Business Model Canvas

What is business model canvas

Objectives
• At the end of class, you should be able to:
• Explore the 9 segments of a BMC
• Complete a BMC based on your business concept
• Discuss types of Business Models
• https://www.youtube.com/watch?v=IP0cUBWTgpY

1
Business Model Defined
• A business model describes how an organization
creates, delivers, and captures value
• “a business model is supposed to answer who your
customer is, what value you can create/add for the
customer and how you can do that at reasonable
costs” ( Peter Drucker).
• A business model is a description of the rationale of how a
company creates, delivers and captures value for itself as
well as the customer.

3
Business Model Canvas
• A tool used by startups to show the logic of how the company
intends to bring value to the market.
• Framework for how you will make money.
• It has nine building blocks.
• It is not a business plan or a strategy.
• Allows for you to explain your business.
• Does your story make sense?
• It is a blue print for a strategy.

4
 Business Model Canvas

Value proposition Customer

Key Activities
Key Partners  What Key Activities  What value do we Relationships Customer
 Who are our Key  What type of Segments
do our Value deliver to the
Partners? customer? relationship does  For whom are we
 Who are our Key Propositions require?
 Which one of our each of our creating value?
 Our Distribution
Suppliers? customer’s Customer  Who are our
 Which Key Channels?  Segments expect us
 Customer problems are we most important
Resources are we helping to solve? to establish and customers?
Relationships?
acquiring from  What value are you maintain with
 Revenue streams?
partners? delivering per them?
 Which Key segment?
Activities do
partners perform?

Key resources
 What KR do our
Value Propositions Channels
require?  which Channels do
 Our Channels? our Customer
 Customer Segments want to be
Relationships? reached
 Revenue Streams

Cost structure Revenue Stream

 ? important costs inherent in our business model?  For what value are our customers really willing to pay?
 Which Key Resources/ Key Activities are most expensive?
1.The Customer Segments Building

• The Customer Segments Building Block defines the different groups of

people or organizations an enterprise aims to reach and serve.
• A business model may define one or several large or small Customer
Segments.
• An organization must make a conscious decision about which segments
to serve and which segments to ignore.
• Once this decision is made, a business model can be carefully designed
around a strong understanding of specific customer needs.
• Customer groups represent separate segments if:
• Their needs require and justify a distinct offer
• They are reached through different Distribution Channels
• They require different types of relationships
• They have substantially different profitability
• They are willing to pay for different aspects of the offer

6
2. Value Propositions Building Block

• The Value Proposition is an aggregation, or bundle, of benefits that a

company offers customers.
• Describes the bundle of products and services that create value for a
specific Customer Segment
• It is the reason why customers turn to one company over another. It
solves a customer problem or satisfies a customer need.
• Each Value Proposition consists of a selected bundle of products and/or
services that caters to the requirements of a specific Customer Segment.
• A Value Proposition creates value for a Customer Segment through a
distinct mix of elements catering to that segment’s needs.
• Elements of value proposition include; newness, convenience, price,
functionality, brand, convience, etc

7
3. The Channels Building Block

• Describes how a company communicates with and reaches its Customer

Segments to deliver a Value Proposition
• Channels serve several functions, including:
• Raising awareness among customers about a company’s products and
services
• Helping customers evaluate a company’s Value Proposition
• Allowing customers to purchase specific products and services
• Delivering a Value Proposition to customers
• Providing post-purchase customer support

8
3. The Channels Building Block

• Finding the right mix of Channels to satisfy how customers want to be

reached is crucial in bringing a Value Proposition to market
• Chose between direct Channels and indirect ones
• Chose between owned Channels and partner Channels.
• Owned Channels can be direct, such as an in-house sales force or a Web
site, or they can be indirect, such as retail stores owned or operated by the
organization.
• Owned Channels and particularly direct ones have higher margins, but
can be costly to put in place and to operate.
• Partner Channels are indirect and span a whole range of options, such as
wholesale distribution, retail, or partner-owned Web sites.
• Partner Channels lead to lower margins, but they allow an organization
to expand its reach and benefit from partner strengths

9
4. Customer Relationships

• Describes the types of relationships a company establishes with specific

Customer Segments
• A company should clarify the type of relationship it wants to establish with
each Customer Segment.
• Relationships can range from personal to automated.
• Customer relationships may be driven by the following motivations:
• Customer acquisition
• Customer retention
• Boosting sales (upselling)
• The motivation for customer relationship shift, for example from customer
acquisition to retention.
• Example of customer relationships include:
• Personal, self-service, automated, community, co-creation.

