Creating the Business Model
The video below “Creating the Business Model” (completed in collaboration with Business Foundations), describes how to develop your business model by answering the questions raised in the Lean Canvas. It runs for around 9 mins. Prefer to read? Scroll on below
The lean canvas is a one-page template that helps entrepreneurs and startups create scalable businesses. It provides a structured format for them to focus their business idea based on 9 essential elements. If you have an idea for a new business, the lean canvas provides an easy-to-use framework from which you can explore your idea from different perspectives and develop a viable business model.
Why use the lean canvas?
Ideas are worthless unless you can develop a clear business model that adds value to your customers by providing solutions to their problems. Unlike lengthy business plans that take a long time to create, a lean canvas is a useful tool that lets you organise your ideas onto a single page. It makes it easier to visualise, share, and refine your idea as you gain new insights. The lean canvas is particularly useful in the early stages of business development because it is fast and simple to use. It minimises time wastage and helps you focus on attention on what’s important. While many budding entrepreneurs focus on the product or service, it only makes up 1 of 9 critical aspects of a viable business model.
The 9 focus points of the lean canvas
There are 9 blocks on the lean canvas template. These 9 blocks represent essential areas you need to address when developing your business model.
- Problem – what problem are you trying to solve?
- Customer Segments – who experience this problem?
- Solution – what will your solution do for your customers?
- Unique value proposition – what makes your solution unique?
- Channels – how will you market your idea?
- Cost structure – what will it cost?
- Revenue streams – how will your solution bring in revenue?
- Key metrics – how will you measure success?
- Unfair advantage – what is unique that cannot be copied or bought by other people?
By having clear answers to the above questions, you’ll be able to attract the right customers for your product or service and avoid some costly mistakes.
Let’s look at each of these 9 blocks in more detail.
Being able to identify and articulate the problem you intend to solve is the foundation for developing a successful business model. Once you have an idea to solve a particular problem, you must investigate further to find out if the problem actually exists and is worth solving. Does it help your customers save money? Or saves them time? Makes them feel better? You don’t want to be wasting your time and money developing something that no one wants. You can validate your idea by talking to people and asking for their feedback.
Your target customers are people who are experiencing the problem you’re trying to solve and will be will to pay for the solution. Knowing who your customers are will make it easier for you to market to them. Research your target customers and formulate your ideal customer profiles. Be specific on the details such as age, gender, attitudes, interests and geography.
Unique value proposition
The unique value proposition (UVP) represents the fundamental reason why your customers should buy from you. Knowing your UVP will help you stand out from the crowd. You must be able to express the benefit your product or service brings to your customer. Having a clear UVP will provide a purpose for your business to exist.
You can try to articulate your UVP using the following format:
A is the B that does C for me.
Example: Netflix is an online media provider that allows me to legally stream movies and TV shows anytime I want.
You must be able to describe precisely what your solution will do for the customer. What are the functionalities of your product? What service are you providing exactly? Can you describe the user experience? Talking to your target customers can also provide insights that can help you refine your solution.
Channels refer to how you will reach your target customers. You need to consider how you’ll communicate with your customers and how you’ll distribute your products and services. Will you reach your customers online via email or social media? Are you distributing your products online or in a retail store? How can the customer contact you for support?
Looking at the cost structure will help you identify the main costs involved in starting up your business. For example, consider your fixed operating expenses, costs to produce and deliver your product or service, and marketing costs.
This block identifies how your product or service will bring in revenue. You’ll need to consider the best way to price and sell your product. Will it be a fee for service? Subscription? Maybe a percentage of sales? Look at what will most likely appeal to your target customers and how they are buying similar products and services. Understanding your cost structure and revenue streams will give you a good indication of the break-even point and profitability of your business.
Measuring key performance indicators (KPIs) will help track how your business is doing. It keeps you focussed and ensures you are heading in the right direction. Common KPIs you might want to consider include:
- How many customers purchase your product or service?
- The number of visitors to your website?
- Conversion rate
- Bounce rate
- Cash inflow vs cash outflow
Your unfair advantage is something that is hard to copy and cannot be bought. It’s a tough question to answer as it may not be obvious at first. Having an unfair advantage means your competitors cannot copy what you do. It could be having access to key information or expertise in a specific niche that places you ahead of the competition.
Take your time when working through the canvas. Many entrepreneurs become too focussed on the solution and they fail to analyse their business from a different perspective. Remember your lean canvas won’t be perfect the first time. Refining your business model is an iterative process. You’ll need to improve on your idea it through continual feedback and validation.
Contact Emergination to see how our Lean Canvas Workshop can help you with your business.