Whether you already run a business or are just considering starting one, creating and setting up a marketing strategy, entering a new market, or launching new marketing campaigns, your success depends on many factors. However, some of them can be easily influenced by you. All it takes is to prepare a clear and solid foundation. The very image of your business may seem like something abstract, taking shape mainly in your mind. Put it on paper.
This will naturally prompt you to think about things you may not have considered before. As a result, planning and directing your business and marketing activities, outputs, and goals will become significantly easier.
Create your Business Model Canvas
A business model most often takes the form of a single A3 sheet, which is why it’s also referred to as a “canvas.” Just as an artist paints their picture on a canvas, an entrepreneur creates the picture of their business. It is a simple concept divided into 9 blocks covering the main areas of business, which ultimately answer the most important entrepreneurial questions.
If the Business Model Canvas is completed correctly, the result is a clear, relevant, and intuitively understandable document.
Download the free Business Model Canvas template (source: strategyzer.com) at https://bit.ly/3OEvzNa and get started.
- Customer segments
Start by working on the customer segments block. Think about who you are creating value for with your product or service, and define your customers and target groups.
- Who are / will be your customers?
- What are / will be the age groups of your customers?
- From which country are / will your customers be?
- Which customers are / will be the most important for you?
- Are your services or products intended for corporate clients? From which industries?
- Are you focusing / will you focus on the mass market or on a narrowly specialized so-called niche market?
Then divide and group your customers into customer segments that should be sufficiently homogeneous, yet as distinct from each other as possible to avoid overlap between customers. You can divide them according to various criteria:
- geographical — spatial division of customers (countries, regions, cities),
- demographic — by age, gender, ethnicity, religion, marital status,
- socioeconomic — by economic status, education, occupation, income,
- psychological — by psychological profile (interests, attitudes, values),
- purchasing behavior — by frequency and scope of purchases, loyalty.
The most commonly used criteria are psychological factors and purchasing behavior. After dividing your customers into segments, select the segment or segments you will focus on.
2. Value proposition
Continue by developing the value proposition of your products or services for your selected key customer segments. It represents a set of values and benefits that meet the individual needs of customers in those segments. Consider the key questions:
- What values do you bring / will you bring to your customers?
- Which customer problems do you help / will you help solve?
- Which customer needs do you satisfy / will you satisfy?
- What combination of product and service do you offer / will you offer to each customer segment?
The goal is to create strong value propositions that will give you a more advantageous position in the target market. The values can be quantitative (price, speed of service) or qualitative (design, customer satisfaction). When developing them, consider the following categories:
- novelty and innovations — satisfying new needs that customers did not have before, or meeting the demand for new products or services and their innovations,
- performance — improving performance in meeting customer needs,
- customization — adapting products or services to the specific needs of customers,
- task completion — helping customers accomplish certain tasks,
- design — exceptional product design,
- brand / status — customers find value in using and showcasing your brand to others,
- price — offering similar value at a lower price,
- cost reduction — helping customers reduce their costs,
- risk reduction — helping customers lower the risks they take when purchasing certain products or services,
- accessibility — ensuring access to products or services for customers who previously didn’t have it
- convenience / usability — creating greater comfort or simplifying product use.
When creating value, the so-called Value Proposition Canvas can be extremely helpful. It is a strategic tool that helps you understand your customers and answers two essential questions: WHO your customer is and WHY they should be interested in your service or product. We will explore the topic of value proposition in more detail in a separate article.
3. Communication and distribution channels
In this block, define the communication, distribution, and sales channels through which the value proposition of your products or services reaches your customers. Use the following questions to guide you:
- Through which channels do you communicate / will you communicate with your customers?
- Through which channels do you deliver / will you deliver your product or services?
- Where will your customers typically be present / where can you best reach them within your marketing communication?
- Where do you present / will you present your product or service?
- On which channels will you launch your advertising?
A key element is creating the right mix of channels that meet customers’ expectations of how they should be approached. You can reach your customers through your own channels (your website, internal sales team, own stores), partner channels (partner stores, wholesalers, partner websites), or a combination of both.
Channels have 5 different phases, and each channel can cover only some or, in some cases, all of them. Consider the following:
- awareness — how you raise awareness of your products and services among your customers,
- evaluation — how you help customers evaluate your value proposition,
- purchase — how you enable customers to buy specific products and services,
- delivery — how you deliver the value proposition to your customers,
- after-sales service — how you provide post-purchase customer support.
Pay close attention to this block, as sales channels play an important role in your customers’ user experience.
4. Customer relationships
Customer relationships include all forms of communication through which you build long-term connections with your customers. Describe them carefully in this block and use the following questions as a guide:
- How do you communicate / will you communicate with your customers?
- What forms of communication do you use to build long-term relationships with them?
- What types of relationships are customers in your segment used to / what relationships will they naturally expect?
Customer relationships can vary — from personal to automated — and are linked to specific customer segments. They stem from motivations such as customer acquisition, customer retention, and increasing sales (so-called upselling).
