Putting Theory Into Practice Part 5: What’s the Business Model?
I have found the business model canvas as described in the book Business Model Generation by Osterwalder and Pigneur to be an extremely powerful and useful tool to lay out a strategy … the blueprint if you will of how a company creates and delivers values.
Here’s what a business model canvas looks like and the elements as described by Osterwalder and Pigneu
1) Customer Segments: An organization serves one or several customer segments
2) Value Proposition: It seeks to solve customer problems and satisfy customer needs with value propositions.
3) Channels: Value propositions are delivered to customers through communication, distribution and sales Channels.
4) Customer Relationships: Customer relationships are established and maintained with each Customer Segment.
5) Revenue Streams: Revenue streams result from value proposition successfully offered to customers.
6) Key Resources: Key resources are assets required to offer and deliver the previously described elements.
7) Key Activities: [in conjunction with key resources/assets…] [creating and delivering value] …. By performing a number of Key Activities.
8) Key Partnerships: Some activities are outsourced and some resources are required outside the enterprise.
9) Cost Structure: The business model elements result in the cost structure.
Note for our fictitious company Teknovantage, we would start with a blank canvas and fill it in with what we believe is the best execution strategy and then fill in the gaps and identify the key assumptions that need to be addressed.
For example the customers we believe who would be the best targets for job executers are “construction workers” and field service people. Now of course construction workers and field service people belong in several industries so Teknovantage will have to a bit more thinking on how they segment and target customers. And/or think a bit differently about who the customer is – perhaps not the end user but an OEM serving the end user – for example hand tool manufactures and retailers.
With target customers in mind, Teknovantage assumes how the targeted job executers buy or “hire” their tools. We would want to know: Where to our target customers buy equipment? Where and how do they find out about new products? Who’s involved in making the buying decisions? (the consumption chain) and so on and so forth.
Customer relationships start with a definition of the brand Teknovantage is trying to create. Is it a high-end, full service brand – the brand for professionals? Or is it a low touch, good value brand – a “can’t go wrong brand” as my dear old dad always seemed to seek.
We talked about the value proposition – it’s the job statement – “construction workers and field service people want to bring the right tools to the job and lose less tools on the job. Location aware tools provides a solution to this problem.” (of course we will be testing this hypothesis in our VoC research).
Revenue streams: Teknovantage is thinking about a couple of revenue streams they want to test ranging from providing OEM’s with the location aware electronics and software smarts to providing construction and field service outfits with a total service from providing tools and managing the tool cribs.
Key activities will include the design and development of the product, the marketing and sales activities which may include direct sales and/or selling through channels, manufacturing and other activities that create and deliver the value to the customer.
Key resources include intellectual property and design know how, buildings and equipment, etc. What we want to identify here are the key resources required both existing and needing to be acquired which leads to:
Key partners – who are we going to partner with to execute the strategy? For example Teknovantage doesn’t have a direct channel or an OEM channel in place – who out there might be a good fit that would complement our efforts? And Teknovantage will most likely be incorporating a low power microcontroller in their solution that they will get form a preferred vendor – who may also help in marketing and sales efforts.
And finally the cost structure including the estimated cost of goods and the sales and general admin cost associated with the business venture.
Now that we have formulated a basic business strategy using the business model canvas we are ready to start forecasting and creating a P&L – don’t panic – this is pretty straight forward and is a starting point to scope the potential business opportunity as well as do some sanity checking.
Next blog will show how Teknovantage can approach the initial forecast and identify the key assumptions that are behind the forecast.
Till the next time,