Unit II : Understanding Business Model Canvas

The Business Model Canvas is a strategic management template used for developing
new business models and documenting existing ones. It offers a visual chart with elements
describing a firm's or product's value proposition, infrastructure, customers, and
finances, assisting businesses to align their activities by illustrating potential trade-offs.
trade
The nine "building blocks" of the business model design template that came to be called
calle the
Business Model Canvas were initially proposed in 2005 by Alexander Osterwalder,
Osterwalder based on his
PhD work supervised by Yves Pigneur on business model ontology.[6] Since the release of
Osterwalder's work around 2008, the authors have developed related tools such as the Value
Proposition Canvas and the Culture Map, and new canvases for specific niches have also
appeared.

The Business Model Canvas (BMC) is a strategic management tool to quickly and easily define
page document that works through the
and communicate a business idea or concept. It is a one-page
fundamental elements of a business or product, structuring an idea in a coherent way.

2.1
The right side of the BMC focuses on the customer (external), while, the left side of the canvas
focuses on the business (internal).
Both external and internal factors meet around the value proposition, which is the exchange of
value between your business and your customer/clients.

Why do we use it?

 To quickly draw a picture of what the idea entails.
 It allows us to get an understanding of your business and to go through the process of making
connections between what your idea is and how to make it into a business.
 It looks at what kinds of customer decisions influence the use of your systems.
 It allows everyone to get a clear idea of what the business will likely be.
How to use it
Value Proposition:
The Value Proposition is foundational to any business/product.
It is the fundamental concept of the exchange of value between your business and your
customer/clients.
Generally, value is exchanged from a customer for money when a problem is solved or pain is
relieved for them by your business.
Good questions to ask when defining your business/product:
 What is the problem I am solving?
 Why would someone want to have this problem solved?
 What is the underlying motivator for this problem?
Tips:
A good way to approach this for users/customers is by looking at your customer segments and
figuring out where your product/service solves the problem for your customer, based on Maslow’s
Hierarchy of Needs.
If you are selling your product or service to another business, you are a key partner in them
achieving their Value Proposition for their customers.
It is important to have context around the goals the company is trying to achieve for their
Customer Segments and where your business/product/service fits in the value chain.

2.2
Customer Segments
Customer Segmenting is the practice of dividing a customer base into groups of individuals that
are similar in specific ways, such as age, gender, interests and spending habits.
Things to consider when determining your Customer Segments:
 Who are we solving the problem for?
 Who are the people that will value my value proposition?
 Are they another business?
 If so, what are the characteristics of those businesses?
 Or, are they other people?
 Does my value proposition appeal to men/women or both?
 Does it appeal to young adults aged 20 to 30 or teenagers?
 What are the characteristics of the people who are looking for my value proposition?
Another thing to gauge and understand is your market size, and how many people there are in the
Customer Segment. This will help you understand your market from a micro and macro
perspective.
A great place to start understanding your customer is to create customer personas for each of your
Customer Segments.

Customer Relationships
Okay, so we know our Value Proposition and have developed Personas to better understand our
Customer Segments or ‘customers’, but what is the relationship we have with our customers?
Customer Relationships is defined as how a business interacts with its customers.
So, do you meet with them in person? Or over the phone? Or is your business predominantly run
online so the relationship will be online too?
Some examples are:
 In-person (one-to-one)
 Third-party contractors
 Online
 Events (one-to-many)
 Phone

2.3
A really helpful step is to create a User Journey Map of your customers as they interact with your
business.
This helps clarify the points of engagement between you and your customer and the modes used
to relate to your customers.
This will also help you start to define your operations as a business and also help you identify
opportunities for automation.

Channels
Channels are defined as the avenues through which your customer comes into contact with your
business and becomes part of your sales cycle.
This is generally covered under the marketing plan for your business.

Good questions to ask when identifying the channels to reach your customers are:
 How are we going to tell our customer segment about our value proposition?
 Where are our customers?
 Are they on social media?
 Are they driving their car and listening to the radio?
 Are they at an event or conference?
 Do they watch TV at 7pm on a Friday night?

