Last week through Prosper Women Entrepreneurs’ Mastermind Growth Group, I had the pleasure of attending a deep-dive workshop on the Business Model Canvas. For anyone unfamiliar with the concept, a Business Model Canvas (“BMC”) is a one-page template to carefully vet new or existing business ideas.
The workshop was extremely beneficial, and I believe every small business should complete the BMC at least once. Here’s a six-step framework for working through it:
1) Start with Customer Segments.
Many business owners are tempted to make a product or offer a service that appeals to everyone. In doing so, the product or service is so general that few people purchase it. Most start-up businesses lack brand recognition and a significant marketing budget. Thus, the offering itself should be a unique. Developing a niche, or target customer segment, becomes critical for differentiation.
2) Dedicate time on the Value Proposition.
Once you’ve identified one or two customer segments who can strongly benefit from your offering, focus on their jobs/duties, pains, and gains.
a. What does your ideal customer do regularly? Think about his or her stage of life. If it is a mother of young children, does she stay-at-home or work outside the home? What tasks does she have to complete each day? Outside of the functional aspects, there are social and emotional aspects too. How does your client want to be perceived by others? Emotionally, what is your client seeking – happiness, status, security, or pride?
b. What are the pain points of your ideal client? What keeps her up at night? Which items annoy, frustrate, or challenge your ideal customer? What does she fear losing?
c. Finally, focus on gains. What would surprise or delight your client? Does she care most about saving time, money, effort? A seventy-five-year-old widow likely has time but may not have the physical strength to renovate her home. She probably cares most about the effort you will put into the home renovation.
3) After you’ve identified the customer jobs, pains, and gains, translate your top findings into product & services, pain relievers, and gain creators.
Brainstorming and documenting ideas is critical throughout the BMC, especially within the Value Proposition section. Take these discoveries and incorporate them in marketing and promotional materials.
4) Next, shift focus to Channels, Customer Relationships, and Revenue Streams.
a. Channels are the avenues to increase awareness among customers, deliver your product or service to the client, and provide post-purchase support. Think about how each customer segment wants to be reached, not just how you prefer to reach them. For example, I contemplate offering online classes on personal finance topics. However, financial planning is a relationship-focused offering, and my ideal client may not want to interact through an online classroom.
b. Customer Relationships focus on the level of automation or personal attention your offering provides. If you’re selling a food product to individual consumers, your level of direct interaction with the purchaser will be limited. Even if you cannot personally attend to all customers, is it advantageous to create a community of people who are passionate about your offering? Consider a Facebook group whereby members will support and hold each other accountable.
c. Revenue Streams are your sources of income. In service industries, recurring revenue models are typically better than transaction-based, hourly models because they provide cash-flow consistency.
5) Reflect on the Key Resources, Activities, and Partnerships that will enhance your business model.
a. Key Resources - Which physical, intellectual, human, and financial resources underpin your business model? Which assets are essential?
b. Key Activities – What actions must your company take to create value for its customers?
c. Key Partnerships – Which vendors do you rely upon for support? Are there any strategic alliances you can create with non-competitors to increase visibility?
6) Finally, identify the Cost Structure.
Think about the key factors that impact your costs; explore both fixed and variable costs.
To recap, the first four steps – Customer Segments, Value Propositions, Channels, and Customer Relationships - focus on the offering itself, and how desirable it is to others. Key Resources, Activities, and Partnerships (Step 5) explore the feasibility of your offering. Finally, Revenue Streams and Cost Structure dictate the viability of your offer.
Look at the BMC holistically. It provides clarity to move forward with the concept or pivot to a new model. Don’t spend time spinning your wheels on an offering that won’t sell. Be proactive with the Business Model Canvas!
All the best,
Deb Meyer, CPA, CFP®