Your Business Model

In previous lectures we have considered various elements of your Business Model. You started with your business or innovation idea and your SWOT analysis which allowed you to gain some initial feedback from your peers. Then, we developed your idea further with the Value Proposition Canvas which further specified your understanding of your customer or user and the value that your idea would offer them. We also began to consider possible partners that you will work with.

In this lecture we develop your concept of your business or innovation further with a tool that provides a succinct overview of your business or the implications for your business of an innovation+ and which allows you to improve that over time.

Business Plan vs. Business Model Canvas

Traditionally, startup businesses were encouraged to develop their Business Plan at an early stage in their business development. It had an important role in providing potential investors with information that they would use to decide whether they would invest in your business and then use to track your progress and evaluate their future involvement. Many people in the entrepreneurial community have criticised the emphasis that was placed on the Business Plan. They argued that few Business Plans were ever fully read and that they quickly became obsolete – your thinking about your business changes over time and it was very difficult to change the Business Plan to keep it up to date.

This approach was also taken in established businesses. Innovations were subject to extensive evaluation and planning, so gaining agreement to proceed with their implementation was a lengthy, difficult and frequently unsuccessful process. This process deterred many people from engaging in innovation.

As a result, many people said that Business Plans were unnecessary unless they were requested by an investor who required it to consider financing you. They also said that the process of agreeing on innovations that an organisation should support should be dramatically streamlined. Instead, it was argued that a more succinct version of your Business Plan or analysis of the impact of an innovation, was of greater value and one approach that has been used for this is known as the Business Model Canvas as developed by Alex Osterwalder. In this video, Alex Osterwalder describes the Business Model Canvas.

We will use the Business Model Canvas in this course. You will also learn to develop your Business Plan since you may need one for investors. Creating your Business Plan also helps you to learn about the details of the various elements of your business.

We will also develop a formal business case if you are working on an innovation in an existing business. This will allow you to develop the skills and knowledge that you will need if your business continues with a more traditional approach. It will also help you better understand the detailed impact of your idea and its impact on your business.

Why Your Business Model is Important

Your Business Model is your vision for what you are going to do with your new business or how you are going to change your existing business through your innovation so it is worthy of very careful thought.

Where you are proposing a new product or business that is part of an existing organisation, the Business Model Canvas that your current business has may be significantly changed. Where you are suggesting improvements to existing processes the impact on the existing business model may be smaller.

In this lecture we will introduce the various aspects of your Business Model, which we will consider further as we proceed through the rest of the course. This week you will develop your Business Model Canvas – a succinct depiction of these business elements. While the Business Model can be created quickly, it should also involve very careful consideration.

A Tool for Continuous Improvement

The Business Model Canvas is a tool that will help you continuously improve your business. As you proceed through this course you will be receiving feedback from your peers in your Incubator and from your potential customers and others who will contribute to your business success. As you receive this feedback you may change elements of your business model.

Your Business Model Canvas provides a visual model of your business that allows you to see all of its main elements on one page. That helps you better understand how all of those elements fit together. So, when you are considering a change to your business it is easier to understand the impact that might have in other areas and, in turn, to understand how those other areas might impact the possible change. When a change is made you can also modify any other parts of your Model that you need to.

Over time, as you develop your business, you will likely have several iterations (or versions) of your Business Model Canvas. Steve Blank argues that it should be reviewed and changed weekly. The different versions will become a historical record of your business development.

What is Your Market Type?

In his book, The Startup Owner’s Manual, Steve Blank stresses the need to understand the market for your product. It will influence how you plan your business. Similarly, it should influence your innovation activity in an existing business. We are going to look further at the market aspects of your business in future weeks but before you start your Business Model Canvas creation you need to have an understanding of the various market types. According to Steve they are:

Existing Markets

This is where a market currently exists and so the way that you market to it is reasonably straightforward. You can look at what others are doing with their product and modify it in some way to make it better. Your marketing activity would focus on how your product is better than your competition.

New Markets

If you are creating a product that does something that has never been done before or does it in a dramatically different way then you are creating a new market. Customers have never seen a product like yours before. Customers are likely, initially, to take time to understand the new product and whether it will do something beneficial for them. You need to ascertain whether sufficient customers exist that will be willing to pay for your product and then, if they do, how you will introduce this radically different product to them in a way that will encourage them to adopt it. 3D television may be struggling here.

Cloning

This approach is often used in new country markets where the existing large provider has yet to establish their presence. Companies that are clones of Netflix have appeared in Canada and the UK. WestJet is a clone of Southwest Airlines in the US.

Re-segment an Existing Market

This involves focusing on a segment of an existing market that is not addressed by existing (often large) providers. An example of this may be a bookseller who produces either books that are cheaper than those sold by Amazon (perhaps due to cheaper printing techniques) or which addresses a particular niche (perhaps a genre with less readers that Amazon have not tackled). These examples highlight the two methods of re-segmentation: low cost and niche. How you market to each of these new segments will need to be carefully considered.

Your market type will influence your Business Model and it is introduced here as something that you need to think about as you develop it.

The Business Model Canvas

The Business Model Canvas is a visual representation of the main aspects of your business and how they fit together. It is a table with nine boxes that each contain a description of a business element. Your work on your Value Proposition Canvas will help you with two of these: The Customer Segments and Value Propositions.

Other versions of the Business Model Canvas exist which modify the version below. We will use this version in the course as it has been tried and tested many times. If you are a social business you may want to add two boxes – social costs and social benefits.

Fitbit Example

The following canvas has been developed based on the Fitbit wearable device. The Fitbit is a wrist worn device that monitors and records a range of health information. That information can be analysed via a smartphone or PC and used to manage health related activities – especially exercise.

This canvas has been completed, based on the Fitbit example:

Developing Your Business Model Canvas

As you develop your Business Model Canvas you should develop a one or two-page explanation of the content of each element. There is no “perfect order” for completing the canvas – entrepreneurs approach their businesses from many different angles.

Completion of the Business Model Canvas should be an activity that you involve the members of your business team in. Many people use post-it notes as they complete it to make revisions easy to make.

As you complete the Canvas for your business you may be uncertain about some aspects of it – some cover areas that we have not yet addressed in the course. You should complete it with your best judgement as to what is appropriate in each element. As we proceed through the course you will likely update it based on feedback from your peers and potential customers and from the topics that we cover in the course content.