I many cases when we start a business, we do so in a disorderly way and without having a well-structured plan. We rely on our previous experiences and knowledge of the subject. We make assumptions which in most cases are wrong or tend to be too optimistic. I mean, this makes much sense. Who would start a business without the knowledge of the subject and without a positive mentality?
STARTING A BUSINESS
Starting a business is a major risk, you’re not only you sacrificing or investing your time, but you will most likely have to invest money. You will have to decide if you’ll work on your business during your free time or quit your job and dedicate yourself 100% to it.
Without getting into statistics (not the subject of this article), I think it’s well known that the majority of new businesses close down within the first 5 years. Why? There are many reasons for this, but the most obvious one is because the business is not profitable, so it doesn’t make enough money to justify the time and investment.
In the world of Start-ups, “dynamic” methodologies have emerged to help entrepreneurs analyse their business projects before investing time and money. The purpose is to validate the idea and viability.
A few years ago entrepreneurs would devise an infamous “business plan” before starting a business. This document is long and impractical since you cannot make adjustments as you go on, and it’s difficult to visualize the different factors that affect your business since everything is written in sections. In a nutshell, a business plan is like writing a book about your business. It is used more as a formality to ask for loans from banks and investors, but it’s not very useful to validate and develop your business, that is why the Swiss author Alexandre Osterwalder developed a document called “Business Model Canvas”.
WHAT IS THE “BUSINESS MODEL CANVAS”
The “Business Model Canvas” is a template that helps document a new or existing business model. It’s 100% visual and dissects the business into 9 parts to be able to model it adequately. In addition to the original model, external factors that affect or may affect the model are usually included (market forces, macro-economic factors, global trends and indirect factors).
The idea of this template is to visualize all the elements separately, understand the relationship that each one has and how they can affect the value proposition of the product or service that the business offer.
The value proposition is what makes your business, product or service stand out and be more attractive to your customers than the competition. What do you do differently or better?
STRUCTURE OF THE BUSINESS MODEL CANVAS
The model is divided into 9 blocks and, as previously mentioned, each of these blocks has a direct relation and impact to the other blocks of the model. I have listed them below in no particular order.
Key Partners – This section is where you list your partners, suppliers and what they provide to your business as your dependence.
Key Activities – What type of activities are required to fulfill the value proposition? What activities are vital in order to achieve it? Key activities through distribution channels, relationships with customers and income.
Key Resources – What are the physical, human, financial or legal resources that are needed for the value proposal?
Cost Structure – What are the most important costs to the business? What activities and resources cost the most?
Revenue Streams – How much are your customers willing to pay for your value proposition? How do they pay? How much would they pay?
Value Proposition – Which of the client’s problems or needs are you solving?
Customer Relationship – What type of relationship / care / support do customers expect to receive from the business?
Channels – Through what channels do customers want to be served according to their current stage? How do you communicate today? What are the costs and which ones work better?
The value proposition is the central point for the development of the nine modules of the “Business Model Canvas”. If the value proposition is not well defined, you model will not work.
In addition to this model, there is a model that I like a lot and has helped me define the value proposition. I will talk about it in my next article.
As you can see, whether or not you have an ongoing business it’s worth doing this analysis. It doesn’t matter if your business is successful or if you are just starting. If your value proposition, your business model and the external forces that affect it are not identified, you will not have a clear strategy.