Examples of channels:
 Social media
 Public speaking
 Electronic mail (email marketing)
 Networking
 SEM (Search Engine Marketing)
 SEO (Search Engine Optimisation)
 Engineering as marketing
 Viral marketing
 Targeting blogs
 Sales and promotions for commissions

2.4
  Affiliates
 Existing platforms
 PR
 Unconventional PR
 Social advertising
 Trade shows
 Content marketing
 Community building
 Offline advertising (billboards, TV, radio)
Understanding how to reach your customers is so crucial to your business.

Key Activities
The Key Activities of your business/product are the actions that your business undertakes to
achieve the value proposition for your customers.
Questions to ask:
 What activities does the business undertake in achieving the value proposition for the
customer?
 What is the resource used?
 Time?
 Expertise?
 Distribution of product?
 Technical development?
 Strategy?
 Offer resources (human/physical)?
 What actions does it take you and/or your staff to achieve value exchange?
Examples:
 Consulting
 Designing
 Web development
 Baking
 Driving

2.5
  Shovelling

Key Resources
Next, you should think about what practical resources are needed to achieve the key activities
(actions) of the business.
Key means the resources your business requires to do business.
These resources are what is needed practically to undertake the actions/activities of your
business:
 Office space
 Computers
 Hosting
 People (staff)
 Internet connection
 Car
 Bike
 Oven
 Electricity
 Car Parts
Key Partners
Key Partners are a list of other external companies/suppliers/parties you may need to achieve your
key activities and deliver value to the customer.
This moves into the realm of ‘if my business cannot achieve the value proposition alone, who else
do I need to rely on to do it?’.
An example of this is ‘if I sell groceries to customers, I may need a local baker to supply fresh
bread to my store’.
They are a key partner to achieve the value my business promises to the customer.

Cost Structures
Your business cost structure is defined as the monetary cost of operating as a business.
 How much does it cost to achieve my business's key activities?
 What is the cost of my key resources and key partnerships?

2.6
  How much does it cost to achieve the value proposition for my customers/users?
 Are there additional costs to running a business?
 Legal?
 Insurance?
 What is the cost of my business?
 It is important also to place a monetary value on your time as a cost.
 How much would it cost you to hire you?
 What is the opportunity cost of running your business?

Revenue Streams
Revenue Streams are defined as the way by which your business converts your Value Proposition
or solution to the customer’s problem into financial gain.
It is also important to understand pricing your business accordingly to pain of purchase in
exchange for the pain of solving the problem for your customer.
But how do you gain revenue?

There are many different revenue models here:

 Pay per product (pay per view)
 Fee for service
 Fixed rate
 Subscription
 Dividends
 Referral feeds
 Freemium
 Equity gain
Tools to Use
https://canvanizer.com/
Whiteboard
Butchers Paper
Google Slides

2.7
Criticism of BMC
The Business Model Canvas has been characterized as static because it does not capture
changes in strategy or the evolution of the model nor much detail about the interaction between
the components and how this makes the model work. Some limits of the template are its focus
on organizations and its consequent conceptual isolation from its environment, whether this is
related to the industry structure or to stakeholders such as society and natural environment.

#I Example to prepare a Business Model Canvas for a software company

1. Customer Segments:
 Small and medium-sized businesses (SMBs) in need of productivity software.
 Enterprise-level organizations looking for customized software solutions.
 Individual consumers seeking software applications.

2. Value Propositions:
 User-friendly and feature-rich software products.
 Customized enterprise solutions to meet specific needs.
 Regular updates and customer support.
 Cost-effective pricing models.

3. Channels:
 Online sales through the company website.
 App stores (e.g., Apple App Store, Google Play Store).
 Partnerships with IT service providers.
 Direct sales teams for enterprise solutions.

