Table of Contents
In this post, we will be looking at business models, and we will also dive into the Business Model Canvas.
A business model is important as it helps map out the business, not only to devise a plan to make money but to help establish how a company makes money and how the business can create and deliver value to its customers.
I often refer to The Business Model Analyst when researching the Business Model Canvas. I highly recommend this site.
In this post, I’ll explain the 9 components of the business model and how they can help you create and deliver value to your customers and at the same time, help you make money for your business.
The Business Model Canvas
First, let us have an overview of the Business Model Canvas:
In this model, we see 9 key components:
1. Key Partners
Identify your key partners. Who do you work with to create value? Outsourcing is usually not in this component as they have no interest in your business. We are looking at partners that you work with, and there is a formal business relationship. Your partners can include suppliers, non-competitors, joint ventures, and competition (partnership with competitors).
2. Key Activities
Find out what is your business’s key activities. If you are a web development firm, your key activity might be programming or design. It is important to focus on the activities that will produce value for your customers. In this component, you should answer the question: What problem does your business solve? What product does your business products to solve a problem?
3. Key Resources
What resources do you need to create value? Your key resource should include tangible assets (equipment, office, etc.) and non-tangible assets (intellectual property, database, etc.). On top of that, you should consider your human resource and your finance (cash, loans, etc.).
4. Value Proposition
You should answer this question: why should customers buy your products/services? Your value proposition should be one sentence tightly focused on the problem your business wants to solve.
5. Customer Segments
The customer segments component is all about defining your buyer persona. You can include your target market as an over-arch, but in the end, you should define the target buyer persona.
6. Customer Relationships
How does your business interact with your customers? What should your customer be expecting from your business? There are 5 types of customer relations to consider: personal assistance, self-service, automated services, community, and co-creation.
7. Sales Channels
How do you deliver your products/services to your customers? Which channel is most efficient and effective? You can consider using a funnel as a form of the sales channel.
8. Cost Structure
Do you know the cost that you will incur in the operation of your business? Remember that the cost should include tangible (salary, maintenance, etc.) and intangible costs (goodwill, brand reputation, etc.).
9. Revenue Stream
What is your monetization model? Your revenue streams can be freemium, direct sales, or subscription. This component answers the question, “how does the money flow into your company?”
Inclusion of environment and social impact
Business Model Inc. has expanded the business model canvas to include 2 new components, making up 11 components:
10. Societal and environmental benefits
How has your business contributed to better society and the environment? Most of the time, companies look at community service responsibility (CSR) and sponsor environmental efforts. For example, Russell Brunson’s Click Funnels has supported Village Impact, where “every new funnel that goes live inside of ClickFunnels community equals a $1.00 donated to building schools in Africa.” They have donated more than $100,000 to help the schools in 2022.
11. Societal and environmental costs
Your business should also consider the negative impact on society and the environment. If your business is in paper-making, the direct impact would be on the trees. As a business, you will need to consider using sustainable sources.
The benefits component is usually tied to the “Revenue Streams” component, as revenue will allow a business to give back to the community. The costs component is usually tied to the “Cost Structure.”
With this in mind, this is Business Model Inc.’s Business Model Canvas with the additional 2 components:
Examples of Business Model Canvas
I’ll grab 2 examples that are presented at Business Model Analyst. They have provided really useful examples for us.
Airbnb Business Model
Here’s the description of the 9 components of the Airbnb business model:
- Customer segments – budget tourists, unconventional travelers, locals seeking extra income
- Value proposition – easy and fast booking, huge offer, competitive prices, local lifestyle
- Distribution channels – social media, travel bloggers, word-of-mouth
- Customer relationships – self-service with customer support
- Revenue streams – a fee system, affiliate marketing
- Key resources – a community of both landlords and guests, platform, IT-specialists
- Key activities – user research, customer support, maintenance
- Key partners – tourists and travelers, hosts, investors, payments providers, insurance companies
- Cost structure – marketing, platform maintenance
LinkedIn Business Model
The 9 component will include:
- Customer segments – HR, professionals seeking employment, marketing specialists
- Value proposition – building a professional network of contact, sourcing potential employees, blogging.
- Distribution channels – app stores, website
- Customer relationships – self-service, customer support
- Revenue streams – freemium, marketing, and hiring solutions
- Key resources – platform, IT-specialists, user-generated content
- Key activities – platform maintenance
- Key partners – users, SlideShare
- Cost structure – marketing, maintenance
What’s Next?
The business model canvas provides a very good overview of your business. But your next question would be, “What’s next?”
Strategyzer has provided 14 ways to apply the business model canvas for your reference, but if you look at your business model, you should be able to derive some action plans.
For example:
- If your business value proposition is to provide digital solutions to account firms and your customer relationship does not include a digital channel, your action plan is to develop a digital communication channel with your customers.
- If your cost structure is high on one activity, for example, office rental, but most of your partners and sales channels are digital, you can consider reducing the cost of your office rent.
As you can see, there are many ways to read and interpret your business model on a canvas. Your business decisions can be much more efficient when you map out your business components.
Finally, I highly recommend Business Model Analyst if you want to read more about the business model canvas.