Fred: What is a Business Model Canvas?
Richard Randolph: That is a good place to start. Actually that's two questions. The first one is what is a business model? A business model is essentially all those elements that are required to run a business. It's how you actually conduct business itself. The Business Model Canvas is a one-page summary of all those elements. We're going to compare that with a business plan where you might have 40 or 60 pages. But by putting it into one single page, you're able to see it from a high level point of view and see the totality of your business.
Dennis Zink: Where did the Business Model Canvas come from? Who developed it and when was it developed?
Richard Randolph: Actually there's a new, exciting movement in start-up and new venture proposals. It started in about 2005 with a teacher out of Stanford by the name of Steve Blank. He wrote a book called The Four Steps to the Epiphany and that was essentially the class notes from his course that he was teaching in Stanford. He came out of Silicon Valley and he had tried several venture capital kind of small businesses with great success until the last one which in his words he says, "It left a crater so bad it had it's own iridium layer." He started thinking, "We have a really good approach for product development. Why don't we have a similar approach for small business development?"
That started it. Later on, he had a student in his class by the name of Eric Ries and Eric got so enamored of this approach, he used it in his own business and then wrote a book called The Lean Startup and that's the one that really got traction. That started everything on this new approach to starting small business. Then, 2 years later in 2013, Business Model Generation was published by Alexander Osterwalder and Yves Pigneur and this is the book that described today's Business Model Canvas.
Dennis Zink: Well, what exactly is in the Business Model Canvas? What's it made of?
Richard Randolph: As I said it's a high level overview all on one page. The Business Model Canvas has 9 cells, or 9 blocks, building blocks for your business. Those 9 blocks are: Number 1, the customer segments. This is your target market. Who is it that you're trying to reach and convince to buy your products. Number 2, the value proposition. The value proposition is your offer. What is it that you're going to present to people that they will find of value and be willing to pay for?
Block Number 3 is the channels. This is a 2-part cell. The first part is the communication and outreach. How do you get your message to them? It's the promotion, the advertising and so on. How do you communicate to them that you have something they want? The other part of channels is how do you deliver? How do you get your product, your service to them? The 4th one is the customer relationships. How do you intend to build your relationship with the customer? Are you going to be warm and friendly and so on or are you going to be distant, cold and transactional in nature?
If you look for example at a grocery store, you can find some grocery stores that you're happy to be there. They make shopping a pleasure as they say. But you can go into other stores and they think you're an enemy and all they want is your money. What relationship do you intend to build with your customers? Block Number 5 is the revenue streams. How do you make money? How will you get paid? For example, the World Wrestling Federation has recently changed from a pay-per-view model to a subscription model. That's a profound change in direction, so how will you get paid?
Now notice that up to this point, the canvas has described that part of the business that faces the customer. That's the on-stage portion. The next 4 building blocks describe the backstage, the operating, the infrastructure of your business. Block Number 6 is the key resources. What assets, what resources, what tools and equipment will you need to be able to actually deliver your value proposition? Block Number 7 is key activities. We used to call this your core competency. What is it you need to do better than anybody if you're going to win?
Number 8 is key partnerships. Realize that you can't do everything by yourself so you have to team up with others who can do what you don't do. For example, when iTunes was created, they had to partner with all the record producing and labels so that they could get content to offer on iTunes. Then finally, Block Number 9 is the cost structure. What's all this infrastructure going to cost you and how can you control that so that it's lower than the revenue stream?
Well, you can see that in each of these building blocks there is countless possibilities for innovation, creativity. One of the barriers I find in small businesses is that when somebody has an idea they also have an image of how that business is done based on what everybody else has always done. That might work and if you're opening say a corner cleaning store for your clothes and stuff, that's good because it's a proven model.
But if you're starting something that's fairly innovative, you can't do that the same way everybody else does because you'll be another me-too operation. You want to be distinctively different somehow and this is where you find that. Another advantage to this is you can step back and see the whole picture. I like to use the metaphor, it's like the picture on the outside of the box that that 1000-piece puzzle comes in. It's something that you get to see where the pieces should go when you put them all together.
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