The Business Model Canvas - 9 Steps to Creating a Successful Business Model - Startup Tips

Summary

This video script delves into the concept of a business model, emphasizing its importance for startups. It outlines nine key components crucial for any company's success, from value proposition to cost structure. The script highlights the shift from traditional functional organization to a model-centric approach, guiding entrepreneurs to focus on solving customer problems and fulfilling needs. It also touches on the modern dynamics of distribution channels, customer relationships, revenue streams, key resources, partnerships, activities, and costs, advocating for a hands-on approach to validate hypotheses and understand the market deeply.

Takeaways

• 📊 A business model is the most efficient way to organize a company, detailing how it creates value while delivering products or services.
• 🏗️ Traditionally, companies were organized around functional departments, but now it's more effective to think of the company in terms of its business model components.
• 📦 The value proposition defines what the company is building and for whom, focusing on solving a customer's problem or fulfilling a need rather than just the product itself.
• 👥 Understanding customer segments is crucial, as it helps to identify who the customers are and why they would buy the product or service.
• 📡 Distribution channels describe how the product gets from the company to the customers, which can be physical, virtual, or a combination of both.
• 💬 Customer relationships involve strategies to acquire, retain, and grow customers, differing for web/mobile channels compared to physical ones.
• 💰 Revenue streams outline how the company makes money from its products or services, considering different revenue models and pricing strategies.
• 🔑 Key resources are the necessary assets to make the business model work, including finance, physical assets, intellectual property, and human capital.
• 🤝 Key partners and suppliers are essential for acquiring necessary resources and performing activities that support the business model, with partnerships evolving as the company grows.
• ⚙️ Key activities are the most important tasks the company must perform to make the business model work, such as production, problem-solving, or supply chain management.
• 💵 Costs and expenses include all the financial outlays required to operate the business model, taking into account fixed and variable costs, and economies of scale.

Q & A

What is a business model and why is it important for a startup?

A business model is a framework that outlines how a company creates value for itself while delivering products or services to its customers. It's important for a startup because it helps in organizing the company's approach to the market, identifying value propositions, and understanding the dynamics of customer relationships, revenue generation, and cost management.

What is the significance of the value proposition in a business model?

The value proposition is crucial as it defines what problem or need the company's product or service is solving for its customers. It's not just about the features of the product but about the benefits it provides and the pain points it addresses for the target customer.

How has the concept of organizing a company changed from the past to the present?

In the past, companies were organized around functional departments like sales or engineering. However, the modern approach focuses on the business model, which involves understanding the interplay between value proposition, customer segments, channels, customer relationships, revenue streams, key resources, key activities, and costs.

What are the different types of customer archetypes or personas that a startup might have?

A startup might have multiple customer archetypes or personas, each with distinct geographic, social, and demographic characteristics. Understanding these in detail helps tailor the product or service to meet the specific needs and preferences of each segment.

How have distribution channels evolved over the years?

Before the 1990s, distribution channels were primarily physical, such as stores and salespeople. Since the mid-1990s, with the advent of the internet and mobile technology, virtual channels have become prevalent, including web, mobile apps, and cloud services.

What is the relationship between customer relationships and other elements of the business model?

Customer relationships interact with other elements like channels, value proposition, and revenue streams. It involves strategies for acquiring, retaining, and growing customers, which can differ significantly between physical and virtual channels.

Can you explain the concept of revenue streams in a business model?

Revenue streams refer to the ways in which a company makes money from its products or services. It involves understanding what value customers are willing to pay for and the strategy for capturing that value, which could include direct sales, premium models, licensing, or subscription models.

What are key resources and why are they important for a business model?

Key resources are the assets and capabilities necessary for the business model to work effectively. They can include financial capital, physical assets, intellectual property, and human capital. Identifying and managing these resources is essential for the success and sustainability of the business.

What role do key partners and suppliers play in a business model?

Key partners and suppliers are crucial for providing necessary inputs, services, and support to the business. They can influence the company's operations, strategy, and competitive advantage, and their relationships often evolve as the startup grows.

