Lean Canvas and Business Model Canvas – the canvases of the business model.
Business Model Canvas is a basic tool for defining the way of the functioning of a business. It is a simplified model of a business plan, which is used to verify the quality delivered to clients based on the market conditions. The model enables you to logically examine the relationships within your activity, take a close look at your own proposition and judge it rationally. Business Model Canvas is also a kind of a test – is your business matched with the clients’ needs, and is your proposition profitable?
What does Business Model Canvas consist of?
Alex Osterwalder, the creator of Business Model Canvas, listed 9 business canvases important from the perspective of running a business:
- Segmentation of clients – the basic question that you need to ask yourself is: who are my clients? Segmental questions of demographic (sex, age, nationality, location, income group) and behavioral (shopping behaviors of the user) character may come in handy. It’s also worth analyzing the empathy map, i.e. check what our clients see, feel, think, hear and what problems they face. Thanks to that, you’ll find out who and how you should target. At this stage, you normally characterize your client in a general way, focusing on their one most dominant characteristics, e.g. their profession. By widening the scope of questions, you can choose the most appropriate set of traits defining your client yourself and skip less important elements.
- Value proposition – it’s good to know why a client chooses your company over another, what becomes their key motivation, which need you fulfill, what elements of your business are vital to them, what it is that you stand out and what value you generate for them. Thanks to these questions you not only define how you can answer to your client’s needs, but you also find out what the added value for the client is and what makes you stand out. While defining it, you need consider the quantitative (e.g. price, time) and qualitative (e.g. comfort, design) aspects.
- Relations with clients – it’s a type of interactions between the company and the client. What kind of relations do your clients require: direct, automated, personally engaged, consulting support at given shopping process stages, or independence? The level of complexity of the service and the level of prices influence the selection of this parameter. For example, purchasing FMCG goods doesn’t require much of engagement from the producer, while elective goods are better chosen with a consultant or sales rep. The kind of relationship with the recipient also determines the kind of the business: you’ll communicate differently with a business client (B2B), and differently with the end-user (B2C).
- Customer communications – tare all contact points of the client and your proposition. They define the way you’re going to promote, sell and deliver; starting with the informational part (from where the customer learns about your offer), through the operational part (what channels you’re going to use to deliver the offer). At this stage, it is very important to determine the right configuration of communication channels. If your advertisements are placed where you haven’t chosen the target group, they will fail if they are excellent. For the appropriate positioning of your ads, you need to find out what media your clients use and what places they go.
- Key actions – are all the activities performed by you that are of value for the client. If your objective is to sell the product, it’s good to think about how to design, create and deliver it. If you provide services, you must know what actions your company should take to meet the requirements of the recipient. At this point of the analysis, you should think how your operational activities are supposed to look.
- Key resources – is the awareness of the indispensable infrastructure you need to create in order to ensure the right flow of the processes in the company. You must define the physical (hardware, office equipment, vehicles) and intellectual (the team, patents, knowledge, branding) resources that are needed for your business to function.
- Partners – you can’t run a business on your own. The next step is creating a network of suppliers, partners and contractors. You might want to include in this group not only suppliers of specific products and services which contribute to our value making, but also all enterprises you may engage in additional activity with.
- Revenue structure – the description of all financial sources that your business generates. You should consider which business model will be the best for the proposition; what value you should present to the client, so that they will be willing to pay for it, and what business model will be the right one. Subscription, affiliation, advertisement, one-off purchase, other? At this point, you also need to consider additional sources of financing: investors, donations, loans and the time for repayment. The business model that you choose should make you independent from outside credit sources as much as possible, relying more and more on your revenue from clients.
- Cost structure – is the analysis of all costs that the business generates. The basic division considers fixed costs (e.g. office rent) and variable costs, i.e. ones that depend on the scale of our activity (e.g. the costs of creation).
Example of BMC: APPCHANCE
Business Model Canvas:
Business Model Canvas is mostly used to define the way of functioning of the business and verifying the value it creates. BMC is said to be used by enterprises that already exist on the market and want to enhance and organize their activity. Needs of startups have contributed to modification of this model. That’s how Lean Canvas came to be. It’s a model that’s more about product development, finding the client’s needs and solutions. It is used most often when you introduce a new idea to the market, because as the idea’s creator Asha Muray says, it is based on focusing on your own resources.
It is estimated that 90% startups in Silicon Valley fail. CB Insights did a study on 101 startups, analyzing 20 main reasons for their failure. The biggest mistake was the mismatch between the solution to the market need. Moreover, in the first ten, apart from the issues with financing, the following things also appeared: wrong team member selection, competitors, weak product, business model and marketing. All these elements are part of a bit complex question, which is strategic management of a company. That’s why after the initial sketching of the business activity and checking the logic behind the relations, you need to enhance this basic sketch with a more in-depth analysis. Lean Canvas is a starting point for startups which helps you validate your idea.
There are 4 aspects that make Lean Canvas different from the first model. Namely:
Problem – what problem does your product/service solve? What does it makes better or easier, what does it give your clients? What is the main frustration that is solved, what client needs should we focus on? The accurate diagnosis will help you avoid the risk of mismatching your proposition with the market needs. At this stage, you can also characterize your main competitor offering their product/service to the same target. It will let you not only perform comparative analysis in terms of competitive advantages, but also find an alternative satisfying the needs of your mutual clients.
Solutions – do you know in which way your business solves the client’s problem you defined earlier? In what way does it offer value? When running a business, LC lets you estimate when the product will be ready to meet the basic need of your client and when it will be minimally ready for the market (MVP – Minimum Viable Product).
Measurements – selection of client’s activities that will be a value to your enterprise; in which way you’re going to define success and which parameters are going to determine it; will they be measurements related to cashflow, or rather traffic, recommendation, performing a certain action; which short- and long-term effects will be achieved to the benefit of the business.
Unfair competition – is the way in which the project will be protected from the competition. You need to take care of protecting it from being copied or stolen. LC also lets you analyze what makes it advantageous over your competition, what makes it unique (maybe it’s related to a unique skill, knowledge, contact, infrastructure or possessed resource) and how difficult it will be for the competition to copy it.
A good start is a lesser risk
The advantage of these models is focusing on keystones that are important from the business perspective. In a clear way, you can describe the basic functions, which are essential. Thanks to these models, you can notice the flow between separate elements, the relations between them and their logic. At this stage, you should see all inconsistencies stemming from not enough specification and incoherence of your idea. BMC and LC make it easier to evaluate the idea and verify the assumptions. You need to remember, however, that filling out the canvas should be the starting point, a sketch of the reality in which you’re going to operate. From the strategic management point of view, you should then complement your analysis with more detailed descriptions and strategic goals with success measures. The cards above don’t answer to questions about what the micro- and macroeconomic environment conditions (SWOT and PEST) are, or what kind of personas are in our target group. Let’s notice that they also don’t discuss the marketing aspect of designing a business, connected with creating the brand’s identity (which is often decisive in choosing a given company). Bear in mind that these canvases are good models, but not nearly enough to skip the aforementioned 90%.