Business Model Canvas Is – In my last post, I explained that a startup has many good reasons for developing a formal business model early in the process. The reasons are many, but the primary one is that it provides a way for the founder to investigate, and hopefully validate assumptions about how the organization frequently delivers optimal value to the customer, as a foundation for growth.
While any formal business model process will benefit founders, I endorse Osterwalder’s Business Model Canvas as a model steeped in lean startup philosophy and practice, and this post will go over the first two of the nine core elements of the Business Model Canvas. There are many templates online that you can download to help you think about each element of your business. I’m using Osterwalder’s blank template with my own content claims added as a resource for you to review throughout this post and in the future.
Business Model Canvas Is
While there are many opinions on where to start, I suggest founders focus on customer segments and the value proposition in an early brainstorming activity. These two elements are essential to clarifying the alignment between your customer’s needs and your product offering, often called appropriate problem solving or product-to-market fit.
The Business Model Canvas & The Innovation Businness Model Canvas
As I mentioned in my last post, many founders focus on solving the initial product they assume is missing from the market. While the original BMC was designed to support early solution visualization, I always advise entrepreneurs to take a step back and consider areas of customer needs. The best practice is to start by clearly articulating the customer’s needs, the problem and the context.
An item in a BMC template. This BMC item focuses on the specific problem you are hoping to solve and who is having that problem the most. I suggest you highlight the following sub-elements in this template area. First, what is the problem the customer is trying to solve or the primary task they need to accomplish. You can think of this as the client’s goal.
Client goal. An excellent way to better understand the problems a customer is facing is to start with what they are trying to achieve in the first place. We usually encounter a problem or challenge while we are trying to achieve a certain task. It could be a simple task like changing a light bulb or something more complex like navigating a foreign city for the first time. Tasks can range from functional to social, from fulfilling a basic need to something more ambitious. Whatever the job, and no matter how challenging, there is usually some aspect to improvement that will make it easier or less costly in terms of money or time. So your first step is to consider the details of the client’s mission and the challenges you faced from start to finish.
The description of the customer segment provides details about the problem to be solved or the task to be performed. In addition, you can list the challenges or frustrations the customer encounters while trying to solve a problem or complete a task. These are the “pain points” that you hope to reduce or eliminate as part of the solution.
Understanding Your Business Through The Business Model Canvas
These challenges can be emotional, leading to undue stress or harassment. Pain points can be caused by unnecessary dollar expenses, wasted time, or excessive effort. Once you have identified the problems, it is essential that you see a way to define the challenge using some metrics. For example, if a customer feels that a task is taking too long to complete, find out how much time it takes. Later, this information will serve as the basis against which you will measure the improvement resulting from your project solution.
Once you have identified the customer’s goal – the problem to be solved or the task to be done – you need to answer who primarily suffers from the problem the most? During the first iteration of your business model, the team should brainstorm with all potential groups of customers who share the problem. As you identify these potential customers, consider how you might group them based on the context in which they are facing the problem. For example, it may be by job, tasks, or where the problem is encountered. Consider contextual or situational factors when segmenting your customers. This is the time to consider your customer profile and how different groups may differ in needs, demographics, behavioral characteristics, and purchasing decisions.
At this point, there are a few things to keep in mind when defining your lead segments. First, I’m always in favor of startups thinking about a core customer segment to focus on early in the process. Sometimes referred to as your ‘key customer’, you’ll want to stay focused on a core objective while engaging early customers and testing many of your BMC assumptions. Then, in subsequent iterations of BMC, you’ll refine customer segments to reflect your core target markets.
Second, you want to decide if your business model will include customers from two or more sides of the market. Sometimes referred to as two- or multi-sided markets, these business models require engagement with multiple types of customers. Typical Scenario Your project matches two customers, one that needs a solution (the demand side) with another that provides a viable product or service (the supply side). You must add each of these clients to your BMC. You will quickly discover that each side has its own goals, needs, and pain points. Your future proposal must meet the needs of both sides. As you’ll soon see, the value proposition will inevitably be different for each side of the market, so you’ll need to define and align both within those first two elements of BMC.
Customer Segments Business Model Canvas
Value proposition: Once you address your initial assumptions about the customer’s goal, context, and priority segment, you can turn your attention to
BMC element. The focus of this BMC element is to answer the question: What value is your customer looking for from an effective solution?
As mentioned, a typical BMC implementation assumes that you have an initial solution in mind. However, I advocate for the founders to focus on customer outcomes, including the benefits of specific solutions and pain relievers. As you’ll see, I leave an option at the end of the Items box to add your initial solution concept.
When you think about a client’s problem or the “job or task” they’re doing, ask yourself, What results are they hoping to achieve? For this BMC item, you should consider what outcomes your customers are looking for in an effective solution? At this point, you should think about solutions in an open-minded way. Whether it is your initial solution concept or another option, it is only important that you achieve your desired results.
Business Model Canvas Template — Ideaflip — Online Sticky Notes
In a previous post, I explained that there are two levels of outcomes, one that addresses deeper customer needs and one that builds on the functional and emotional benefits that come from an effective solution. Thus, an excellent working definition of a value proposition is the degree to which a solution achieves a customer’s deepest needs in addition to the expected functional and emotional outcomes. To support the formulation of the value proposition, I suggest you expand on the differences between functional and emotional outcomes.
For functional results, you ask, what would a client want to do differently if they could? For example, a customer is trying to solve a problem or perform a task and wants to improve. How should the solution work to improve the customer’s situation? Make sure you express your functional results in terms of better performance, cost efficiencies, increased accessibility, or personalization. Always keep in mind that these results must be measurable.
For emotional outcomes, you’re answering the question, How would the client like to feel if they could have done things differently? Similar to functional outcomes, you can measure feelings such as satisfaction, happiness, and joy through different methods.
When you consider all the possible outcomes and benefits that the customer wants, you ascertain what the customer might expect from an improved solution. In other words, what are the expected benefits of a better solution than what currently exists? This knowledge will be critical in future solution design efforts.
Change, Unlearning And The Business Model
Another important area to be addressed in the BMC Value Proposition component is how to mitigate customer ‘pain points’ through an effective solution? Here you outline the obstacles or challenges that the customer would like to reduce or remove by offering your product? Again, this response should align with the actual “weaknesses” described under the customer segment section of your business model.
Finally, I suggest that you end your value proposition with a brief description of your initial solution concept for the customer. For example, what set of products and services do you plan to offer to your customers? If you are presenting a solution concept early, be sure to state your assumptions about how your offering is unique in the market and provides results and benefits that cannot be obtained elsewhere.
In the value proposition section, your goal is to articulate the results and benefits you expect the customer to derive from a compelling offer.
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