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Business Model Generation and the Business Model Canvas
Johns Hopkins, School of Advanced International Studies Impact Investing Class: Financial Inclusion and Value Creation at the Base of the Pyramid Amitabh Saxena, Founder and Managing Director, Digital Disruptions April 14, 2014
Digital Disruptions
Agenda for Today
Business Model vs Business Plan Business Model Canvas Deep-Dive
• Value Proposition • Customer Segments • Channels • Relationships • Revenue Drivers • Key Activities • Key Resources • Strategic Partnerships • Cost Drivers • (Social Impact)
<break> Presentation Wrap-Up
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Advantages of a Business Model
• A business plan tends to be static, linear, and assumes few “unknowns”; a business model is dynamic, iterative, and hypothesis-driven.
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• A business model canvas has a number of powerful advantages over a more traditional business plan:
Holistic
Integrated
Visual
Fast
Iterative
• “While a company is a permanent organization designed to execute a repeatable and scalable business model, a startup is a temporary organization designed to search for one.” – Steve Blank
Value Proposition
• A firm’s Value Proposition refers to the products and/or services that create value for a specific customer segment.
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• Value Propositions can be quantitative or qualitative; some examples below:
Newness (addresses hitherto unmet need)
Performance (improves existing product/service)
Brand/Status (typical emotional need)
Price (lower-cost version of alternative)
Accessibility
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• This value can be wants as well as needs, and both functional and emotional.
Convenient / Usability
Customer Segments
• A value proposition necessarily needs to address those needs and wants of one or several Customer Segments.
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• Examples of customer segments:
Mass Market (no differentiation, e.g., automobiles, consumer electronic, FMCG)
Niche Market (specific market, many B2B)
Segmented (various segments, e.g., financial services)
Multi-sided platforms (buyer and seller, e.g., payment networks, internet search, newspapers)
Diversified (two or more unrelated customer segments)
SP KA
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• Customer segments are distinct if they are Measurable, Substantial, Accessible, and Differentiable.
• Different value propositions can address different customer segments.
Customer Channels
• As the name implies, Customer Channels are about how the firm intends to reach its customer segments.
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• A firm needs to find the right channel mix along each stage.
Awareness
Evaluation
Purchase
Delivery
Post-Sales
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• Channels can be direct or indirect, and be owned by the firm or contracted through a partner. Note that it does not only include “delivery” of the value proposition.
Customer Relationships
• Customer Relationships – essentially the type of relationship the firm wishes to establish with each segment - is increasingly crucial, particularly for service businesses.
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• Examples of customer relationships include:
Personal Assistance (common in many service industries)
Dedicated personnel (1:1 service, typical in B2B or affluent customers)
Self-Service (e.g., webmail services via FAQ)
Automated (e.g., ATMs)
Communities (e.g., message help-boards)
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• Like customer channels, different customer relationship strategies are appropriate for different stages of the customer experience (and for different segments).
Revenue Drivers
• Revenue Drivers are derived from the customer segments. These include both one-time or recurring revenues.
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Asset Sale (usually a physical product where buyer then owns outright)
Usage Fee (no ownership but rents out product/service, cost based on usage)
Subscription (similar but usually unlimited use in exchange for fixed period for a service)
Licensing (provide permission to use an intellectually protected good)
Advertising (fees for a particular product or brand that is being advertised).
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• A key aspect of sketching our revenue drivers is to understand each segment’s (relative) willingness to pay, and their preference for the type of revenue model.
• It is not necessary to assign figures at this stage, just the mechanisms to generate revenue:
Renting/Leasing (grant exclusive right to (usually) a physical asset for fixed period)
Key Activities
• Key Activities are exactly that: all the things that a firm must do to realize the value proposition.
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• Some examples include:
Production (designing, making, delivering a product – e.g., most manufacturing firms)
Problem Solving (typical in consultancies, hospitals, legal firms, etc.)
Platform/Network (alliances, matchmaking, etc.)
Marketing/Sales/Business Development
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• Again, the focus is on the main, high-level activities that must be performed, rather than detailed tasks.
Key Resources
• The component of Key Resources addresses which assets are required to fully realize the business model.
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• These can be categorized as follows:
Physical Assets
Intellectual
Human
Financial
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• It is helpful to ask which resources each of the left-hand components of the Busines Model (Val Prop, Channels, Relationships, Rev Drivers) require.
Strategic Partnerships
• Strategic Partnerships refer to those partners that are required to make the business model work.
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• It is also helpful to ask the purpose of forging a partnership in the first place
Optimization and Economy of Scale (i.e., cost reduction)
Reduction of Risk (e.g., banks owning local payment switch)
Acquisition of specific resources / activities
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• These include strategic alliances, coopetition, joint ventures, or buyer-supplier relationships.
• One way of discovering these alliances is to quickly sketch out the value-chain for the product and service in question.
Cost Drivers
• As in Revenue Drivers, the Cost Drivers describe the overall cost structure needed to sustain the business model.
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• Basic characteristics include:
Fixed costs (stay the same irrespective of volume of production)
Variable costs (vary proportionally with production)
Economies of Scale (cost per unit decreases as volume increases)
Economies of Scope (larger scope of products means less cost per product unit overall)
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• At a high level, the business model is either (low) cost-driven or value-driven.
Example of Business Model Canvas of
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