Why are key activities important in the context of a business model?

Key activities are the core actions that a company must excel at to deliver its value proposition and maintain a competitive edge. They could include production, problem-solving, or supply chain management, and understanding these activities helps in optimizing operations and costs.

How should a startup approach understanding and managing costs within its business model?

A startup should consider all costs associated with operating its business model, including both obvious and hidden costs. It's important to differentiate between fixed and variable costs, understand economies of scale, and manage cost efficiency to ensure profitability.

Outlines

00:00

🚀 Understanding the Business Model

This paragraph introduces the concept of a business model as the framework for organizing a startup. It emphasizes the shift from traditional functional organization to a model that focuses on value creation for the company while delivering products or services. The speaker outlines the nine essential components of a business model, starting with the value proposition, which is about solving a customer's problem or fulfilling a need, rather than just listing product features. The importance of understanding the difference between solving problems and fulfilling needs is highlighted, as it affects the total available market. The paragraph also touches on the importance of identifying customer archetypes and personas to deeply understand the customer base.

05:01

🛍 Channels, Customer Relationships, and Revenue Streams

The second paragraph delves into the specifics of distribution channels, which have evolved from physical to include web, mobile, and cloud-based options. It discusses the importance of understanding how products reach customers and the relationship between channels and customer relationships. The paragraph also addresses the concept of customer acquisition, activation, retention, and growth, highlighting the differences in strategies for web-based versus physical channels. Revenue streams are explored, questioning how the company will capture value from customers, whether through direct sales, premium models, licensing, or subscriptions. The paragraph concludes with the necessity of testing hypotheses about customer relationships and revenue models through customer interaction.

Keywords

💡Business Model

A business model is the framework that outlines how a company intends to generate revenue and make a profit. It details the value a company offers to its customers, how it will reach those customers, and how it will capture that value in the form of revenue. In the script, the business model is described as a way to organize all the pieces of a company, emphasizing its importance in understanding how a company creates value for itself while delivering products or services.

💡Value Proposition

The value proposition is a marketing and branding phrase that describes the unique benefits a product or service offers to customers. It is the core reason why a customer would choose one product over another. In the video, the value proposition is highlighted as a critical component of a business model, focusing on solving a problem or fulfilling a need for the customer, rather than just listing features.

💡Customer Archetypes

Customer archetypes are generalized representations of a company's target customers, including their characteristics, needs, and behaviors. The script mentions that understanding these archetypes is crucial for startups to tailor their offerings and marketing strategies to the specific needs of their customer segments.

💡Channels

Channels refer to the methods or pathways through which a company distributes its products or services to customers. The script distinguishes between physical and virtual channels, noting the evolution from traditional physical distribution to modern digital channels like the web, mobile, and cloud.

💡Customer Relationships

Customer relationships encompass the ways in which a company interacts with its customers to acquire, retain, and grow its customer base. The script uses the metaphor of a double-sided funnel to illustrate the process of attracting new customers and keeping existing ones engaged.

💡Revenue Streams

Revenue streams are the different sources through which a company generates income from its products or services. The script explains that understanding the value customers are willing to pay for is essential to determine the appropriate revenue model, such as direct sales, premium models, licenses, or subscriptions.

💡Key Resources

Key resources are the assets and capabilities that are essential for a company to operate and execute its business model. The script mentions various types of resources, including financial capital, physical assets, intellectual property, and human resources, emphasizing their importance in facilitating the company's operations.

💡Key Partners

Key partners are the external entities that a company collaborates with to enhance its operations, innovation, and market reach. The script discusses the importance of identifying and engaging with the right partners, such as suppliers, joint venture partners, or strategic alliances, and how these partnerships evolve over time.

💡Key Activities

Key activities are the critical actions that a company must perform to deliver its value proposition and maintain its business model. The script differentiates between production and problem-solving activities, highlighting the need for companies to excel in their key areas of operation.

💡Costs

Costs are the expenses incurred by a company in the process of operating its business model. The script emphasizes the importance of understanding both fixed and variable costs, as well as the potential for economies of scale, to effectively manage and minimize expenses.

