Business Model Canvas: The UNTOLD Secret of Successful Startups
After failing in 3 startups and conducting lots of try and error experiments I finally found the secret of successful entrepreneurs.
I realized that I’m missing the big picture because there is more to the secret of successful startups.
In fact, it was crystal clear to me that to become a successful entrepreneur and scale your business, you must create a systematic growth hacking strategy that enable to to differentiate your business from your competitors.
I found the secret, but there was one big problem…
What’s the first step to create my own growth hacking system?
Let me break down he whole process for you, Step-By-Step.
There are 3 main phases in growth hacking that you need to pay attention to:
- Customer Acquisition, [By the way you can attend the Instant Free Webinar just now, and learn how to get more customers]
- Customer Engagement,
- Customer retention.
However, as always, the devil is in the details.
There are other steps that come before and after every phase, and crating a lean business model is one of the most overlooked steps in growth hacking and the best tool to develop your lean business model is business model canvas..
What’s Business Model Canvas?
In a nutshell, ”Business Model Canvas is a visual tool that helps you craft a lean business model, and turn your ideas into a feasible business model”. Others may call it a “shared visual language” that can be used as your reference point and the sketch board to plan, and drive your business ideas.
The truth is that the moment you overlook your lean Business Model, you’d be missing the Big Picture, especially If you are of the opinion that having just a great idea, cool product and lots of money are all you need to become a successful entrepreneur.
Let’s be clear about one thing
We are not here to discuss theories.
Whatever you learn here is as practical as your daily tasks. In fact, the intention of this article is to help you quickly grasp the idea, learn the techniques and start implementing them right away.
Let me give you a simple example to help you understand two essential components of a good business model.
But at first let’s get two basic concepts right.
What is a business model?
Why business model is that important!
Let’s imagine that you are going for a journey with your new car, and you decided to drive at night to save the day. Although you have a brand new car and the tank is full of petrol, and indeed you have a clear destination in mind to reach, without a proper navigation system your chance of success is not that high.
In this example, your Car [Let’s say your car can be translated to a good business idea or a decent product], Your tank represents [enough capital to start your business] and your destination in mind [is your startup’s vision].
That’s exactly the big mistakes that 90% of entrepreneurs and startups make and believe that they only need capital, business, idea, ad a good product to enter the market, and out-compete their competitors.
But there is always more to the story.
Bear with me for a moment to show you the bigger picture.
All of the above three essential elements that we have just discussed are critical to the success of your startup, however, to successfully launch your startup and grow your business you need to be able to drive your business towards you goal and scale your business easily; And for that you’d need something a set of right startup tools to start your business.
Yet, the most important factor to run a successful startup is your business model; that is apparently one of the prerequisites of a growth hacking strategy.
Your business model is the first tool that enables you to strategically plan your growth, measure your progress, arrange your business ideas in a systematic way, and craft the right growth marketing strategies that take your business to the next level.
In this article I will walk you through a super easy to use tool called “Business Model Canvas”.
Once you and your team are familiar with 9 building blocks of business model canvas, it automatically becomes your common language and a powerful enabler in your future discussions.
How to develop a business model?
If you’re in the early stage of your business and you’re planning for a successful launch, you must remember that your success depends heavily on your startup’s business model. For Stage B, and Stage C startups, your business model should be combined with your growth hacking strategies to enable you to scale faster, and grow easier.
You can , indeed, use the best free startup resources to set up our business, AND up-skill your team to have the most significant entrepreneurial skills, but you must never forget that it is your business model canvas template that helps you visualize your business and help you to make critical decisions in difficult situations.
Don’t worry, I will walk you through every necessary steps to help you learn how to develop your business Model based on Business Model Canvas.
How to write a lean business model?
You need to understand the HUGE difference between several types of business models.
If you are looking for a good definition of business model, here is a slid one:
Unlike traditional business model examples, the new business model generation IS NOT A LENGTHY DOCUMENT that takes days to write.
In the traditional business plan templates, you’d have spent hours filling in a template, and after you’ve finished creating a business model, rather surprisingly, you’ll marry to it because who is going to through out the result of a week’s writing. In most circumstances, you’d find yourself explaining everything over an over and yet no one understands what it is about or how feasible your business plan is.
