5 key benefits of using a business model canvas instead of a business plan
What is the first thing that comes to mind when you hear of a successful business? In my mind, it is Google. But, they have had their fair share of failures.
Google was initially struggling to generate revenue by selling their search algorithm.
Finally in 2003, they launched Adwords, an advertising platform for businesses.
This change in the business model pivoted them to become the market leader of search and be on top for over two decades.
Your business model can make or break your startup.
Ask anyone who has a business idea and the first advice they receive is “write a business plan”. It is a stance commonly adopted by budding entrepreneurs.
However, developments in global economy as well as technological advancements has made the “business plan” obsolete.
In the cutthroat world of startups, you do not want to be outdated or set yourself up for failure.
In the words of Alexander Osterwalder, the creator of the business model canvas, “Lengthy business plans often increase the risk of failure”.
Business model canvas (BMC) is now the standard used not only by startups but also companies like Microsoft, GE, Mastercard. The goal is to look beyond spreadsheets, market research and financial projections. It is interesting to note that although the main focus of the BMC is to establish the foundation of your business model, it also helps in enhancing your business as it evolves.
If you want to be a successful startup, you need something powerful like the business model canvas.
The question is how do you use a business model canvas to achieve the results you want?
I’m going to give you an overview of the business model canvas to get you started.
How to zero in on your business model canvas
Unlike a traditional business plan, that is cumbersome to read, the business model canvas is a one-page document that addresses the most important elements to launch your startup and get paid customers.
This framework lays out the fundamental elements that help you make money while delivering your unique value proposition.
The nine components of the BMC are as follows:
1. Unique value proposition — Your unique solution for a customer’s problem
2. Customer segments — People willing to pay money for the problem you are solving for them. (Segments represent different types. For e.g., Google has business customers and consumers)
3. Key Resources — Resources needed to run your startup (e.g., engineering team, Intellectual property, funding etc.)
4. Channels — How will we reach out to prospective customers (e.g., Retail, wholesale, reseller etc.)
5. Customer Relationships — How do you acquire customers, how do you retain them and how do you grow them.
6. Revenue Streams — How will your startup idea make money e.g. Subscription or freemium or pay-per-use
7. Key Activities — Activities that enable your business (Product development, sales, marketing etc.)
8. Key Partners — Outside resources that help your business model (e.g., vendors, strategic alliances etc.)
9. Cost Structure — Fixed, Variable and other costs you have to pay (e.g., rent, salaries etc.)
Here are 5 key benefits of the business model canvas:
1. Business Model Canvas is focused:
Enterprises need a definition of how to get their products to their customers and the business model canvas helps you define them. It also gives you the competitive edge to launch a profitable business not only through product innovation but also through designing your business correctly.
2. BMC is clear and concise:
It helps you document your startup journey so you can easily modify it as you go along. Imagine doing that to a 100-page document! The business model is a blueprint that defines your business initially and you later expand on it. It is useful for easy communication with your team, investors, partners as well as employees to come on board with your vision.
3. Target customer needs:
The biggest reason for startup failure is “Product/Market fit” and not the product itself. Too often we forget this and direct our energy on building an awesome product. “Build and they will come” is a dying mantra. The business model canvas forces you to think beyond your product. When you envision how you will sell your product, what type of resources you need as well the different customer segments you can serve, the business becomes lucid. Documenting it gives you the clarity when you talk to your customers.
4. Reduces the risk of failure:
The business model canvas helps you with the execution steps requirement to take your idea to market. Connecting the dots between your value proposition + customer segments + revenue streams, is a good input to your marketing strategy, positioning statement as well as your Sales strategy. You have the edge over your competitors who are immersed in the lengthy pages of the business plan.
5. Scientific framework that works:
Business model canvas is a tried and tested methodology not only for startups but also for innovating in large enterprises. Nespresso, a fully owned daughter company of Nestlé, is a great example of a powerful business model. It changed the face of the coffee industry by turning a transactional business (selling coffee through retail) into one with recurring revenues (selling proprietary pods through direct channels).
Conclusion:
In conclusion, it is important to stay ahead of the curve and develop a business model canvas instead of a business plan.
The nine key elements of a business model canvas help you document an in-depth, succinct and clear definition of your business.
By focusing on aspects apart from product development, it gives you the competitive edge to launch a profitable startup.
