Below you find the Business Model Canvas Resource Page for Startup Weekend Auckland 2020.
Tip: Use the little dots on the right hand side for quick jumping —>
Make sure your team jumps on to Miro (link below) for easy collaboration.
In this video I give you an overview of the business model canvas. If you’re already familiar with it, jump to the next part where I will show you an awesome collaboration tool to work with over the weekend.
In this quick 5 minute video I show you Miro, a fantastic collaboration tool that will help you with modelling out your ideas.
Value proposition gives customers the understanding or reason for purchasing your products and the benefits they will gain from the bundle or services that you offer.
Here are some examples of good value propositions:
Homeowners don't buy home insurance for the many features that it has, and list of things it will cover in the house, but really what they buy it for is the benefit of having peace of mind.
If you have a think about that for sports fanatics or sneaker fanatics. Now the product will be a sneaker.
They like their sports shoes and they look very good. Often we choose one sneaker over the other, not necessarily for its features as they're often quite similar, but what makes us buy one brand over the other is really the brand status and potentially the quality.
A couple of different points that can help your value proposition stand out are:
How much more convenient your product may be,
How much easier it is to use,
How much more transparent it is,
It could be cheaper,
Better in quality or
Save your customers more time.
There are a couple of different customer segments and different ways you can segment in your markets.
In most cases, we design a product that we believe is for the mass markets. However, if you divide your market up into different customer segments you will be able to better design your products to meet their needs.
You can divide your market in different ways:
a diversified market,
a multi-sided market,
a niche market or
the mass market.
For startups, the best possible way to enter a market is through a niche market segmentation. This is the segment that your customer tends to be a part of. Once you have identified your segment, you can create a persona that represents your target segment.
To give you an example of each one, let's have a look at these case studies.
1. Diversified market
For a diversified market, let's look at Amazon. Rather than just focusing on books, which they originally started from, they now diversified out into many different customer segments. This is book-lovers, cd-lovers, purchasers of other products, such as watches, sneakers, and clothes. They've really diversified the customer segments.
2. Multi-sided market
For the multi-sided example, we can use Trade Me. If we have a look at Trade Me, they're really a middle man between two markets. The two markets of one being the buyer and the other being the seller.
3. Niche market
Lastly, let's have a look at the niche market. So this, as a startup, will be your preferred market. The reason for that is because it's easier to target your customers, and you're often going after an underserved market.
Let’s look at the food industry as an example. Specifically, in New Zealand, we have many supermarkets, all offering similar products for a similar price.
Over the last couple of years, we've seen the emergence of fresh food stores. Farro Fresh and in the recent year, New World opening up its new superstore. These are fresh food stores really entering the high-value consumers or high-end market. Higher-priced products, fresher products, and organic products.
4. Mass market
For mass-market let's have a look at Apple. Apple is a consumer product, with many different products such as laptops, cellphones, headphones. Apple really builds a product for most consumers, whether they're young, whether they are old, whether they live in one country or the other.
Channels to market are all about how you can get your value proposition to your customers.
There are generally two options that you can go with:
Do it yourself;
Outsource it to another company.
If you do it yourself (go directly), it allows you to maintain higher margins, whereas outsourcing (go indirectly) e.g through partner networks, generally decreases your margins.
When you first start with your own company, often you want to keep margins to yourself meaning you want to have your own sales team, to start talking to people yourself, and really own the whole channel that you deliver to your customers.
However, what you need to take into account, is the reach that partner networks and indirect channels can give you. Whether that's through referrals, wholesalers, distributors, or through somebody else's website. It’s really important to understand what channels your customers usually shop with and matching your channel to that.
Let's have a look at two fashion products as examples. One with an indirect channel, one with a more direct channel. Both products have different customers, different segments, and have chosen their channels based on their customer segments.
The first example is the brand, Louis Vuitton.
Louis Vuitton is a high-end fashion retailer that focuses on high-value products. Often you spend thousands of dollars on their handbags, shoes, t-shirts, jeans, and other products. In order for Louis Vuitton to charge that kind of money, they need to offer a high quality of service to their customers. To do this they have their own retail stores around, which they staff, outfit, and can control every point of contact with their customers. This allows for a high-quality service that they can control and they maintain.
On the other side, using an indirect approach, you have Nike.
It’s still a great brand, however, they often don’t manage their own channels to market. They have a segmented market and have sports shops like Stirling Sports, Rebel Sports, and other retailers on-selling their products.
This is the main touchpoint that you have with your customers, and it’s how you get to your customers, keep your customers, and grow your customers.