When it comes to scaling your business, and startup, you must put every ingredients together and build a solid foundation for your business.
You have to focus on innovative business ideas, growth hacking techniques, the right business pattern and simplifying the entire process of launching your business.
A lean business model, which I will get to the details of it in a moment, is all about taking your business idea and turning it to a successful business as fast as possible.
First TIP: AVOID copying traditional business model examples that were designed for corporations in stable markets. They won’t work for your startup as it’s designed for different environment for companies with an established network of customers in a market with literally no fluctuation.
When you make a model strategy using the results from your market research, you ought to make it as lean as possible.
The trick is to be able to adapt to market demands and pivot whenever necessary.
You can start with a basic business model and have have agility in mind to iterate your business model and implement your business plan successfully.
In other words, the era of managing and launching business using the traditional corporate strategy model is over.
In order to win the startup competition, you’d need to make sure that you have covered all 9 building blocks of the business model generation.
Let’s get to the details of
how to develop a business model.
The first thing you need to do to understand how to write a business plan based on business model canvas you need to be familiar with the following 9 building blocks of the business model canvas.
Customer Segment (CS)
Value Proposition (VP)
Customer Relationships (CR)
Each building block represents a part of your business plan and your startup strategy that you need to pay attention to.
Here are the details of 9 building blocks of an effective business plan:
Step 1: who are your target customers?
The first step of writing an effective business plan is to begin with identifying who are our customers. Put the business model canvas template on the wall and gather the team together. Using an empathy map can greatly speed up this process and help you achieve a more accurate outcome.
At this stage of identifying prospective customers, your team and you should focus on how to provide value to customers. Here is the trick: you need to ask yourself not only once but as many times as required until you really figure out who is your target market.
Identifying your customers helps you in many ways such as implementing the right marketing strategy with higher ROI, focusing on right partnership and channels to connect with suppliers and customers, spending more time on key activities and obviously as a result, having better revenue from your revenue streams.
It’s important to call your decision making team and the key stakeholders together and pass them a set of sticky notes. Ask your team to write down their answers to the following questions on the sticky notes and place them on the customer segments of your business model canvas template on the wall.
- Identifying who are our customers
Who are your target customers in this niche and the other niches
How to provide value to customers
How to identify potential customers for your startup
What are your customer’s needs and expectations
What are your different target markets you should penetrate
Define your target customer profile
Once you have written your answers to “who is your customer”, you should drill down and categorize your customers based on
the following criteria:
and many more factors, indeed.
The more you narrow down your target market in contents of your business plan and the more you specify your customer segment, the better your chance of getting your business started successfully; Of course, we will get to the process of analyzing the result of your market research.
Tip: While working on your customer segment and defining your business model, make sure you don’t stuck in the details and try to keep it high level at the beginning, later on you can easily Pivot, iterate or continue with your business model canvas and fine tune it. All in all, the output of this step should be your defined Customer Segment, also known as CS.
Step 2: Defining your value proposition.
What’s your customer’s Pain? What makes your offering so unique?
In simple terms your value proposition canvas should enable entrepreneurs to solve problems, challenges & customer’s needs.
The second step is to learn how to define value proposition. You can obviously use the probing techniques used in Prince Method Sales strategy & find out your customers pain points and figure out how should your startup’s value proposition design look like.
Don’t forget: The customer value propositions in business markets should be all about adding value to what your potential customer’s life.
If you are running a B2C business, conducting a short survey using the free startup tools and asking your potential customers in your target market about what they want is absolutely beneficial.
Use the Lean startup method and make sure not to fall in to the trap of perfecting your product; instead, listen to your customer’s feedback and adapt your business mode accordingly.
The Value Proposition Canvas is organized as follows;
Step 1: Gather your customer’s challenges and needs; literally anything that is related to your startup and your offering could help them address their issue.
Step 2: Identifying your customer’s pain is another important step where you would need to sort all the negative emotions and undesired expenses, as well as circumstances and risks that your customer couldexperience while waiting for their need to be satisfied.
Step 3: The winning portion of your business model canvas design is about your customer Gains. Fill in the customer gain box by collecting the benefits and desires including emotional, personal, functional, or economical, cost saving, and more.
