Refine your IDEA using Business Model Canvas- (explained with example)
Why starting with Business Plan is not worth
What happens when you get an Idea for a Product or service. People usually start by drafting a Business Plan which is fine if your idea is well tested and you have a strong belief based on facts and data that you can sell this in the addressable market.
What happens if this is not the case!! Do you still have to go with Business plan?
If we look into the elements of a usual Business Plan it talks about the following:
- cover page and table of contents
- executive summary
- mission statement
- business description
- business environment analysis
- SWOT analysis
- industry background
- competitor analysis
- market analysis
- marketing plan
- operations plan
- management summary
- financial plan
- attachments and milestones
source — Creating a Business Plan: Expert Solutions to Everyday Challenges. United States: Harvard Business School. 2007
If you notice this business plan elements, it talks about “What” and “How” but it does not link each of these components which should help arrive to a decision on the business model selection.
Can you answer by going through the business plan if the product /service is Repeatable, Sustainable, Valuable and Predictable
Probably this may help you get the funding from investor but will it help you find the RIGHT business model?
What exactly a Business Model is?
According to wikipedia — A business model describes the rationale of how an organization creates, delivers, and captures value
In the 1950s, new business models came from McDonald’s Restaurants and Toyota.
In the 1960s, the innovators were Wal-Mart and Hypermarkets.
The 1970s saw new business models from FedEx
the 1980s from Home Depot, Intel, and Dell Computer;
the 1990s from Southwest Airlines, Netflix, eBay, Amazon.com, and Starbucks.
Today, entrepreneurs on the internet have also created entirely new models that depend entirely on existing or emergent technology. Using technology, businesses can reach a large number of customers with minimal costs.
If we look at all these companies and their Business Model there is one thing common. All these companies have Repeatable, Sustainable, Valuable and Predictable business model. [RSVP- https://www.slideshare.net/mjskok/2014-09-bo-s-presentation-v16-final-for-slideshare]
Business Model should NOT just describe how your company makes money but it should continuously look for a Business Model which is Repeatable, Sustainable, Valuable and Predictable.
Finally How to visualize and search for the Business Model
Use the Business Model Canvas: nine business model building blocks, Designed by Alexander Osterwalde to search for a Repeatable, Sustainable, Valuable and Predictable business model
Lets understand this using an example — Visa Inc , an American multinational Financial services company that facilitates electronic payment systems throughout the world.
Business Model Canvas is a Group activity where cross functional skilled people get together and fill up the blocks.
- Value Proposition — According to Osterwalder (2004), a company’s value proposition is what distinguishes it from its competitors.
Visa Inc ‘s Value Proposition is to provide Secured, Consistent, Reliable, always available Payment network which would enable Cashless payment and improved sales
2. Customer segments — Different types of customer segments include Mass Market ( e.g for Car) , Niche Market (e.g. Rolex), Segmented(the business may further distinguish its clients based on gender, age, and/or income), Diversify, Multi-Sided Platform / Market
Visa Inc’s customer segments can fall into Multi-Sided Platform / Market. It can provide service to card holder but at the same it can assist the Merchants who is accepting the card.Customer segment can also include strategic partners and Financial Institutions/Processors.
3. Distribution Channels — Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost-effective.
Visa Inc’s channels can include Banks who issue the cards, Mobile apps and online web channel who accepts the Visa Cards and also through various events like Olympics and conferences.
4. Customer Relationships — To ensure the survival and success of any businesses, companies must identify the type of relationship they want to create with their customer segments.
Visa Inc’s keep providing a secured service(like tokenized solution) to its customer segments through which they gain trust.They also provide self service tools through which customers like Banks, Processors are always connected. They provide API service to its strategic partners to create innovative solution in Mobile channel.
5. Revenue Streams — The way a company makes income from each customer segment.
Visa Inc’s makes income from each of transaction which is called service fee from merchants and for Issuers and acquirers they help in clearing and settlement through data service and get income which is called Data service charges.
6. Resources — They are considered assets to a company that are needed to sustain and support the business. These resources could be human, financial, physical and intellectual.
Visa Inc’s Key resources are Payment products, Payment Network and payment data.
7. Activities — The most important activities in executing a company’s value proposition.
Visa Inc’s Key activities are Infrastructure ( Payment network) which process the transaction, Payment security service like tokenized service.
8. Partners — In order to optimize operations and reduce risks of a business model, organizations usually cultivate buyer-supplier relationships so they can focus on their core activity.
Visa Inc’s Key partners can be Processors who work on behalf of Large, Medium and small sized banks and technical digital partners who help merchants in integrating Visa’s solutions.
9. Cost Structure — This describes the most important monetary consequences while operating under different business models. This can be Cost-Driven for example low cost airlines and Value Driven for example Rolex watches.
Visa Inc’s cost structure can be maintenance of network, infrastructure which will be fixed cost. While there can be variable cost in case of brand promotion during some major events like FIFA world cup and Olympics.
Conclusion
To organize your thinking around Business Idea, it is important to start with Business Model Canvas. Search for your Repeatable, Sustainable, Valuable and Predictable business Model. Afterwords, You may then start drafting your Business Plan
Further reading:
2. https://en.wikipedia.org/wiki/Business_model
3. https://en.wikipedia.org/wiki/Business_Model_Canvas
4. https://steveblank.com/2010/01/25/whats-a-startup-first-principles/
Hope this helps!
