Are you the game changer, the disruptor in your organization?
Is your business up-to-date with the new changes in consumer behavior and technology?
When I decided to start an advertising agency in 2008, I had to follow a governmental program which requires the writing of a complete business plan. It was an annoying and time-consuming process. I hated it. As a marketer, I thought that there should be a better and more efficient way to describe your business model. What if there is an easy-to-use framework that highlights the critical elements of a business plan without the unnecessary fillers? Would you use it? A few years ago, I discovered what I think is one of the most useful tools in business.It is called the Business Model Canvas by Alex Osterwalder. It is a great tool to capture and create value for all organizations. I have been using it for years to help businesses innovate, and nowI am very excited to share it with you.
+ What is the Business Model Canvas?
Today, the Business Model Canvas is taught massively in business schools, and used in major corporations. It is considered a game changer for entrepreneurs, visionaries, and distributors. The Business Model Canvas is based on nine building blocks as illustrated in the graph below. It is a team exercise where ideas/notes are sketched on Post-it, and then put in the appropriate boxes on the canvas.
+ How to use the Business Model Canvas?
I always suggest starting by identifying and defining your target audience. It is essential to have a good understanding of your audience regarding behavior, motivations, frustrations and the goal that they want to achieve. The more insight you have on your audience, the better you can formulate the value proposition. The latter should be a solution to an existing problem. I will be a little more extreme and say that finding a value proposition that solves a problem is not enough. It has to offer high value for which your audience is willing to pay. In other words, people don’t like to spend; they tend to find cheaper or free substitutes to achieve their task unless the solution is worth the financial sacrifice. For instance, the design, simplicity and the dominant brand of Apple make its offering unsubstitutable and so valuable that people are willing to pay for the product.
Once the Customer Segment and Value Proposition blocks are completed, then you continue with the right side of the canvas which is the customer interface.
Key Channels are the different ways you are using to deliver your solution. Zara and other retail stores often use the Bricks and Clicks model where they have a physical store and an online one. Proctor & Gamble delivers its products to the customer through distributors and supermarkets.
Customers’ relationships describe the type of relationship you have with your customer. For example, Netflix is a self-service model where there is little interaction with the company representative unless you need technical support. On the opposite side, you find the luxury brands. Louis Vuitton’s business model is all about personalized service and care.
The Revenue Model lists your sources of revenue; it can vary significantly from industry to industry. Your business can be based on asset sales such as the traditional store with merchandise, or on usage sales such as a mobile operator, or on subscription sales if you are a publisher. Also, you can generate revenue via licensing if you are in the software industry or through commission if you are a real-estate agent.
Once the right side is finished, you can move to the left side and complete the infrastructure part.
Key Activities are the most important things you do to achieve your value proposition. Generally, it is the list of your crucial expertise. If you are in the manufacturing industry, you will list production and engineering. If you are in the digital and e-commerce space, you will list web and technology development as part of your key activities. Activities are either fulfilled by your key resources or by partners.
Key Resources describe the human resources needed to fulfill key activities, but also it can be intellectual resources such as patents.
Key Partners are the network of suppliers that help achieve your business key activities. The most common partnership is the buyer-supplier relationship that you often find in the consumer electronics industry. Sony, Panasonic, Apple work with a wide variety of suppliers that provide critical components to create the end product. The goal of the partnership is to reduce risk and access specific expertise.
The last part is the Cost Structure. Generally, it is a combination of fixed cost such as salaries/rent and variable cost such as the promotion of a specific event/product/service.
If we take the example of Google Business Model, here is how the framework will look like.
+ How to assess the robustness of your current model?
Now that you have completed the model, it is time to test its sustainability by assessing the three primary forces that drive the external context.
– Where is the market heading?
– What are the declining customer and market segments? The growing
– Where is the most significant unsatisfied customer’s need?
– What are customers willing to pay?
– How will the demand evolve with time?
– Who are the competitors? What is their strength?
– Who might become the new competitor? Is there any new insurgent preparing to enter the market or who had just entered the market?
– What are the products and services that can replace our solution?
– Do we have an extensive network of suppliers or does our model depend on one supplier?
– Is there any new technology that can threaten our solution?
– Are there any regulatory trends that can influence our market?
– Are there any societal shifts that can impact our buyers?
– What are the demographic trends and distribution of wealth that can affect our offering?
The Wii Case Study
The game industry is a growing industry, but it is very competitive with three main players: Microsoft, Sony, and Nintendo. They are continuously under pressure of improving the performance of the machine and the realism of their graphics. Video game companies are mainly targeting the hardcore gamers and continually fighting for market shares. But is there another unsatisfied need or another growing market? Wii realizes that there is a potential market for families where the need is high and the competition is low. Wii strategy gradually shifts its focus from the traditional customer segment which is the gamer to a broader market of casual players and families. The cost of technology improvements is invested in the creation of the motion control, a different technology that offers a fun experience for the whole family. By assessing the market, industry forces and critical trends, Wii evolved its model to reflect the new reality.
The Three Takeaways
1- If you are an entrepreneur or a value creator that is always thinking about how to transform your organization or build a new idea, the Business Model Canvas is your tool. It is a simple canvas with nine building blocks that represent the nine crucial elements of a business idea.
2- Design-driven, the Business Model Canvas is an easy-to-use framework where a team gets together, sketches ideas and posts it on a large print out of the Business Model Canvas.
3- The Business model canvas is not only meant to create new businesses, but it is also there to evolve existing ones and maintain their relevancy in a very competing landscape. It is time for existing organizations to test the robustness of their model by evaluating the three main contextual forces which are market and industry forces, and key trends.
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