💡Problem vs. Need

The script differentiates between a 'problem' and a 'need,' explaining that while problems are specific issues that customers want to be solved, needs are more fundamental human desires or social requirements. Understanding this distinction is crucial for startups to identify the broader market potential of their offerings.

Highlights

A startup's organization is best approached through a business model.

A business model is defined as a company's method of creating value for itself while delivering products or services to customers.

Traditionally, companies were organized around functional departments; modern thinking emphasizes a holistic business model approach.

The business model is broken down into nine key components, applicable to any company size.

The first component is the value proposition, focusing on solving a customer's problem or fulfilling a need rather than just listing product features.

The difference between a 'problem' and a 'need' is crucial for understanding market potential.

Identifying customer archetypes or personas is essential for startups to tailor their offerings effectively.

Channels describe how products reach customers, with a shift from physical to virtual channels since the mid-1990s.

Customer relationships involve acquiring, retaining, and growing customers, with strategies varying between web and physical channels.

Revenue streams are about how a company makes money from its products or services, considering different strategies like direct sales or subscription models.

Key resources encompass the assets and capabilities necessary for the business model to function, including financial, physical, and intellectual resources.

Key partners and suppliers are critical for a startup's success, with the nature of partnerships evolving over time.

Key activities are the core actions a company must excel at to make its business model work, such as production or problem-solving.

Costs include all expenses to operate the business model, with a focus on understanding fixed and variable costs and economies of scale.

Startups must get out of the building to test hypotheses about customers, channels, relationships, revenue, resources, partners, activities, and costs.

The business model framework provides a comprehensive approach to understanding and organizing a startup's strategy and operations.

