Entrep Lesson 4 - Business Model

Blocks of the lean canvas model

1. Customer segments List the top three segments. Look for the segments that provide the most revenue. 2. Value proposition what are your products and services? What is the job you get done for your customer? 3. Revenue streams List your top three revenue streams. If you do things for free, add them here too. 4. Channels How do you communicate with your customer? How do you deliver the value proposition? 5. Customer relationships How does this show up and how do you maintain the relationship? 6. Key activities What do you do every day to run your business model? 7. Key resources The people, knowledge, means, and money you need to run your business. 8. Key partners List the partners that you can't do business without (not suppliers). 9. Cost structure List your top costs by looking at activities and resources.

Cost structure

All businesses incur costs through operation, whether fixed or variable. They may also face economies of scale and scope. Companies consider their cost structures in two strategies—cost-driven, where all costs are reduced wherever possible, and value-driven, where the focus is on greater value creation. Cost structures will often consider fixed costs, variable costs, economies of scale, and economies of scope.

Benefit 3: Viable Result Metrics

Analyzing the results of your hard work is one of the keys to building a prosperous company.. So, viable result metrics will help you with this task. Lean canvas model equips you with the tools to monitor your buyers' behavior and the way they interact with your products and services.

Key resources

Any business needs resources—physical, financial, intellectual, and/or human—to function. These resources enable the company to provide their products or services to their customers.

Key activities

Are the critical tasks that a company does to succeed and operate successfully. Different companies focus on different activities in categories such as production, problem-solving, and platform/network.

Key Benefits of the Lean Canvas Model

Benefit 1: Greater Flexibility Benefit 2: Focus on a Problem Benefit 3: Viable Result Metrics

Benefit 2: Focus on a Problem

By understanding your clients' needs and pain points, you'll conquer the market at one go. The lean canvas model helps you to develop a unique selling proposition, stand out from the crowd and outpace your competitors.

Key partnerships

Companies build partnerships to optimize their business, reduce risk, or gain resources. There are four main types of partnerships: strategic alliances between noncompetitors, coopetition—strategic alliances between competitors, joint ventures, and buyer-supplier relationships.

Current state

Don't mix ideas for a future state with what is going on right now, and don't mix different departments! Tip! If you work for a large organization you might find varying value propositions and business models. In that case ask the different departments to map out their own business models. You can compare them afterwards.

The advertising business model

Here the goal is to generate revenues by selling advertising space.On the Internet this model can be segmented based on the type of advertising: •CPM (cost per thousand): the advertiser pays the publisher a fixed amount for 1,000 impressions. • CPC (cost per click): the advertiser pays the publisher every time someone clicks on the ad. The amount paid can be fixed or established through an auction process. • CPA (cost per action): the advertiser pays every time a specific action is executed. An action can be a sale or a lead for example. The amount can be fixed or set as a percentage of the action value. This business model is already slightly more complex than the production one given that the company first need to invest in order to create a large audience before it can attract advertisers.

The business model of production

It's the most basic business model, the company sales the products and services it produces. In order for that business model to be viable, the company needs to generate enough sales to cover its production , distribution, and storage costs

Connect the building blocks

Link up the building blocks: every value proposition needs a customer segment and a revenue stream! When everything is on the board, take a step back. Have a short break. Did you miss anything? Forget something? Tip! If you have multiple customer segments it is best to pick a colour for each segment in the post-it notes you use. That way you easily see if for each segment there is a value proposition and a revenue stream.

High level

Start by mapping out the business on a high level: only the most important, vital aspects of the business model. TIP! Try to make your criteria as clear as possible, so that you and others will still understand what they mean in three months time. split up more complex design criteria.

Review

Take a step back check if every customer segment is linked to a value proposition and a revenue stream. Make sure everything on the left side of the canvas is needed to support the right side of the canvas. Everything else can go. Rank your business model's performance (0:bad, 10:excellent) for each of the following questions: ⊗ How much does switching costs prevent your customers from churning? ⊗ How scalable is your business model? ⊗ Does your business model produce recurring revenues? ⊗ Do you earn before you spend? ⊗ How much of the work can be done by others? ⊗ Does your business model provide built-in protection from competition? ⊗ On what cost structure is your business model based?

So, why is the lean startup model so popular?

The answer is that up-and-coming entrepreneurs can simply release their products on the market. They only need to follow these three fundamental principles in the lean canvas model - find, execute, and validate. And voilà — you are equipped with an awesome plan to make your business idea come alive ready to be presented to angels!

Business Model Canvas

The business model canvas is a shared language for describing, visualizing, assessing and changing business models. It describes the rationale of how an organization creates, delivers and captures value.

Business model based on commission (or distribution)

The company acts as an intermediary between the seller and the buyer and takes a cut of every sell it helps generate. This business model is generally less risky than the 2 previous ones (and therefore less profitable) as the level of investment required can be minimal.

