Starting a business from scratch is quite a challenge. It requires a lot of work and planning. The amount of preparation put into the process significantly influences the success of the business. For this reason, a business model canvas is important. In this article, we will be looking at the details of a business model canvas, why it is important and how you can create one.
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Business Model Canvas FAQs
A business model canvas is important because it helps you gain an in-depth understanding of your business. A business model canvas is made up of a wide range of segments that are central to your business. By strategically digging into each of the segments, you can tell which areas need improvement and visualize a clear path on which you need to build your business.
Creating a business model canvas doesn’t have to be difficult. You need to reflect keenly on your business and find out all the important details. Such details include; the key partners, activities, value proportions, customer relationships, customer segments, key resources, channels, cost structures and revenue streams.
The main key activities in a business model canvas depend on the type of business. They consist of everything that your business does with resources (money, labor and raw materials among others). Examples of key activities include production, problem solving and the network of maintaining the key resources.
The value propositions are typically in the middle of a business model canvas. It includes the products or services your business will offer it’s customers and how it differs from your competitors. Example value propositions could be; price, efficiency, fancy packaging etc.
In a business model canvas, your business model is on paper and visualized with the external and internal environments split into subsections. A business plan on the other hand often stems from the financing plan. Both are necessary for starting a new business.
Business Model Canvas Definition
A business model canvas is a management and entrepreneurial tool. The business model canvas is made up of a description, design, challenge, invention and the pivot of your business model. In simpler terms, it is a plan that describes how your business plans on making money whilst continuously growing, including all the components that are important to the process.
Internal Components of a Business Model Canvas
There are two types of components contained in a business model canvas- internal and external business components. The internal ones are made up of the elements within the business that significantly affect its success. They are on the left side of the business model canvas, with value propositions in the middle. They include;
Key Partners
These are the people or businesses that are going to assist you with your business. Note that you personally cannot handle every aspect of your business. Therefore, you may need some assistance from different parties here and there. Examples of key partners are suppliers and buyers. When determining the key partners, you need to figure out what you need from them. You may not need to form partnerships at the start of your business. However, the more your business grows, the more the need for partners.
Key Activities
These are the most important things that you must handle to make your business model efficient. They are mandatory activities that you need to be professionals at for you and your business to become successful. For instance, if you are a manufacturing company, your key activity is manufacturing products. Your business can include more than one key activity depending on the type of business.
Key Resources
This section consists of all the resources you need for your business to succeed. The resources may include raw materials, labor, and financial resources. The component must include every resource without which the business would fail. Make sure to split them into the most important ones, how and where you will get them.
Cost Structure
The cost structure consists of the amount of money you need to keep your business alive. Here, there are several factors to consider. They include the cost of getting materials, manufacturing the products, labor, rent, electricity, equipment and machinery, as well transportation. You have to make sure that you factor in all the costs. You have to split them into the most essential ones and the most expensive ones. You also want to consider the cost of the key partnerships and other every activity. You will also need to perform some accounting tasks and answer some vital questions about the economies of scale, fixed and variable costs. Just make sure you include everything that will cost you money in this section.
External Components of a Business Model Canvas
The external components of a business model canvas are made up of the external features that will influence the success of your business. They are typically on the right side of a business model canvas. They include;
Customer Relationships
In this segment, you discuss how your business intends on getting customers. How you will know your customers and grow them. The customer relationships depend on the customer segments and the channels you intend on using. For instance, if you are using a website, you have to figure out how you will get clients to visit the website.
Customer Segments
This is one of the most important components. You have to know the people clients you are catering to for your business to become successful. Here, you figure out who you want to sell to and what would drive them to purchase from you. Therefore, you have to figure out the specifics like where the clients live, their social habits, age, and gender among other details. This information is open to changes after testing and selling your product.
Channels
This component is made up of what you use to deliver the products from your business to the computer. Therefore, you have to decide which outlets are ideal for your business. Traditionally, this component would be made up of physical channels only. However, currently, you can have both physical and internet or mobile channels since your business needs to have a web presence.
Revenue Streams
Revenue streams refer to how you will make money from your value proposition (what you’re offering your customers and how it’s different from your competitors). You have to ask yourself questions like what is the value for which your clients are paying? How do you intend on capturing the said value? It could be through direct sales, freemium, subscription or licensing models. It all depends on the kind of business. Some businesses apply more than one revenue model. The revenue model greatly determines the amount of money you make.
Creating Your Own Business Model Canvas
When creating your business model canvas, you have to start by collecting the following items;
- A template for your business model canvas
- The writing utensils
- Post-it notes
- A white board or a book for business model generation (these two are optional)
Below is a step by step guide for creating your own business model canvas;
- Create a canvas with the different internal and external segments mentioned above. Make sure you have a large surface to incorporate all the information.
- After creating the writing surface, the first thing you need to do is figure out who your customers are going to be and their demographics. Fill in the information on the customer segment section.
- From there, you can proceed to the value section. Here, reflect on the value you wish to deliver to your clients through your business and how you will achieve it. Include information like customization, uniqueness, performance and how you plan to achieve them.
- The next section is the channels. Fill in information on how you intend to get your product to your customers.
- Proceed to the customer relations segment. Here, include information on the type of relationship you want to have with your customers, how you plan on making it a reality and maintaining it.
- From there, fill in the revenue streams segment. Here, consider how your customers will react to your value propositions. Consider all aspects of how you intend on making money.
- Then you have to fill in the key resources segment. Include all the resources your business will require to succeed.
- After the resources segment, go to the key activities segment. This segment is made up of what your business needs to do with the key resources.
- Proceed to the key partnerships portion. Here, discuss the strategic alliances, joint ventures, competition, and suppliers.
- Finally, complete the cost structure section. It is made up of all potential expenses.
Business Model Canvas Template
In a Nutshell
A business model canvas is a tool for strategic management and entrepreneurship. It is an important tool for planning a business model. It is made up of two essential business components (internal and external) which are further split into subsections. These sections make the business model easy to understand so that you can begin developing your business.
