Understanding The Business Model Canvas

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Understanding The Business Model Canvas

Thomas Brownlees

CEO and Founder,
440 Industries

Entrepreneurship is affected by three misconceptions.

Before thinking only about the next revolutionary concept, let’s not forget that it’s not only the idea that matters, but also its execution. This concept is well assessed by the Business Model Canvas, which we are going to present in brief in this post.

Traditional business literature does not often work well with startups. There is a generalised misconception in business management, suggesting that starting a new business is similar to managing an existing one. This could not be farther from the truth. Aspiring entrepreneurs have to face the fact that literature and academia have not yet cracked the code of starting a successful venture.

Entrepreneurship and new product development will always be uncharted territory and we need to establish new perspectives on how to structure the logic our business will pursue.

Here’s a breakdown of this article’s content
1. The idea is not enough
2. The structure of the business model canvas
3. Conclusions and suggestions for further research

1. The idea is not enough

The idea is not enough, you need a good business model too. A second misconception suggests that in order to come up with a successful company you need to focus on developing a great idea. The honest truth is that the idea is not enough, you need an appropriate business model to deliver value to your customer. But fear not, the Business Model Canvas is here and is going to assist you with crossing the desert.

The importance of failing is downplayed. As any entrepreneur can tell you, as an entrepreneur you need to identify and manage risks. There are many risks associated with starting a company, and it’s hard for anyone to come up with a clear strategy to develop your organisation from day one. What you need to do is testing, trying, failing, trying again. In the business literature, there are very few models which are actually able to contemplate failure, as some business areas praise themselves of almost being exact sciences. The business model canvas, however, can help you with the ‘not knowing stage’ of your venture and allow you not to focus on the answers but to focus on the questions.

In my opinion, a good businessman tries to identify the right questions that need to answered, more than any direct solution to a problem. This is why the BMC revolves around 9 essential questions, that need to be answered in a clear, concise and coherent logic.

Here’s the canvas with its essential blocks.

2. The structure of the business model canvas

The BSC is essentially split into two sides, the right side of the canvas allows you to understand what your company want to be and what value it wants to deliver to its target audience.

If I dared to provide a guideline, I would suggest to:

Start with the idea. Understand what is at the core of your business and what problem you want to solve for your customers. If you look at the current Unicorns (societies valued above 1 billion dollars) you’ll see that nobody tries to reinvent the wheel. These are the 9 steps they built their companies around.

Identify your customers. We don’t live in a generalist mass market where a company can simply consider ‘everyone’ their potential audience. Customers are smart and are likely to have strong opinions about what works for them. It’s necessary to have a broad idea of who our company will address, and what is the consumer behaviour associated with their target. In order to answer this question a founder can apply the STP (Segmentation, Targeting, Positioning) Framework, or better yet research and apply the Jobs to Be Done Theory.
Understand How to Reach Your Customers and What Relationship to Establish. If you understand who you are targeting and what you are offering them, then you will think about preferential ways of distributing your product and establish relationships with your customers. It’s always more expensive to acquire a customer than to retain an existing one and any marketing strategy will always be conceived around the value of customer relationship management.
Identify the revenue model that best fits your value proposition. There is a big difference between what customers want and what customers will pay for. We don’t need to focus on how much the customer pays for the service, but what is the revenue model the company pursues. In this larger framework, the actual price can vary and may be subject to a variety of promotional initiatives. What matters for your company is identifying the revenue streams, and creating a revenue model that increases value and decreases cost.

Now that you’ve decided what you want to be for your customers, it’s time to look at how you can deliver on your promises.

What resources do you need? In order to bring to fruition your vision, you need to identify the necessary assets which are creating your competitive advantage. Just by clarifying this point you’ll gain further insight into the value you need to deliver as well as to all of the other elements you need to draw from in order to deliver value through your business.
Focus on you “key activities”, or what you need to be great at. As the motto says, either be first or be the best. “Key” activities are those business activities which you need to excel at in order to have a fighting chance of winning a customer.
Find strength through your network and identify your “key partners”. In the globalised world, we’ve got so many different opportunities to create collaborations and partnerships which can assist us in a variety of situations, such as. refining our targeting, identifying our channels of distribution, branding our company. We need to know who our friends are and make sure we can leverage the opportunity of creating connections which go towards communal interests and business goals.
Identify Costs. How much will all of this cost? We need to understand our price structure and costs, to understand what bottlenecks will be more likely to affect our pricing and maybe think of ways to overcome these challenges in order to create a lower pricing base to access a wider market.

There are a variety of factors to be considered. It’s this complexity which encourages us to use a visual tool to step back and take into account the logic that needs to glue our business together. If you start lean you can try and make mistakes, change your answers, change your beliefs, challenge your assumptions, make changes every day.

Don’t try to get the business model right from the start, use post-its and erasable pens instead!

3. Conclusions

By looking at the current trends in business we are then drawn to realise that over the last decade business management has switched from managing products to managing different business models. An exciting way to approach the future of this model pertains to how companies, are now becoming fully aware of the opportunities to integrate new exciting product and service ideas with a variety of business models, capable of harvesting their innovation potential, creating more than a product portfolio, but a business model portfolio.

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Understanding The Business Model Canvas Very few business analysis frameworks actually account for trial and error and the Business Model Canvas among them, helping companies overcome deserts.

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Thomas Brownlees

I am an Anglo-Italian business lecturer and consultant based in Florence, Italy. In 2017 I started 440 Industries, an education and training company focused on fashion, music, and technology. Our mission is to help students, entrepreneurs and managers in overcoming the challenges of starting, developing and scaling their business in the creative industries. When there's a will, there's a way!