10
5. Revenue Streams Building Block

• Represents the cash a company generates from each Customer Segment

(costs must be subtracted from revenues to create earnings)
• If customers comprise the heart of a business model, Revenue Streams
are its arteries.
• A company must ask itself, For what value is each Customer Segment truly
willing to pay?
• A business model can involve two different types of Revenue Streams:
• 1. Transaction revenues resulting from one-time customer payments
• 2. Recurring revenues resulting from ongoing payments to either deliver
a Value Proposition to customers or provide post-purchase customer
support

11
5. Revenue Streams Building Block

• Ways to generate Revenue Streams

• Asset sale
• Usage fee
• Subscription fees
• Lending/Renting/Leasing
• Advertising
• Licensing
• Brokerage fees
• Each Revenue Stream might have different pricing mechanisms. The type of
pricing mechanism chosen can make a big difference in terms of revenues
generated. There are two main types of pricing mechanism: fixed and
dynamic pricing

12
Revenue Model; Fixed and dynamic pricing

• Fixed Menu Pricing • Dynamic Pricing

• Predefined prices are based on static • Prices change based on market
variables conditions
• List price • Negotiation (bargaining)
• Fixed prices for individual products, • Price negotiated between two or more
services, or other Value Propositions partners depending on negotiation power
and/or negotiation skills
• Product feature dependent
• Price depends on the number or • Yield management
quality of Value Proposition features • Price depends on inventory and time of
purchase (normally used for perishable
• Customer segment Dependent resources such as hotel rooms or airline
• Price depends on the type and seats)
characteristic of a Customer
Segment • Real-time-market
• Price is established dynamically based on
• Volume dependent supply and demand
• Price as a function of the quantity
purchased • Auctions Price
• determined by outcome of competitive
bidding
13
6. Key Resources Building Block

• Describes the most important assets required to make a business model

work
• These resources allow an enterprise to create and offer a Value
Proposition, reach markets, maintain relationships with Customer
Segments, and earn revenues.
• Different Key Resources are needed depending on the type of business
model.
• Key resources can be physical, financial, intellectual, or human.
• Key resources can be owned or leased by the company or acquired from
key partners

14
7. Key Activities Building Block
Describes the most important things a company must do to make its business
model work.
These are the most important actions a company must take to operate
successfully
Key Activities can be categorized as follows
Production
These activities relate to designing, making, and delivering a product in
substantial quantities and/or of superior quality. Production activity
dominates the business models of manufacturing firms
Problem solving
Key Activities of this type relate to coming up with new solutions to
individual customer problems. The operations of consultancies,
hospitals, and other service organizations are typically dominated by
problem solving activities. Their business models call for activities such
as knowledge management and continuous training.
Platform/network
Business models designed with a platform as a Key Resource are
dominated by platform or network related Key Activities. E.g. Jumia
15
8. Key Partnerships Building Block

Describes the network of suppliers and partners that make the business model
work.
Companies forge partnerships for many reasons, and partnerships are
becoming a cornerstone of many business models. Companies create
alliances to optimize their business models, reduce risk, or acquire
resources.
We can distinguish between four different types of partnerships:
1. Strategic alliances between non-competitors
2. Coopetition: strategic partnerships between competitors
3. Joint ventures to develop new businesses
4. Buyer-supplier relationships to assure reliable supplies

16
7. Key Partnerships Building Block

• 3 motivations for creating partnerships

1. Optimization and economy of scale
• The most basic form of partnership or buyer-supplier relationship is designed to
optimize the allocation of resources and activities. It is illogical for a company to
own all resources or perform every activity by itself.
• Optimization and economy of scale partnerships are usually formed to reduce
costs, and often involve outsourcing or sharing infrastructure.
2. Reduction of risk and uncertainty
• Partnerships can help reduce risk in a competitive environment characterized by
uncertainty. It is not unusual for competitors to form a strategic alliance in one
area while competing in another
3. Acquisition of particular resources and activities
• Few companies own all the resources or perform all the activities described by
their business models. Rather, they extend their own capabilities by relying on
other firms to furnish particular resources or perform certain activities.
• Such partnerships can be motivated by needs to acquire knowledge, licenses, or
access to customers. A mobile phone manufacturer, for example, may license an
operating system for its handsets rather than developing one in-house

17
9. Cost Structure Building Blocks

• Describes the most important costs incurred while operating under a

particular business model.
• Creating and delivering value, maintaining Customer Relationships, and
generating revenue all incur costs.
• Such costs can be calculated relatively easily after defining Key
Resources, Key Activities, and Key Partnerships
• costs should be minimized in every business model. But low Cost
Structures are more important to some business models than to others

18
9. Cost Structure Building Blocks

• Two broad classes of business model cost structures

• cost-driven and value-driven (many business models fall in between
these two extremes):
• Cost-driven
• Cost-driven business models focus on minimizing costs wherever
possible. This approach aims at creating and maintaining the leanest
possible Cost Structure, using low price Value Propositions, maximum
automation, and extensive outsourcing.
• Value-driven
• Some companies are less concerned with the cost implications of a
particular business model design, and instead focus on value creation.
Premium Value Propositions and a high degree of personalized service
usually characterize value-driven business models.

19
9. Cost Structure Building Blocks

• Cost Structures can have the following characteristics

• Fixed costs
• Costs that remain the same despite the volume of goods or services
produced. Examples include salaries, rents, and physical
manufacturing facilities
• Variable costs
• Costs that vary proportionally with the volume of goods or services
produced.
• Economies of scale
• Cost advantages that a business enjoys as its output expands. Larger
companies, for instance, benefit from lower bulk purchase rates
• Economies of scope
• Cost advantages that a business enjoys due to a larger scope of
operations. In a large enterprise, for example, the same marketing
activities or Distribution Channels may support multiple products.

20