The highest form of personal relationship is considered to be individualized personal assistance, where one specific person is always dedicated to the customer. It is typically built and expected in segments such as private banking or financial consulting. A milder form of personal relationship is personal assistance, commonly found in retail, the gastronomy industry, or direct sales within the B2B segment. This type of relationship is established directly at the point of sale, through a customer call center, email, or other communication channels.
Personal forms of customer relationships are nowadays often complemented by automated forms, such as self-service, automated newsletters, or chatbots, most commonly implemented in the field of e-commerce.
Building strong relationships with customers requires a great deal of effort and time. To foster long-term relationships, it is highly beneficial to build a community around your product or service. A community enables you to maintain active communication with both current and potential customers and helps you understand them better.
5. Revenue streams
Revenue streams represent the income you generate from each customer segment. Describe how and for what exactly your customers pay. Ask yourself the following question:
- What are / will be your revenue streams?
- For what value are / will your customers from each customer segment be willing to pay?
- What have your customers already paid for?
- What payment methods do / will they prefer?
Typical revenue streams include, for example, payment for a product, use of services, rental, subscription, licensing, or advertising. Payments may take the form of cash, invoices, cash on delivery, card payments, and so on.
6. Key resources
Your key resources enable you to create and deliver value propositions, reach markets, maintain customer relationships, and generate revenue. Therefore, ask yourself the following question:
- What key resources do you need / will you need for your business to operate successfully?
It’s important to focus on the resources you need to carry out your key activities. These include physical resources (production facilities, buildings, vehicles, machines, systems, distribution networks), intellectual resources (brand, patents, copyrights, partnerships, customer databases), as well as human and financial resources. You can own these resources, rent them, or purchase them from key partners. Carefully consider which of them are essential and indispensable for your business and which can be temporarily outsourced.
7. Key activities
Key activities represent the actions through which you produce your product or deliver your services. When filling out this block, use the following questions as guidance:
- What are / will be the key activities of your business?
- Through which key activities do you reach / will you reach your customers?
This block of the business model is very important because it describes the key steps you need to take to operate successfully. Key activities can be divided into the following categories: production, solving customer problems, and platform (software, brands).
Consider all your activities in the context of delivering your value proposition to your target group through marketing channels and with well-set relationships. Carefully review all the blocks you have completed so far and consider whether anything is missing.
8. Key partners
Your partnerships are indirectly linked to your key resources. They are the cornerstone of many business models. Their purpose is to optimize your business, reduce risks, or acquire key resources that you don’t have internally from external sources. Therefore, define the following:
- Who are / will be your key partners?
- Which of them help / will help you gain a competitive advantage?
- Which of them cover / will cover some of your resource gaps, and which ones specifically?
The key partners of your business may include, for example, suppliers or other partners in the fields of marketing, accounting, legal support, raw material supply, or external services.
9. Cost structure
Creating and delivering value to your customers, maintaining relationships with them, and generating revenue are all associated with costs. When filling out this block, use the following questions as guidance:
- What are / will be your planned expenses over a given period of time?
- Which key resources and activities are / will be the most cost-intensive?
Take the time to list all the key cost categories associated with your business activities, including their frequency and level of risk. The cost structure may include: fixed costs independent of the volume of products produced or services provided (salaries, rent), variable costs directly proportional to the volume of production or services provided, economies of scale achieved through increased production, and economies of scope achieved through a broader range of operations.
By completing this final block, you have successfully reached the end.
You now have your business model in front of you. What’s next?
Review all parts of your business model and look for connections and relationships, as well as threats and opportunities. Consider, for example, whether any resources are missing from your costs, whether all value propositions are reflected in your revenues, or whether you are offering value to each of your target groups. Analyze, identify shortcomings, and find solutions to eliminate them.
What will creating a business model bring you?
If you’ve created it thoroughly, you’ll gain several key benefits for your business:
- You’ll gain a clear understanding of the structure of your business — what plays an important role in it and what your business plan is unlikely to succeed without.
- You will understand the fundamental relationships between the different parts of your business. Especially new entrepreneurs often believe that the most important element of their business is the service, the product itself, or its technical features. However, they often forget that without a functional connection to customers, a clear value proposition, communication channels, and other aspects of the business model, the product or service alone will not bring success.
- Your communication will become clearer based on your business model — not only toward your customers, business partners, and investors, but also internally within your team. This will give you a shared understanding of what your business is built on, allowing you to translate your business plans into reality more easily and efficiently.
- Last but not least, you’ll increase your chances of succeeding in today’s fast-paced and highly competitive environment.
There are many business situations in which a well-developed business model can help you easily and effectively. Whether you’re entering a new market, your business is stagnating, developing sales and marketing strategies, or launching new campaigns — we’ve summarized the most important ones for you in our article: 13 situations when you should consider marketing consultants.
If you’re not sure how to create or update your business model, we’ll be happy to help. Contact us at smetuprevas@rowslide.com. We look forward to working with you.
