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This microbook is a summary/original review based on the book: Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers
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Also available in audiobook
Do you believe entrepreneurs must design their ventures and new business beyond the traditional business plan? Alexander Osterwalder thinks so, and in the book Business Model Generation he creates a new simple, direct and practical methodology to develop business ideas, called Business Model Canvas. To prove that his methodology worked, he joined Yves Pigneur and 470 employees in dozens of countries who modeled the creation of the book using this method.
The visual and straightforward approach of the Business Model Canvas is fantastic for you who are thinking of starting a new business but also for large companies launching new products. Today, BMC has already been used in Microsoft, IBM and by executives and entrepreneurs around the world to conduct a critical analysis when designing new business. Are you starting a new business? The Business Template Canvas is a solid foundation for you and your team to start a genuinely workable business, knowing exactly where they are entering and what is needed to be successful. All you will need is a large sheet of paper, a pen, and a post-its block. Ready to abandon the traditional format and embrace new models of value creation?
To explain something, we almost always resort to words. And if the process is complicated, we usually need lots of words, which is not exactly fresh, especially if you are the person responsible for explaining something. It's also not that pleasant for the audience. Often entrepreneurs and managers create 30-page business plans. Project managers start by writing an extended program. As an investor, administrator, or entrepreneur, wouldn't it be better if you could get a visual representation that describes the whole project on one page?
A business model is a logical basis of how an organization creates, delivers, and captures value. The business model is the skeleton of a company, with all its pillars, as well as showing how it engages in the market context and how it generates revenues. At a time when companies increasingly need to innovate their business models and develop new ones, Osterwalder's work has looked at dozens of successful companies to offer a way for anyone who wants to design their first business model or even for firms that want to add new business models to their service portfolios.
The Business Model Canvas is the tool that helps people and teams develop new business models. It has been adopted by large companies like IBM to design their next areas of expertise and is available to you as well. It consists of a flexible, grid-shaped model that captures the essential parts of a business model. The "canvas" is usually a large piece of paper with sections determined for each element of the model. Participants in the process of creating new business models add ideas to each of the blocks, representing the proposals for the new model. A business model is a dynamic system and not a collection of independent parts. Therefore, with each new idea added, it may be necessary to re-evaluate the other ideas previously conceived for the project. BMC exists to nurture broad strategic thinking and reduce the focus on operational issues. The idea is to think about the business systemically and not just the individual roles of the people and teams involved. The BMC, in the end, should become a visual summary of the new business you are designing, consisting of 9 pillars.
The set of common pillars of BMC exist for your team to think of the same structure, the same framework. Let's get to know them:
Customer Segments - Customers are the most important part of your model. Different markets and sectors require unique approaches. In this first stage of the canvas, our goal is to think: how to define the set of my potential clients? What are their common characteristics?
Channels - How will we communicate with our potential customers and distribute our products? Will we have resellers, physical stores, or will we sell exclusively over the internet? Understand where your potential clients are and define which channels will be used to reach them from there.
Relationship with customers - How can you efficiently meet different customer segments? Are there unique relationship tactics for each segment or will our relationship be similar to all customers? Here you must create the plan of how to keep the relationship with your clients alive.
Value Proposition - These are "benefit packages," the message that drives customers to buy and want to keep buying from your company. A value proposition that works must be in perfect harmony with the needs of its customer segments and also differentiate itself from the other existing solutions in the market.
Revenue sources - Where does your company's money come from? How does it get out of your client's hand and come to yours? Is there one or multiple ways to capture the value generated by these customers? Each source of revenue requires a different pricing mechanism. Use this session to document your best chances of charging for your services.
Key resources - The raw material of your product or service can take many forms. It can be financial, intellectual or physical - depending on your business. The important thing is to know what you will need beforehand to deliver your value proposition to your customer.
Key Activities - What skills should your company have to produce your product? What core activities will your team have to accomplish to meet customer demands? At Google, for example, a core activity is always to invest in their search algorithms so that users always have good answers when using their search engine.
Key Partnerships - Every business gets into an ecosystem and finding key partnerships can be the secret to growing your business faster or even reducing costs. Which companies could help your business model be more competitive or grow faster?
Costs - Every business has a cost structure. Here it is important to define how much is spent to serve customers and how these costs, fixed and variable, work when your company operates. Understanding costs are essential to ensure the profitability and scalability of your business.