Final Step: You would need to put together the result of the above mentioned steps and outline your startup’s offering that is built around addressing those points. For example, what products , feature or service (among your offering) results in customers achieving either a functional, social, or emotional benefits..
The Value Proposition Canvas helps you to challenge, design, and build your company’s Value Proposition in a structured and thoughtful way, just like the Business Model Canvas, it assists you in the business model design process.
Remember, Your startup exists to add value to your customer!
What comes out of this process is your Value proposition, VP. When defining your value proposition always remember that Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience). ask yourself and the team “What exactly are you offering and what pain are you addressing?”. In your customer’s eyes, how you can help people with your business matters the most.
Here are three amazing Examples:
- If your service is mostly on technology and/or is satisfying entirely new needs, like when telephone was invented, Your value proposition can be about innovation and the benefits that people will enjoy from your service/product.
- You can focus on Performance if your offering adds value by enhancing an existing product, technology or service.
- Your value proposition may also be around price, something that low cost airlines do.
Step 3: How would you connect with your customers?
Reaching customers is about Identifying the right distribution channels, customer relationships? (CH) & (CR)
Once you’re done with identifying your customer and clearly outlined ‘what’s your value proposition?”, your next step is to find channels of reaching out to customers.
You might be thinking “How to acquire new customers” or “What are the channels to reach customers”? – Would it be better to reach out to customers through channel partners, or you should choose to implement direct marketing strategies? The definitive guide for startup business plan & patterns gives you more clarity on those decisions as it varies from business pattern to another.
At this stage you need to define your customer relationship methods, partnerships, supply chain and how your startup works with both suppliers and customers. Try to answer the following questions and place them all on your business plan template
which is crafted based on business model canvas.
- What are our channels to reach customers
- How to reach customers online and using social communities
- What are some good examples of building relationship customer in our industry
- What ways do our customers prefer to be contacted
- What would be our strategies to improve customer service
- How can we innovate in building customer relationships
The more you shape these channels the better your position is in promoting your value proposition. Business Model canvas allows you to iterate in every step, and change the channels you think is not suitable at any point of time until you reach a suitable solution.
You can use these information to fill in the Channels CH, and Customer Relationships CR in your business model canvas template.
Depending on the nature of your business you can have either a direct channel or an indirect channel. Both customer relationship channels have pros and cons and need to be clearly evaluated before you decide how to reach your customers.
For example, Owned Channels are considered direct i.e. hiring an in-house sales team or setting up your your own web site. Reaching out to customers can be indirect too, such as working with retail stores owned or operated by your company.
Other methods such as wholesale distribution, retail, or partner-owned web sites are considered as indirect channels too.
Step 4: How do you make money and manage costs?
Define your revenue stream and cost structure: Where to Spend Money & How to generate revenue? (R$) &(C$)
Obviously, the main goal of setting up a business is to make happy customers. The main reason for that is that having happy customers means they are going to pay for your service and once it happens regularly your business can sustain and grow faster.
This principle applies to all types of business models, from non-profit to commercial businesses, and it does not really matter whether you are in fin-tech, Pharmaceutical, software or hardware, or low tech or high tech business.
At this stage, you’d be concentrating on two important fields: “Business cost saving ideas” & “How to generate more revenue”. To address this question you need to understand “What are the main revenue streams of your business?” in your business plan.
In other words, how does your startup help you make money. Try not to over complicate it. In fact the The less revenue stream you have, the easier you can manage it.
Your revenue stream is influenced by 2 important factors
- Your actual pricing
- Projected Customer lifetime
You gotta be as specific as possible. In fact many entrepreneurs need to practice and iterate their business model to land on the right revenue stream.
For example, a challenge that many startups have is that “How do I price my product when it is not complete yet”
Here is the truth: Your Customers only care about their problems and challenges, not your offering!
Is that tough to digest, yes, but it is the truth that help you become a successful entrepreneur. Your revenue stream and pricing model should be designed based on the fact that you’re solving your customer’s problems NOT HOW MUCH COST DO YOU INCUR TO BUILD YOUR PRODUCT.
