Constructing Your “Business Model Canvas”
The Business Model Canvas was initially proposed by Alex Osterwalder in 2008 and continues to serve as a go-to resource for describing business models. Alex presently runs Strategyzer based in Zurich (www.strategyzer.com), a company that offers extensive resources to help teams and individuals define and document their strategy.
Earlier in 2016, Osmond Desilva, who runs Tech City Coffee in London (www.meetup.com/TechCityCoffee), approached me about running some meetups and I chose to discuss the Business Model Canvas and my own recommendations for building a business model. Now with our fourth event coming up, I wanted to share the topics being covered with some key points for the benefit of others.
My own experience with business models started at the beginning of my career when I had the privilege of working on the “Business Model Strawman” while working with Accenture Strategy for the London Stock Exchange (LSE). This was part of a complete transformation programme that the LSE undertook under the then Chairman Peter Rawlins. That programme laid the foundations for today’s digital securities markets and followed the deregulation of the securities market with, most notably, the change from open-outcry to electronic, screen-based trading. Many people today talk about ‘digital transformation’ as if it is something of a new phenomenon that started recently, but such change programmes moving from manual, paper based, ‘analogue’ processes to ‘digital’ are in fact many decades old. The principal difference now of course is the Internet which opens up vast opportunity for rethinking processes.
The Business Model Strawman that the Accenture team developed was a work of art and was the defining document that identified the way in which the LSE would fit into the context of the new markets that it was creating. It covered products, services, market participants, delivery vehicles, market segments, constraints, external forces and development priorities in a highly organised document that was signed off by Accenture management and the LSE Board of Directors. It wasn’t just a set of PowerPoint slides but detailed Apple Mac’d tables showing relative importance of dozens of categories along with carefully worded definitions. That process kicked off a large number of systems development projects for activities such as trading and settlement and the programme overall was a resounding success.
I start with this story because it’s important to realise that the LSE Business Model was the critical first step to a successful programme. In the same way, having a business model today is absolutely essential for launching new products/services, re-engineering the corporation, or conducting any sort of digital transformation project. I use the term ‘re-engineering the corporation’ on purpose and is an area that I will cover in another post. Unfortunately, very often, organisations do not develop their target business model fully and allow it to evolve as change takes place using the term ‘Agile’ as the justification. This introduces very high risk of failure or prolonged projects at best. While I subscribe to Agile for software projects, trying to be Agile while launching or shifting direction of a large tanker does not instil a huge amount of confidence. Neither does allowing a business model to develop while launching a product or service. I would much rather teams put a firm stake in the ground of what they intend to build even if that means formally reissuing the business model document should new information be discovered at a later date.
However, for such a stake in the ground to work, all members of management need to be bought into the shared vision and the importance and value of the business model. I experienced a breakdown of this when co-founding my first start-up in 1998. Our idea to disrupt the way leading software applications were offered by leveraging the public internet on a subscription basis (essentially a business App Store) led me to join forces with an old college friend. The business model document that I produced based on my prior experience at Accenture got us an audience with the MS Office product group in Redmond and won us our initial $5m of seed funding (money was undoubtedly easier to raise in those days). However, and herein lies the lesson, the rest of the co-founding team never embraced the business model document for its true purpose and it was quietly forgotten by the Board and investors. As the market and new information unfolded, the business meandered and was eventually marginalised. More on that in another post which will also highlight how our CEO got thrown out of the Boardroom in Redmond after flying there in a private jet. The point being that the management team wasn’t sufficiently bought into the idea of establishing the strategy in the form of a documented business model, preferring to write numerous versions of business plans for the purpose of raising capital, and the result was a classic case of scope creep, blind spots and a pitiful strategy of hope. Well it was 2002 and my co-founders could use the excuse of the dot com bubble but really it was back to basics of not properly establishing and then developing the business model.
To summarise the key points so far:
- Business models have been around for a long time as a strategy tool
- A business model is essential for putting a stake in the ground and needs to be developed further as the business evolves
- The business model document needs to be developed fully and considered of extremely high importance by the whole management team come rain or shine
- The business model has a different purpose compared to a business plan.
With that introduction let’s get back to the agenda of the meetup.