The freemium business model

The company offers 2 versions of its product. A free version with a limited set of features which goals are either to raise awareness about the product or to create a network effect. And a paid version, comprising more features, from which it can generate enough margin to cover the cost of the free users. The keys to success with this business model are to be able to generate huge network effect (example: Linkedin) and/or to convert a sufficient number of free users into paid customers (example: Uservoice).

The accessories business model

The company offers one product for free or at a price close to its production cost and generates a profit on the sale of accessories. The classic example of this business model is the sale of razor blades: razors are sold for nothing but you have to continually buy expensive blades to be able to use it.

The subscription business model

The company receives revenues from its subscribers at regular intervals. This business model has one clear advantage: the company knows in advance how much revenues it is going to generate. The flip side is that it often takes several months to recover the subscriber acquisition costs leading to a lower cash generation at the beginning of the cycle.

Revenue streams

There are two types of revenue stream: revenues from one-time customers and revenues from ongoing payments. Revenue pricing mechanisms vary from fixed (e.g., predefined prices based on static variables) to dynamic (e.g., price changes based on market conditions). Revenue streams can be generated through asset sales (e.g., selling a physical product), usage fees, subscription fees, licensing, brokerage fees, advertising, and temporarily selling the use of a particular asset (e.g., lending, renting, or leasing).

Next steps

Tip! Have an artist visualize your business model. It helps to create impact when sharing the model and it makes it easier for others to become connected. Checklist ⊗ Take a snapshot picture of your business model canvas for easy to share future reference ⊗ Ask team-members discuss the business model with others ⊗ Trigger team-members to actively look for 1-2 blind spots ⊗ Filter out the design criteria ⊗ Test your assumptions

Benefit 1: Greater Flexibility

Traditional business models do require much time. The thorough market and competitor's research, financial analysis and other activities take much time and resources. And what is even worse is that you can't make any changes here. The lean canvas model doesn't have a precise framework for your business development. It provides a kind of a wireframe which you can adjust to your business. It's possible to test your idea multiple times and make as many changes as you want.

Value Proposition

What do we provide our customers? • What problem are we solving? • What are we offering to each customer segment?

Key Activities

What key activities do our value proposition, channels, customer relationships, and revenue streams require?

Customer Relationships

What type of relationship does each customer segment want? • How costly are the relationships? • How do we integrate them with the rest of our business model?

Customer Segments

Who are our customers? • From whom are we creating value?

Key Partnerships

Who are our key partners and suppliers? • Which key resources are from which partner? • What key activities are done by partners?

Customer segments

Without customers, businesses cannot survive. Businesses must identify and understand their customers, and they can group these customers into segments with common characteristics. (Some ways We differentiate customer segments - by age, status, professions, demographics, colors, lifestyle, dialect, taste, etc.) E.g. Netflex subscriptions, coffee offerings, cars, healthcares offerings, car rentals etc.)

Before you start

You can learn a lot from your competition. Choose some competitors and map their business models. Armed with this information you'll have deep insight into what customers want and what they are willing to pay for. You'll have a clearer picture of just how customers' needs are met across the entire industry, not just in your company. And, you'll uncover vital information about how other businesses, maybe even very successful businesses, have created their own spaces in the market. Checklist ⊗ Get the right team of 3-5 people together ⊗ Grab a large chunk of wall space ⊗ Print or draw the canvas on a big sheet of paper ⊗ Have plenty of sticky notes and markers ready ⊗ Allow yourself 45-60 minutes of undisturbed time

Channels:

bring the value proposition to the customers through communication, distribution, and sales.

Value propositions

company creates value, or benefits, for customers by solving a problem or satisfying a need. The value proposition is the reason that customers choose one option over another when deciding what to buy. Although certainly not an exhaustive list, customers may value: newness, performance, customization, design, brand, price, cost reduction, risk reduction, accessibility, and convenience.

There are nine building blocks that describe and assess a business model:

customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.

the business model canvas covers the four main areas of any venture:

customers, offering, infrastructure, and financial viability.

business model

describes how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts refers to a company's plan for making a profit. It identifies the products or services the business plans to sell, its identified target market, and any anticipated expenses

bait and hook business model (also referred to as the "razor and blades business model" or the "tied products business model")

introduced in the early 20th century. This involves offering a basic product at a very low cost, often at a loss (the "bait"), then charging compensatory recurring amounts for refills or associated products or services (the "hook").

Lean Canvas Model

is a strategic management tool that promises to provide entrepreneurs with actionable documentation on how to implement their idea on the market. Created by Ash Maurya, this concept has quickly gained traction due to its simplicity and flexibility.

Customer relationships

ompanies need to maintain relationships with their customers to acquire and retain customers and boost sales. Strong customer relationships can significantly impact overall customer experience. There are many categories of customer relationships including personal assistance, self-service, automated service, user communities, and cocreation.

Examples of business models

production, advertising, commission, subscription, freemium, accessories