Transcripts

so one of the interesting things about

thinking about a startup is how is your

company going to be organized and what

we now know is the most efficient way to

think about all the pieces just all the

parts is by a business model and so the

next question is okay Steve you just

told me to think about a business model

but what is a business model what are

all the pieces well let's take a look

and a business model is how a company

creates value for itself while

delivering products or services for its

customers now if you think about it in

the old days we'd think about how to

organize a company around functional

organizations we think no no no a

company is about its sales department or

its engineering department and you would

draw an orc chart but now we're going to

draw a very different diagram we're

going to draw a diagram of how to think

about all the pieces of a business and

so let's take a look at these nine boxes

nine boxes to describe any company from

the world's largest to a two-person

startup starting in your parents garage

let's take a look at the first piece

called the value proposition the value

proposition answers the question what

are you building and for who the value

proposition says hey it's not about your

idea or product it's about solving a

problem or a need for a customer that is

what pain are you solving what gain are

you creating and more importantly who

are your customers now value proposition

is a fancy word for what product or

service are you building this is where

you normally would list all your

features and here's all the speeds and

feeds and benefits and whatever but

you're really going to be asking a

different question than might have been

used to it's not all about your

technology your technology is just part

of the value proposition customers

really don't care about your technology

the customers are trying to solve a

problem or fulfill a need

by the way we'll be talking about this

through multiple lectures the difference

between a problem and a need is a

problem is I have an accounting problem

or I want to use a word processor and

and those types of products solve

problems but there are other things that

human beings do like I want to be

entertained or I want to have a date

those are some basic hardwired social

needs or I want to communicate with my

friends like Facebook or Twitter those

are needs needs are different than

problems and by the way if you could

find products that solve needs your

total available Market as you'll see

later is huge compared to I solve

specific

problems so the next thing is who are my

customers who are they and why would

they buy and as you'll hear a number of

times your customers do not exist to buy

you exist for them and what you're going

to do by getting out of the building is

figuring in out all their Geographic

social characteristics demographics such

that you actually could draw and put up

a picture of on your wall of who the

archetype is or who the Persona is of

your customer and it turns out that in

most startups you might have more than

one or two or three types of customer

archetypes and personas but you need to

understand them in detail and there is

no possible way you could have anything

but a hypothesis on day one of who they

are the next is channels how does your

product over here get to your customers

over here and we use distribution

channels to do that now what's really

interesting is

pre-1990s the only channels to get to a

customer was a physical channel that is

you went to a store you had salespeople

there was physical distribution but

since the the mid1 1990s in the last

couple of decades we now have virtual

channels the web mobile cloud and so

distribution channels the first question

you want to ask is how will I be selling

and how will I be Distributing my

products are they through physical

channels or are they web mobile or given

today almost every physical Channel also

has a web presence what is the

relationship of how your product gets

from your company to the

customers customer relationships it's

kind of the fourth piece and customer

relationships has a really interesting

interaction with these other three

pieces it basically says how do I get

customers how do I keep them and how do

I grow them and just like thinking about

distribution channels these are very

different for web mobile than they are

for physical channels but visually they

kind of look like this double-sided

funnel so let's just take a look at

quickly a web example and getting

customers you're going to be worrying

about how do I acquire them that is how

do I get them even to my website how do

I activate them that is how do I make

them do something and then later on

we'll see after I got them how do I keep

them around that is how do I not lose

them through attrition and churn and

then what can I do once I have customers

to make them spend more money or use my

product even more and so one of the

things we'll be thinking about is how do

I get keep and grow customers and just

like every other step you might have

hypothesis on day one but you're only

going to figure this out when you're out

of the

building the next thing is revenue

streams how do you actually make money

from your product and service being sold

to customer segments you know revenue

streams basically ask the question what

value is the customer paying for and it

actually has you think about what's the

strategy of how I'm going to capture

that value is it I'm going to just have

a direct sale and it's a transaction

based on Price is it a premium model

where I'm going to give away the product

for free and hope that some portion

convert later is it a license or

subscription model that Revenue model is

different than the pricing tactics that

is what is the dollar or pound amount or

Euro amount that I'm going to be

charging again the only way to figure

this out is being able to interact with

tens or hundreds or thousands of

customers till you finally understand

what the right Revenue stream and

revenue model

is next piece you want to think about is

what are the key resources what do you

need to make the business model work

what assets are important and what's an

example of an asset in a key resource

Well Finance do you need Capital do you

need a line of credit some assets are

and resources are physical do you need

physical plant like a manufacturing line

do you need specialized machines do you

need Vans and for delivery do you need

cars is there something else you need is

there intellectual property you need is

there patents you need to acquire or

protect do you need to acquire customer

lists or is it just that you need to get

great people great software programmers

in a specific area or great Hardware

designers or great manufacturing people

and then finally again the interaction

between intellectual and human capital

is that's another key resource what

specifically do you need to do to keep

these people and who are they

the next piece is who are your key

partners and suppliers and Partnerships

are kind of interesting is we need to

ask ourselves before what's the deal is

what exactly are we acquiring from

partners and also what activities are

they going to perform and when and this

is where startup sometimes make a

mistake of thinking well large companies

do Partnerships I guess I need those too

on day one turns out the type typ of

Partnerships you need in year one are

certainly not the ones you're going to

need in year three or 5 or 10 and the

types of Partnerships could be strategic

alliances joint ventures just regular

suppliers and buyers and so you need to

be thinking through who who they are and

actually getting out of the building and

testing

them next are Key activities what's the

most important things you need to do for

the business to make the business model

work are are you in the production

business you know are you making

something or are you in the problem

solving business like you're doing

consulting or engineering or you

managing Supply chains what what are the

key activities you need to become expert

at and then finally all this adds up on

the leftand side over here to costs what

are the cost and expenses to operate the

business model one of the interesting

things about cost is it's not just the

obvious ones like people or buildings or

materials what you're really going to be

asking or what are the entire costs to

operate our business model and so you

want to think about our what are the

most important costs you need to worry

about what are the most expensive

resources you're going to need to pay

for and what Key activities are the most

expensive and then you want to ask the

typical accounting things what are fixed

costs what are variable costs are there

economies of scale and you want to start

getting a good handle on what it is that

will end up costing you money to run

your

business