Simen Sollihogda January 29, 2020
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Starting up a company can be a difficult and overwhelming task. We have all these major companies that we can compare ourselves to and a variety of challenges to overcome if we want to succeed. Luckily Alexander Osterwalder proposed a solution to better organizing a business in 2005. This idea eventually came to be called “Business Model Canvas”. The model has 9 primary building blocks that help put the fundamentals of an organization into a clear and visual perspective.

The model helps new companies get a better understanding of what is needed to start up and reach success, as well as helping existing companies document their business. In short, the model tells you how to organize a company with a simple business model.

In this article I will tell you more about the building blocks in the business model and elaborate on why they are key factors in business.

(Sourced 28.01.2020)

Value Propositions

A common misconception is that successful products are made from a random idea that someone came up with, but for someone to get such an idea there must be a need or a problem. As a company your job is to fulfill your customers needs and to provide them with help to solve problems that are relevant to your field of work. Customers don’t care about the technology the company provides, or how it works, if it works for it’s intended purpose. They need your product or service to fulfill a need or to solve a problem they need assistance with.

There is a difference between solving problems and fulfilling needs. Problems can often be solved with a quick fix. To do this we buy or download tools that assist us when the problem needs solving.

Communication and entertainment are some of the basic human needs that are fulfilled with services like Facebook Messenger and Netflix respectively. The customer will pay for the service if they feel the price is justified. Our needs never really go away, and some people are more needy than others. Needs are also often associated with activities that are fun, because it is things we want.

Figuring this out is the first component in the canvas business model. Having a clear vision and an intuitive goal is very important.

  • What do people need or want? (Problems / needs)
  • What is our idea?
  • Has it already been done?
  • Competition?

 

 

Customer Segments

I just talked about problems and needs your potential customers are experiencing and how to develop a product or service to fulfill these, but who are your customers? On day one it’s impossible to know exactly who your customers are, but It’s very important to remember that the customer does not exist to buy, you exist for them.

To figure this out, the company must collect data to gain information on who these people are, and why they would buy your product. Some examples are:

  • Geographic
  • Demographic
  • Political
  • Social
  • Culture

The more information you have, the easier it is to pinpoint who the average customer is. It then becomes easier to optimize what you’re selling and making it more tailored to your current customers, or what steps you need to take to reach a bigger audience.

 

Channels

To make sure your “value propositions” reach the “customer segments”, you use channels. This is more relevant than ever with the technology we have today. The two most widely used channels today are the physical and the virtual channels.

The physical channel has been around for a long time. Customers would travel to a store and bought the products available in the physical selection. Today almost every physical store has a virtual counterpart. If they didn’t have the item in stock in the physical store, the virtual store most likely has it, or you can pre-order. This way companies secure a higher chance of a sale going through.

Figuring out how you want your product to reach your customer is an important decision, and it has more options now than ever.

 

Customer Relationships

For a business to thrive, it relies heavily on customers. This step incorporates all the steps above in order to reach success. To make this easier, you must ask yourself:

  • How do I get customers?
  • How do I keep them?
  • How do I grow?

These questions should be on a constant loop during the entire lifespan of your business, because you always want your customers to spend more money and to spread the word about your product to more potential customers. This becomes easier with time after you’ve collected data, ran tests, surveys and figured out who your customers are.

 

Revenue Streams

How do you make money?  In the ninth and last component of the model, I will be talking about costs, but in order to pay for costs, you need money. Revenue streams simply means figuring out how you want to charge your customers. A classic way of doing this is a direct sale, where you select a product and pay based on price. Other examples include subscriptions like they do with a lot of streaming platforms, freemium where the product itself is free, but comes with microtransactions and limited features until you upgrade for money.

Like with the channels step, technology has come a long way and the number of choices is far greater. In the end the goals is to figure out what fits best for your product.

 

Resources

In order to start a business, you need to know what you need to get it going and how to survive.

  • How much money?
  • Factories, machines and vehicles?
  • Employees, specialists, engineers?
  • Patents, trademarks (copyright)

What do you need, why do you need it and how much will it cost? Those are some of the main questions you will have going into this step.

 

Partners

You can’t do everything yourself, that’s why you need partners. In this step it’s important to not get ahead of yourself. The partners you need ten years from now might not be a good fit for a startup company.

Partners can help you with supplies, resources, buyers, transporting and exporting your goods. What is relevant for your business? Finding good partners and not overdoing it is a key balance in growing your business whilst making it easier for yourself.

 

Activities

What are your key activities? In this step you’re defining what you want to be an expert at. When someone needs help solving specific problems or fulfilling needs, they should think about your company, because you’re good at what you’re doing and it’s your expertise.

 

Costs

Running a business isn’t cheap. I’ve gone over eight components in this article, and they all have some for of costs related to them. So, in this step it’s time you figure out how much these things will cost you. Resources, costs, marketing, fixed and variable, shipping and salary are some of the typical things to look at when trying to figure out things like budgets.

Having a clear picture and hard numbers will help you figure out what the future holds and what the past gave you. What worked and what didn’t work? Can we expand next quarter? Maybe we should cancel one of our partnerships?

Money can be the success and downfall of a business, so doing it right from day one is mandatory.