4. Customer Relationships:
 Online self-service for individual consumers.
 Customer support via email, chat, and phone.
 Account managers for enterprise clients.

2.8
  User communities and forums for self-help and feedback.

5. Revenue Streams:
 Software sales (one-time purchase).
 Subscription models (monthly or annually).
 Licensing fees for enterprise solutions.
 In-app purchases (for mobile apps).
 Advertisements (for free or freemium apps).

6. Key Resources:
 Software development team.
 Sales and marketing team.
 Customer support and technical assistance.
 Intellectual property (software code).
 Server infrastructure for cloud-based services.

7. Key Activities:
 Software development and maintenance.
 Marketing and promotion efforts.
 Customer support and bug fixes.
 Sales and distribution.
 Research and development for new features.

8. Key Partnerships:
 Hardware manufacturers for bundling software.
 IT consulting firms for enterprise solutions.
 Payment processors for secure transactions.
 App store platforms for distribution.

2.9
9. Cost Structure:
 Employee salaries and benefits.
 Software development and maintenance costs.
 Marketing and advertising expenses.
 Server and hosting expenses.
 Licensing fees for third-party software or technologies.

This Business Model Canvas outlines the key components of a software company's business
model, focusing on how they create and capture value by developing software products,
targeting different customer segments, and generating revenue through various channels and
pricing models.

#II Example to prepare a Business model canvas for a new mobile app in fitness

1. Customer Segments:
 Smartphone users interested in fitness and wellness.
 Health-conscious individuals looking to track their exercise and diet.
 Athletes seeking performance optimization.

2. Value Propositions:
 User-friendly fitness and nutrition tracking.
 Personalized workout plans and diet recommendations.
 Integration with wearable fitness devices.
 Access to a community for motivation and support.

3. Channels:
 App stores (Apple App Store, Google Play Store) for downloads.
 Social media marketing and influencers.
 Partnerships with fitness equipment manufacturers.
 Referral programs.

2.10
4. Customer Relationships:
 In-app onboarding and tutorials.
 Personalized user profiles and notifications.
 Customer support via chat and email.
 User feedback for continuous improvement.

5. Revenue Streams:
 Freemium model (basic features for free, premium features for a subscription fee).
 In-app advertising for free users.
 One-time purchases for premium features.
 Affiliate marketing with fitness product recommendations.

6. Key Resources:
 App development team.
 Nutrition and fitness experts for content.
 Servers and cloud infrastructure.
 Marketing and user acquisition resources.

7. Key Activities:
 Software development and updates.
 Content creation (workout plans, nutrition tips, etc.).
 Marketing and advertising efforts.
 User engagement and community management.

8. Key Partnerships:
 Wearable fitness device manufacturers for data integration.
 Influencers and fitness trainers for promotion.
 Affiliate programs with nutrition product companies.
 Data analytics platforms for user insights.

2.11
9. Cost Structure:
 Employee salaries and benefits.
 App development and maintenance costs.
 Server hosting and cloud service fees.
 Marketing and advertising expenses.
 Licensing fees for third-party data or technologies.

This Business Model Canvas provides a framework for a new fitness and wellness app,
outlining how the app intends to create and capture value by addressing the needs of its target
customer segments, offering both free and premium features, and generating revenue through
various channels and partnerships. The specifics of the canvas can be adjusted and expanded
based on the unique features and market conditions of the app.

#III Example of a Business model canvas to promote a new IOT product

Let consider we are promoting a smart home security system which is a Internet of Things (IoT)
product. The BMC of the same can be described as:

1. Customer Segments:
 Homeowners concerned about home security.
 Renters looking for affordable and flexible security solutions.
 Small businesses interested in commercial security.

2. Value Propositions:
 Real-time monitoring and alerts.
 Easy DIY installation.
 Integration with smart home devices (e.g., smart locks, cameras).
 Cost-effective and customizable security options.

2.12
3. Channels:
 E-commerce website for online sales.
 Partnerships with home improvement stores for in-store sales.
 Social media advertising.
 Collaboration with home automation platforms (e.g., Amazon Alexa, Google Assistant).