So it's really important to understand how you best deliver your product or service to your customers, but most importantly, how you stay in touch with them after they've purchased your product. This may come in the form of self-service, perhaps some personal assistance, communities, co-creation and automated service.
Knowing that customer relation is all about getting, keeping and growing your customer base, let's have a closer look at how you can create fantastic customer relationships.
1. Self-service
Companies that focus on cost reduction often aim for a self-service system. This is where there's no necessary human interaction, but the process and structure of the company creates a system where customers can help themselves.
2. Personal Assistance
The opposite of self-service is personal assistance. Companies that want to increase value for their customers will focus on personal assistance via human interaction. This can come in the form of call centres, emails, blogs, and social media.
3. Communities
Another great way to form fantastic customer relationships is through a community. Often online, companies manage to bring their clients together through communities. Customers can help each other, talk to each other and it’s a great way for companies to stay in touch and manage their customer base.
A great example of good customer relationships in New Zealand is that of Air New Zealand. Air New Zealand does a fantastic job of maintaining their customer base, keeping them satisfied as well as loyal.
The process that Air New Zealand goes through is that of automation or self-service. Often you can book your flights via the Air New Zealand app. Once you have booked your flights, you can check in the night before, and on the way to the airport, it will give you necessary reference points and reference checks prior to your holiday.
On arrival at the airport you can self-check-in. If you run into any issues, there is personal assistance available. But every single step of the way, it is highly automated and self-serviced.
KEY TAKEAWAY!
To get started on your own business model, have a think about what kind of relationship your customers expect. Have a think about how costly they are, and whether you already have some of these integrated into your business model.
Think about examples of other industries that you can incorporate in your customer relationship process.
Revenue streams really explain how you will capture value for yourself. You have delivered your service and now you need to understand what your preferred way for customers to pay is.
Some different payment methods are:
pay per service
charging consulting fees
retainer fees
paying monthly
a recurring fee.
Ask yourself, how you will generate the cash from your customer segments to fund your venture. Below are some ideas of how to create revenue:
Product/Asset Sales
Usage Fees
Subscriptions
Licensing
Brokerage Fee
Advertising Spots
Usage Fees
Usage fees increase with the number of times a customer uses your product. A typical example of usage fees is in the telecommunications industry.
Although ISPs (Internet Service Providers) have moved away from this and offered their services for a flat rate per month, some Telco providers still charge based on the minutes of calls you have on a monthly basis. The more you call, the higher your fee.
Subscriptions
One of the most common payment forms these days is that of a subscription fee.
Gyms, online services and applications all run on a subscription-based model which means that rather than paying a one-off fee, the cost is spread over the term of your contract or the length of your contract.
Typical everyday examples of this are your local gym, Spotify and often business software that you might use to start your own company.
Licensing
Licensing is another way you can increase your revenue. If you have some kind of intellectual property that you have created or perhaps if you work in the media industry, licensing is a great way for you to maintain your copyright, and still, get access to revenue.
A typical example would be photographers or design companies that license out their products and use a pay per use license fee model.
Brokerage Fee
Multi-sided platforms such as Amazon, Ali Baba and Trade Me all charge a fee based on the sale transaction value.
Real estate agents also charge a commission based on the sale of the house. Their main activity will be to find the buyer and match the buyer with the seller.
Advertising
Companies with large followings or large communities often use advertising as a way to compensate for revenue. You may see that in some of your favourite apps such as Spotify, Facebook or even YouTube. Although their content and usage are free, the companies will generate some of their revenues from their advertising.
Learning
To get started in thinking about your revenue streams, have a think about how your customers would want to pay. A good way is to think about what competitors are doing and consider what is currently working and not working. Lastly, you want to think about how much people are willing to pay for your service.
How could you capture value for your company?
At the heart of our product section (the left-hand side of your canvas) lie your resources. This is really the part that explains WHAT you will need to create your value proposition. Have a think about what types of products, services, assets you may need to create your value proposition. This often includes intellectual property, talent, and infrastructure. Perhaps you have a website that is unique, perhaps you have offices or property that are very unique.
Next up on the product side is key activities.
These are really the activities that you do on a daily basis and what you need to understand is your strengths and weaknesses to which you can play on. These may include sales and marketing, research and development, manufacturing or distribution. Perhaps if you were an app development or software company your core focus should be to program and develop. The trick is to not let your company do all the functions when you first start out. Define what you're good at and outsource the rest.
Below are some of the key activities that most companies will perform.
1. Manufacturing
This is the production of assets. With manufacturing, often you will produce tangible products, such as furniture, hardware, perhaps even software. But really your output is a product that you create on your own, and the company focuses on the manufacturing of the product. Rather than sourcing it externally your company will focus on the actual production and manufacturing.