1. Business Model Canvas
In our Meetups I was surprised that many early stage companies have invested a considerable amount of money into designing and building applications without having a business model. Better late than never but it also highlights that many people still don’t know the tool exists or how to use it. Strategyzer.com provides great resources on how to develop a canvas so I won’t go into it in detail here save to list the key sections of the document which are here:
- Key Partners
- Key Activities
- Key Resources
- Value Proposition
- Customer Relationships
- Customer Segments
- Cost Structure
- Revenue Stream.
A version the template can be seen here: https://goo.gl/images/rsE8vy
These are all core to any business model and I like the one page template format that the Business Model Canvas provides. My recommendation is that teams (or an individual) start by using post-it notes or any other format to brainstorm the content. Slowly a picture emerges for what you’ve already got in mind and that allows more layers and ideas to emerge.
At the very early stage of an idea it’s somewhat difficult to know all aspects so it should be treated as work in progress for a while allowing you time to conduct the necessary investigations. My own experience is that you work on the Canvas, do some investigations, work on the Canvas some more, and iterate this a few times. Having a draft is a perfect tool to book a meeting with an Executive of your target market on the basis that you’d like to validate some assumptions. Eventually the Canvas stabilizes. Whether from the beginning or at a later date I fully recommend the idea of illustrating the Canvas. Leaving it in text form makes it much harder to visualise what’s happening and therefore spur ideas for further enhancements.
Using one sheet of paper, even if enlarged somewhat, also ensures you are focused on the big topics and not over-engineering your project. A Canvas with umpteen entries is far too detailed and it will quickly become obsolete and unusable.
A good example is one here for Skype: https://goo.gl/images/8PrKlk
2. Value Proposition Canvas
One critically important section of the Business Model Canvas is the Value Proposition and is a surprisingly difficult section to get right. To aid this, the team at Strategyzer came up with a Value Proposition Canvas which I tried out with great success.
Again, Strategyzer do a great job of explaining how to use their tool so I won’t go into it but provide a list the key sections here:
- Define customer jobs, pains and gains desired (as observed in the market)
- Define your product and services, gain creators and pain relievers
- Optional: Define the alternative products and services available.
A version of the template can be seen here: https://goo.gl/images/Z6o8JY
Developing your value proposition using this tool allows you to craft a sentence of the following format: Our ___(Products and Services)____ help(s) ____(Customer Segment) ____ who want to ___ (jobs to be done)___ by ___ (verb e.g., reducing, avoiding)___ and___(a customer pain verb e.g. increasing, enabling)____. unlike __(competing value proposition)__ .
I personally find this to be a really useful way to drive out a value proposition and the resulting sentence can even go straight onto your home page. Very powerful.
3. Developing the business model fully
An often overlooked aspect is what is occurring externally to your business. Accenture defined this for the LSE project in their own way and Strategyzer have their own tools. The principal aspects are to define the external forces that are driving your business model and can be defined as follows:
- Key trends (regulatory trends, societal and cultural trends, technology trends, etc)
- Market forces (market segments, needs and demands, etc)
- Macro-economic forces (global market conditions, capital markets, etc)
- Industry forces (stakeholders, new entrants, substitute products, etc).
I cannot stress how important it is to define all of these aspects. I have experienced 3 massive downturns and they always have far-reaching implications. Having a good understanding of all of these forces can help you to define a business model that can weather the storm.
A slide showing this external forces model and more definition of what to consider can be seen here: https://goo.gl/images/UUJ1JY
I will add one more aspect that I believe to be important and that is to include what you consider to be the development priorities from your business model. Once you’ve defined your whole business model it’s rare you can go and build everything at once. More likely you’ll need to introduce parts of the model over a period of time. That sequence and relative priority needs to be defined and included in the business model for the whole to make sense.
I recommend that teams prepare at least one page for each of the key steps including business model canvas, value proposition, and each of the external forces and the development priorities. So you end up with a document comprising all aspects. This is then the foundation for further iterations and close inspection at Board meetings in the future. There are other tools to strategically plan and analyse the business in different ways but if you start with what’s been covered you’re probably already doing better than most people. So start there.
Hopefully this has been helpful and you have success on your project or new startup.
Azfar A. Haider, London, October 2016
Azfar Haider provides transitional help to companies in Europe looking to grow through direct sales, partnerships or organisational and operational strategy. See Creative Media Systems www.creativemediasystems.com.
Image courtesy of Sira Anamwong at FreeDigitalPhotos.net
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