship
- Communities including all social media channels as examples
- Co-creation, consultants, and coaches are great examples of this
5. Revenue Streams
What are your customers actually willing to pay for the value you provide? Identify how you can increase the value to your business as a customer by creating recurring revenue streams. LinkedIn identified these revenue streams on their Business Model Canvas:
- Free offerings and premium subscriptions
- Hiring solutions
- Marketing solutions
The above are all of the right side or external elements of the Business Model Canvas. Now, you will use the following elements to determine how you are going to do it.
6. Key Resources
These are the resources you need to really create value. These include human, financial, and physical resources. Identify the key things you need in order to create value.
Some things to think about are:
- Do you have the right employees to deliver on your promise?
- What assets do you own that will need to be deployed? Intellectual property, land and building, computers, your branding…?
- How much money will it cost to implement what you need to create value?
7. Key Activities
Key Activities describe the most important things a company must do to make its business model work. For example, as a business consultant, one of my key activities is problem-solving. For LinkedIn, it is platform development. Another area of key activities is production. Ask yourself
- What key activities need to be performed in order to deliver on our value proposition?
- Our distribution channels?
- Customer relationships?
- Revenue streams?
8. Key Partnerships
Businesses today form many partnerships. Some are strategic alliances, some are with suppliers, some are with competitors. By asking ourselves these questions we can determine what kinds of partnerships we need to develop.
- Who are our key partners?
- Who are our key suppliers?
- Which key resources are we acquiring from partners? For example, banker or landlord.
- Which key activities do partners perform for us? A virtual assistant would be an example of this.
9. Cost Structure
There are two classifications of costs in your business: operating expenses (fixed costs) and the cost of goods sold (variable costs). Fixed costs are those that you have to pay regardless of whether or not you make a sale, such as rent and utilities. Variable costs are the costs that go into the finished product in order to sell is such as product ingredients or product packaging. The cost structure identifies the most important costs in your business model. Some of the questions you can ask yourself are:
- What are the most important costs inherent in our business model?
- Which key resources are most expensive? Our bank loan for example.
- Which key activities are the most expensive? Marketing? Production?
In LinkedIn’s case, they identified web-hosting costs, marketing and sales, product development, and general and administrative costs.
Now that you have completed the first run through of your Business Model Canvas, you have a complete set of assumptions or hypotheses about your business. The next step is to conduct market research to prove or disprove each hypothesis. These blog posts may help you with where to start.
Business Model Canvas images created by JAM.