Key examples for manufacturing are that of a furniture store (creating their own furniture) or Fonterra (milk production).
2. Distribution
If your company focuses on reselling products, your main activities will focus on distribution and logistics of that product.
The main example would be an import and export business.
3. Sales and Marketing
One of my favourite areas and key activities of businesses is that of sales and marketing. Almost any business model will have some aspect of sales and marketing in their business model. This is especially important to find more customers as customers lead to revenue.
An example of a sales and marketing company is car yards, often car yards work with car manufacturers to then resell and market their product in a specific area or a specific country.
This is an area where a company can map out its network of suppliers and partners. Often, companies with limited resources will look at how they can increase their capabilities from their wider network.
Key areas they would look at is an optimisation of services, a reduction of risk, or perhaps increasing particular skills that they lack.
In particular, you want to look for partners to help you with three key objectives:
Optimising your business model
Reducing the risk in your business model
Gaining access to additional capabilities
1. Optimization
Let's have a closer look at optimization and why companies would want to optimize. McDonald's fast-food chain is a great example of optimization.
McDonald's focuses its business model on its key activity, which is food preparation. It works very closely with its partner network in order to source ingredients. This may include bakeries or bread manufacturing companies, meat production companies, as well as vegetable farms.
Which partners could help you to optimise your business and increase capacity?
2. Risk reduction
Another area where companies would want to work with partners is risk reduction. Often, in the areas of high uncertainty, such as research and development, companies will seek out partners to work with. Examples of this include startups. They can have high uncertainty, and come with huge risks. Startups will team up with accelerators and incubators to reduce risk and to fast-track their route to investment.
Uber has teamed up with Google Maps to access its widely used mapping system. This allowed Uber to focus on its core business in creating the software that made it successful with its initial ride-sharing application.
How could you mitigate your risk? Are there any 3rd party solutions that you could tap into rather than building your own?
3. Filling skill gaps
Some companies, especially in the early stages, will be short in certain capabilities. These might be certain manufacturing skills or research skills. When mobile phone companies first competed with the Apple iPhone, they partnered with Google's Android and other software companies to access software and skills they previously did not have access to. Mobile phone providers and the operating system providers were working together to provide one product for the consumers.
Another great example for tapping into a shortage of skills or capabilities is that in car manufacturing. Often, the final product will have many different partners working together. In the case of luxury car brands, different systems, such as the braking system or computer system, or even the tyres will come from various manufacturers, of all who work together to finish one product.
What companies can you pattern with to help you gain skills leverage or credibility?
KEY TAKEAWAYS!
To get started on your own key partners, have a look at who your current suppliers are and who your current partners are. Next, have a look at what key activities they can perform for you. What are the key resources they have that you may get access to?
If you're just starting out, a good way is to look at your existing model and determine which key activities and key resources you want to focus on and which you can leverage of another company.
Looking at the product side of the business model canvas, let’s do a deep dive on the cost structure. Here we’re focusing on your fixed and variable costs which are the sum of all your resources, activities and costs of partnering up with people.
We need to look at how many people we need, what the associated costs are, any assets or properties we need and how much it is going to cost.
The key here is not to start crazy balance sheets and spreadsheets but really to keep it simple and keep it high level and strategic. Depending on your value proposition, your business model may be more geared towards cutting costs or driving up value.
To drive down costs, price-leading companies might want to maximize their automation processes and increase their outsourcing capabilities.
A great example of a cost-leading business is The Warehouse Group, where all Kiwis find a bargain. All activities and its business model focus on automation of processes and maximizing outsourcing, giving it an ideal cost-saving perspective.
On the other hand, companies that focus on high-value creation are less concerned about cost savings and more concerned about what additional value they can provide to their customers.
Ideal examples would be premium consulting companies that have high face-to-face contact, as well as luxury brands such as the Hilton hotels and other hotel brands.
The key value proposition is instead of added benefits such as better customer service, higher face-to-face point of contact.
One more aspect to keep in mind in the cost structure is economies of scale and economies of scope.
A lot of companies will work toward increasing their scale of operation in order to cut down costs and minimize expenditures.
A prime example in New Zealand would be Fonterra and it's milk production. By increasing its purchasing power, Fonterra's able to secure itself some bulk pricing and is, therefore, able to keep costs very low.
KEY TAKEAWAYS!
To get started on your own cost structure, keep a couple of questions in mind.
What do you need to create your Value Proposition?
Which Resources will you need?
What activities will you perform?