Are you trying to start a new company? Starting a new product line? Growing a new business unit? Or, maybe, you want to better understand your business so you don’t waste time on the wrong activities?
Well, if any of these apply to you, then I have the blog post for you!
Several years ago, a tool called Business Model Canvas was introduced to us at Qualbe. We found mention of it in a book by Steve Blank. Blank is a serial-entrepreneur in Silicon Valley. Many of the same resources can be found on strategyzer.com
where they have released dozens of materials to help you unpack this process including some very instructional videos. I am truthfully not sure who created the idea first so I give credit to both.
The premise of the Business Model Canvas is that there are nine major areas that need to be addressed in any business. These are especially vital to anything new from a startup to a product line. We will look at a couple examples together to help you get started on evaluating your next, or maybe current, project.
The nine major areas of your business are:
- Cost Structure
- Customer Relationships
- Customer Segments
- Key Activities
- Key Partners
- Key Resources
- Revenue Streams
- Value Proposition
Visually, they lay out like this:
We will fill a couple out together. For your own reference, you want to start with either Value Proposition or Customer Segment and work your way from right to left. The right side is generally revenue activities while the left is generally operations and costs.
We will start with something easy. A neighborhood lemonade stand!
I’ll use my surname for the stand as it’s a family business.
Ander-ade Lemonade Business Model Canvas
The first item to establish is the Value Proposition. Ask yourself, “why would someone want my lemonade? What does it do for them?” The answer might be “provide refreshment on a hot day.” While there could other reasons, this is a key one that will drive sales.
The second item establishes the Customer Segments. Ask, “who are we going to reach with this offering? Who do we want to reach? And who do we not want to reach?” The establishment of your Customer Segment will determine a lot about this little business, such as location of your lemonade stand and price point. There are some clearly bad places for your stand, such as the backyard of your house behind the 8-foot privacy fence where the bullmastiff roams free. But there are likely multiple busy streets in the neighborhood. Do you want to be where there are more walkers or drivers? Who is most likely to stop and be refreshed by your cold, perfectly balanced between tangy and sweet lemon flavored beverage?
For now, let’s say we establish we want to target the neighbors who may be out for a walk and put our lemonade stand at a key crossroads.
From this point on, order is less important. It’s encouraged to work from right to left.
For now, let’s go to Customer Relationships, Channels and Revenue Stream(s).</p?
Customer Relationships are the types of relationships you want to establish with your customers. In our business these are likely short, one-time events.
Channels are how you are going to deliver value to your customers. I don’t mean “cups.” Rather it’s by foot traffic. Customers are coming to you to get lemonade.
The primary Revenue Stream is sales. The customer gives currency, and in return receives a chilled chalice of citrus.
Now, we move to the left side of the Canvas to review our Key Activities, Key Partners, Key Resources and Cost Structure. Again, the order is less important though I prefer to end with Cost Structure as by the time I get there, I have a pretty good understanding of the entire business.
Key Activities are hard to narrow down. Of course there are activities that need to be performed but which ones are necessary to drive sales? You need your stand setup, but is that enough to sell? You must ask the question, “what are the 2-3 activities that must be done to be successful?” Things like asking people if they want to buy lemonade (sales) and not running out of inventory (production) would be considered key to driving revenue.
Key Partners are those that help you be successful. Maybe this is a relationship with those financially backing you (like the bank or family/friends). This could also be the owner at the corner of Maple and 1st Street (landlord). It could be that you want to go into a partnership with the girl across the street who’s mom makes the best cookies in the neighborhood. For simplicity, you decide to not share revenue, but rather just use the cookie as an additional draw to the lemonade stand.
Key Resources are those items that are absolutely necessary for this to work. Such as lemons and sugar. The neighbor’s cookies would be nice to have, but they are not absolutely necessary to a lemonade stand.
And finally, we get to Cost Structure. What is it going to cost us to be in business? There are raw materials costs (“lemons ain’t free” – every dad ever). It could be the property owner at Maple and 1st wants some kind of rent or revenue share for using their property.
And we are done! We have mapped out the basic needs of our lemonade stand business. Here’s a challenge for you with young kids. Work with your kids to fill one of these out and see if they can pull off a successful lemonade business. Comment below if you want to try it and then let us know how it went!