In his book, Osterwalder looks at various business models to create a standard template from which you can draw inspiration. Here are our favorites:
Long-tail models: It relies on offering a broad range of custom products to a mass market of buyers. An interesting example is Amazon that has millions of products and thus reaches all types of consumer, without relying on any product exclusively.
Freemium Models: It relies on giving free goods or services to individual customers to attract others. Example: Google offers a free search tool for its users, but charges companies to display their advertising on these search results. Another example of freemium is the Evernote app, which is free for those who use up to two devices but paid for users who want to use it on more than two.
Four catalysts can help you generate a new business model. They are:
New uses for underutilized resources. Example: Amazon leases its available servers through Amazon Web Services.
New offers for the market. Example: The first iPhone.
New ways to serve the customer. Example: Easy Taxi allows a client to call a taxi from anywhere, without relying on a signal on the street.
Innovations in cost structure. Example: Xerox has increased profits from expensive copy machines by renting them instead of selling them. Take them to your team before you start your brainstorm session.
To manage the business modeling, bring your team together in a focused brainstorming session, that is, a time frame where everyone can bring their ideas and help you model a new product. To be successful in this initiative:
Define beginning and finishing times;
Ask all participants to study BMC before starting;
Paste a large empty BMC into the wall;
Post notes and pens to your team and encourage everyone to participate;
Take into account industry and macroeconomic trends.
With this, you are ready to create your canvas and have your new business model.
To ensure that your business remains viable over time, you must always revisit your canvas and identify what has changed and what remains true. All nine elements of a business canvas can change quickly, and you need to be aware to respondto those changes. With these re-evaluations you can always refresh your company, identify innovation opportunities and document and share this learning with the team. Companies improve the results of their business modeling process when the team creates this habit of performing periodic checkups. All business models eventually become obsolete, but companies that adapt can anticipate the changes to survive.
Business people work from the design on a daily basis. We create organizations, strategies, business models, processes, and projects. To do this, we have to take into account some complex factors, such as competition, technology, legal environment and more. Increasingly, we have to draw these things, but traditional business formations do not teach design. Osterwalder, in his book, presents us with some tools that business can use to manage their design process. One of them is the empathy map: The Empathy Map is a visual tool to describe the profile of a person or a group of individuals. Empathy Map allows you to structure a consistent description of your customers and make it easy to share with others. It contains the following information:
What does he/she think and feel?
What does he/she see?
What does he/she hear?
What does she/he say and do?
What are their pains?
What are their needs?
By adopting the map of empathy, you can represent your client directly and practically to share with the team. Of course, not everything on the map is always correct, they are just hypotheses, and it's ideal is to test them, validate them and correct them as needed. The important thing is that this tool can be used as a premise in marketing campaigns, in the construction of a sales pitch. Other essential tools are the process of ideation, always wondering "what would happen if?" for situations that may arise and the use of storytelling, makes business models easy to communicate.
Before starting to model your business, Osterwalder recommends that you prepare beforehand and stay focused on the problem or opportunity you have at hand. It is also advised to think visually. Capturing ideas in dashes, graphs, and symbols define abstraction and help us communicate better, getting rid of operational details. The use of post-it notes is significant for the collaborative design of the project since the poster with the field grid creates a common language in which everyone can communicate.
Business Model Canvas is the tool that allows companies to plan and review their business models at high speed, involving their entire team. BMC is the ideal model to take new ideas from paper and also to bring innovation into established large enterprises. It is simple and incredibly easy to use.
12min tip: Downloadthe business model canvas at this link! ;)
Alexander Osterwalder is a Swiss business theorist, author, and consultant, known for his work on business modeling and the development of Business Model Canvas. He inve... (Read more)
Dr. Yves Pigneur is a management professor at the University of Lausanne and the Georgia State University, Hong Kong University and the University of British Columbia. Pigneur obtained his doctorate in Information Systems in 1984 at the University of Namur. He had started his academic career as an assistant professor at the University of Namur in 1977. After graduation, he was appointed Professor of Information Systems Management at the University of Lausanne in 1984. He was a visiting professor at the National University of Singapore in 2012 at HEC Montréal in 2013 at Georgia State University and at the University of British Columbia. Pigneur h... (Read more)
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