The next step towards defining your revenue stream would be to estimate your customer lifetime. There is no definite customer life time for any business and that’s normal. Here is why:
Your customers either condemn your product that mush that they don’t want to use it anymore and they leave, or and they are so in love with your offering that they leave after they solved their problem with the help of your product.
Perhaps this LTV case study by Kiss metrics helps you understand it better. below is an snapshot of it.
Depending on your business pattern, your customer lifetime may change. For example the lifetime of your customer changes from the cases where you use “Bait & hook” business strategy to generate recurring business revenue to another strategy like multi sided business where your revenue comes from attracting more free customers to influence the sponsors.
At the same time, you should Identify the costs that you need to manage in order to keep the business in shape and make your startup successful.
Try to have a conservative estimation. in the meantime find out what are the main sources of cost and expenses you have to run your own business. Is it infrastructure? Branding? people and training? equipment and hardware? or any other thing…
List down all your finding in the 2 bottom boxes of your business model generation template as step 4 helps you complete your Revenue Stream R$, and Cost Structure C$.
Step 5: What should you do to boost your business?
Defining key resources, key activities, and key partnership: Who is responsible for what? (KP) , (KA) & (KR)
Last but not least is obviously about defining key resources, key partners and Key activities of your business model canvas.
Key activities are considered the most crucial things you need to do in order to run your startup successfully.
These activities could should be aligned with your business model and patterns. For instance if your business plan suggests that you should sell your product or service through your channel partners, then one key activity would be “Channel partner Management”
If your startup is a product-driven business, then performing constant market research using the right startup tools should be added to your tasks as it helps you learn about your customers, trends, technology, etc and build better products.
Another example of key activity I can give you is for companies who are in ICT and technology startups. In case you’re offering bunch of services to your customers who are using your ICT service, then achieving your SLA (service level agreement) through outstanding maintenance of your servers is essential, probably keeping the infrastructure up and running could be a key activity.
In a nutshell you ought to come to a conclusion about “what partnership you need to establish and with whom?”, and “what key activities you should focus on to get the business running”, and lastly “what resources and skill sets do you need to have on-board to drive your startup towards success”.
This way, you’d know who should exactly do what, and you can clearly monitor the results and improve whenever necessary.
The result of step 5 is 3 important components of your business model canvas: Key Partners KP, Key Activities KA, Key Resources KR.
Tips on how to use Business Model Canvas?
Creating your business plan based on business model canvas is very ease since you don’t need any special tools to use. Simply Business Model Canvas. Simply print the business model canvas template on an A2 size paper and place it on the wall and follow the steps I’ve explained above.
Remember: What you do and how you work with business model canvas matters:
Some Practical Techniques to work with business model canvas.
- Use business model canvas and get everyone on the same page. Try to make them united by visually showing the team both the big picture, and indeed the importance of their role in achieving success in the business.
- Make sure that your team think holistically about the business. You should not get stuck in details, especially in the first versions of your business model.
- Use business model canvas to create a common language in your startup. Since everyone comes from different background, they are used to their way of analyzing things and interpreting the priorities. Use business modal canvas and stick to visual techniques and simplify things as much as possible. Every one should have the same understanding about your company’s vision.
As soon as you finished your first draft of your business model canvas, you should go out and start testing your business model. This is the fact, What you think about your customer’s need might not be what they actually want.
Start testing every components of your business model. You can begin by asking your potential customers about what they want to have. how much are they willing to pay for what you can offer. Knowing that, not only helps you know the market better, it also helps you make better decisions about your revenue streams and your key activities.
Business model canvas enables your business to adapt to market by iterating as many time as you can. Come back to the office once you have the market data and know more about your customers and start changing the 9 elements of your business model canvas. Then start testing that again.
In the next Module I will be helping you learn the successful business patterns that you can follow to take your startup to a different level using business model canvas.
Now, it’s your turn.
Feel free to comment below and let me know your opinion about this article, and business model canvas in general. Have you used it before and what results have you achieved? and what would you love to read more about.
Download the Business Model Canvas Checklist
I included a comprehensive checklist that helps you work easier with your business model to the pdf version of Business Model Canvas, The Secret behind Successful Startups. t has enhanced navigation and searching capability. Feel free to click on the image below and Download it.