Let’s do a second one that is fairly relatable to everyday life. You want to live the dream and open your very own fried chicken joint. We’ll name it Fry ‘dat Chicken.
With a blank slate, we can decide if we want to target a specific group of people (Customer Segment) or have a very unique experience/product (Value Proposition) for a starting place. We will start with a Value Proposition for now.
I can’t speak for every place, but in Fort Worth there seems to be a new fried chicken place opening every few weeks. So, what makes us different? What is the Value Proposition? How is Fry ‘dat Chicken going to stand out?
Use some creativity and think outside the box. This is your opportunity to have fun and see if you can make a business make sense on paper without any risk. Here are some brain stormed ideas to get started and use as examples:
- Give away the chicken for free
- Premium chicken
- Let customers fry their own chicken
- Simple menu, chicken, fries and sweet tea only
- Extensive menu, multiple batter ingredients for the chicken, lots of sides
- Chicken while working out (maybe change name to Chicken Run)
- Chicken on a stick
Pro tip: One thing we encourage is thinking through the “give away for free” option because it forces you to be creative in how this business benefits society, not just you. It also makes you cost conscious.
The idea of letting customers fry their own chicken intrigues me. This is part of the concept with fondue, so why not with fried chicken? My vision is that sides be cooked in the back and served family style while customers get to season and fry their own chicken in hot oil at their table.
Granted, most people will not consider frying chicken as romantic as fondue. So that angle will need to be adjusted which will require a shift in both the Value Proposition and the Customer Segments from most “cook it yourself” restaurants.
For the Value Proposition, we may say something like “experience frying your own chicken.” While there are more sales-y ways to say this (i.e. “enjoy an interactive eating experience…”) the basic value proposition remains the same.
The Customer Segments are tricky. While parents may want to teach young children a skill, hot oil is not a toy and could potentially be dangerous. The target seems to be those old enough to be careful around oil, and young enough to find this experience fun.
Moving on to Customer Relationships, Channels and Revenue Stream there are normal restaurant answers that we will attempt to modify for our success.
Customer Relationship need to sell the experience, not the chicken. This makes it a teaching and entertaining position.
Channels will be store traffic. To-go orders and delivery services don’t make sense if customers are to fry the chicken at the table.
Revenue Stream will be food sales. The more folks served, the better the revenue. There is also the option to sell ad space in the menu like many diners.
Moving to the left we begin to evaluate the Key Activities, Key Resources, Key Partners and Cost Structure.
Key Activities will fall into two major categories. 1) Hospitality includes waiting tables, teaching customers how to fry chicken, refilling drinks and bringing out sides and raw chicken etc. 2) Operations including keeping materials on hand, preparing raw chicken, cooking sides, creating bills and collecting payment.
Key Resources would be a storefront, staff and raw materials.
Key Partners would be suppliers of raw materials, a land lord, and potentially some investors or partners. There could even be a marketing company to help get the word out about Fry ‘dat Chicken.
Now that we have an idea of the business, we can establish the Cost Structure. We will have costs in a high-quality staff, cooking equipment purchase and maintenance, marketing and spoilage. Spoilage on this kind of business will be less than many businesses as chicken isn’t being fried in before being ordered. This allows for better use of raw materials.
We are done creating a business model canvas for Fry ‘dat Chicken. It helps to fill out a handful of canvas to force yourself to think through multiple options.
Completing a Business Model Canvas does not mean you are ready to launch but it is a tool that will assist you in evaluating what may or may not work.
The Business Model Canvas has become an occasional exercise that we practice at Qualbe. Often this exercise is performed with a team of 5-10 rather than just an individual to balance creativity and reality. To encourage team members to be entrepreneurial and creative, we have the outline of the Business Model Canvas on a whiteboard in one of our office spaces where anyone can come and think through a business idea or pivot.
Now that you have read a bit about the Business Model Canvas, give it a try! An easy place to start is how your current business operates. If you cannot narrow down each category to just a couple things, or cannot think of anything at all, that could be an area you need to spend some focused attention.
Good luck! Please leave a comment or share if this has been helpful to you!