4. Customer Relationships:
 Comprehensive online product guides and tutorials.
 24/7 customer support via chat, phone, and email.
 User community forums for sharing experiences and tips.
 Regular software updates and improvements.

5. Revenue Streams:
 One-time product sales (hardware).
 Subscription-based services (monthly or annually) for monitoring and premium features.
 In-app purchases for additional security devices.
 Referral programs for customer acquisition.

6. Key Resources:
 IoT hardware development team.
 Cloud infrastructure for data storage and processing.
 Customer support and technical assistance.
 Marketing and advertising resources.
 Partnerships with smart device manufacturers.

7. Key Activities:
 Hardware design and manufacturing.
 Software development for device management and security features.
 Marketing and promotional campaigns.
 Monitoring and responding to security alerts.

2.13
  Partnering with other IoT device makers.

8. Key Partnerships:
 Smart device manufacturers for interoperability.
 Retailers for distribution.
 Home security service providers for collaboration.
 Home automation platforms for integration.

9. Cost Structure:
 Employee salaries and benefits.
 Hardware manufacturing and assembly costs.
 Server hosting and cloud service fees.
 Marketing and advertising expenses.
 Research and development for new features and security updates.

This Business Model Canvas outlines how a new IoT product, in this case, a smart home
security system, can create and capture value by addressing the security needs of different
customer segments, offering a range of pricing options, and leveraging various distribution
channels and partnerships. The canvas can be customized to fit the specific features and market
conditions of the IoT product.

#IV Example of business model canvas for a manufacturing plant

We choose the example of manufactures automotive parts to draw the Business Model Canvas

1. Customer Segments:
 Automotive manufacturers (OEMs).
 Aftermarket automotive parts distributors.
 Industrial machinery manufacturers.
 Other manufacturers requiring precision components.

2.14
2. Value Propositions:
 High-quality, precision-engineered automotive parts.
 Reliable and consistent production.
 Customization options for specific client needs.
 Competitive pricing and on-time delivery.

3. Channels:
 Direct sales teams targeting OEMs.
 Distributor partnerships for aftermarket sales.
 Online catalog and e-commerce platform.
 Trade shows and industry events.

4. Customer Relationships:
 Dedicated account managers for OEM clients.
 Technical support and consultation.
 Long-term supply agreements with OEMs.
 Post-sales service and warranty support.

5. Revenue Streams:
 Sales of automotive parts to OEMs and distributors.
 Service contracts for maintenance and repair.
 Licensing fees for proprietary manufacturing technologies.

6. Key Resources:
 Manufacturing facilities and equipment.
 Skilled workforce (engineers, technicians, operators).
 Raw materials and supply chain management.
 Intellectual property for proprietary components.
 Quality control and testing facilities.

2.15
7. Key Activities:
 Design and engineering of automotive components.
 Production and quality control.
 Supply chain management and procurement.
 Sales and marketing efforts.
 Research and development for process improvement.

8. Key Partnerships:
 OEM clients for long-term contracts.
 Distributors for market reach.
 Suppliers of raw materials and components.
 Research institutions for technological advancements.

9. Cost Structure:
 Employee salaries and benefits.
 Raw material and component costs.
 Manufacturing and equipment maintenance.
 Research and development expenses.
 Marketing and advertising costs.

This Business Model Canvas provides an overview of how a manufacturing plant for
automotive parts creates and captures value. It highlights the key elements such as customer
segments, value propositions, distribution channels, customer relationships, revenue streams,
resources, activities, partnerships, and costs. The canvas can be adapted and expanded to fit the
specific characteristics and market conditions of the manufacturing plant.

Assignment 2: Suppose you want to start an entrepreneurial journey in home delivery food
app. Draw a Business Model Canvas in a A2 white Drawing Sheet by clearly mentioning the
related key points in all nine building blocks. Submit the same as assignment.

2.16