Dear readers of the blog arryrahmawan.net, on this occasion I would like to share about how to utilize the Canvas Business Model to support business for novice business people (StartUp).
Before we get into the discussion about the Canvas Business Model itself, I want to first discuss why the Canvas Business Model can be an effective tool for making business planning.
Oh yes, maybe you will find this article one of the longest articles I have ever written. It’s true because I made this article intentionally about using the Canvas Business Model to support your business. The following are some of the things presented in this article,
The Longer the Business Plan, the Greater the Risk of Failure
Wow, is that true? So, the long and detailed business plan that we run, will increase the chance of failure? How come?
Isn’t that against the advice of management experts and business mentors who instead encourage novice entrepreneurs to make clear and complete business plans?
Apparently, the opposite. I myself have just realized a business plan that has increasingly opposed it will increase the chance of failure when fostering a number of budding entrepreneurs in the University of Indonesia’s Directorate of Innovation and Business Incubator program.
In addition, I also see the same pattern as a compilation of novice entrepreneurs at portalstudentpreneur.com. More complete, they have a detailed business plan, complete with descriptions of the results of market research, finance, and so on, challenges failed to execute.
Why did it happen? After searching, business takes longer
The plan will have the following weaknesses:
Flexibility – novice entrepreneurs need to have a complete business plan. Make a compilation of rapid changes in the real world, novice entrepreneurs remain ‘persistent’ fighting for their business plans that turned out to be irrelevant
The validity of Idea – A complete business plan will certainly look at the feasibility of business from various angles.
Because many aspects are viewed (analysis of markets, products, marketing, finance, human resources, etc.), it causes new entrepreneurs to ask an important question:
Do the ideas they propose in business really sell and are needed by consumers?
Because many have to get in a business plan, many novice entrepreneurs forget whether or not their business idea is really valid (needed by customers).
Michael Schrage from MIT never said ideas that can be tested are better than good ideas. A business idea that is tested is better than an idea that looks good.
Steve Blank, one of the retainers in the world of startUp said, there is no business plan that survived the first contact with customers.
No business plan can survive the first contact with the customer (because there will definitely be a difference between the initial agreement with the reality on the ground).
So, do what needs to be done?
The difference in the Flow of Building a Business between Past and Present
About 7-8 years ago, the first compilation of studying business I learned a lot was to build a business then it would pass the following implementation:
Unfortunately, as has been explained just now, many start-up entrepreneurs still follow that way. They start their business from an idea; make a business plan, then throw.
Is it wrong? Not. The risk of failure is greater? Yes
Why is the risk of failure now greater? This is because of technological advances, customers are increasingly demanding kinds, and competitor innovations are very fast, making the market very dynamic and rapidly changing.
This year our business can be the market leader. However, 3-5 years later it could be that our business will really disappear without a trace being replaced by new players.
Therefore, to reduce the risk of failure, a new perspective is needed for novice entrepreneurs in making their business. The most fundamental difference lies in the validation phase of ideas.
Connecting today is very easy to make something better (better), cheaper (cheaper), and faster (faster), the challenge then is – is it really an idea that is needed by the market today? Is the market demand for the idea valid?
So, the path to creating a new business in this day has changed. Before a business idea is made into a business plan, it needs to be made in advance ‘test whether the idea is valid or not. The grooves are examined, analyzed as follows,
So after creative and innovative ideas are found, the thing that needs to be done then is to create business models from the idea, and then validate whether the business model can generate profits.
If the business model is valid, then proceed with making a business plan, such as formulating a marketing strategy, financial projections, HR analysis, and so on.
WHAT DOES BUSINESS MODEL MEAN (BUSINESS MODEL)
Okay, I already have an idea, and then I have to formulate my business model to be validated. But, what exactly is meant by a business model?
Business model, or business model, can simply be defined as the process of how a company creates value and benefits from the value it creates on an ongoing basis
It’s easiest to imagine, for example, have you ever played the game Clash Royale or Clash of Clans on Android? We can download it for free, right? Then where did the creators of this game get the money?
Namely by selling items such as Gems or Gold in the game that must be paid with real cash. Business models like CR or CoC are also called freemium business models.
A business model where they can provide value for free (free) in full, but those who want more value must pay with money (premium).
Get to know what a Business Model Canvas is
Finally, we come to an understanding of what is Business Model Canvas (BMC). BMC is a tool developed by Alexander Osterwalder, which was popularized through his book Business Model Generation.
BMC was developed to help business organizations and budding entrepreneurs to map and analyze their business models.
What exactly is the Business Model Canvas?
In general, BMC was developed by considering 9 main blocks that must be considered in mapping business models. These nine main blocks, all summarized in one canvas (1 page).
This is what also makes BMC superior because, with its simplicity which only consists of 1 page, it turns out powerful to provide an understanding of the whole business model.
The nine blocks in BMC are combined in one canvas, which represents the main key to driving the success of a business,
- Customer Segments: Who are your customers? What is the description of the person you want to solve? How their characteristics? What are they thinking about? Feel it? Do it?
- Value Proposition: What solutions do you offer to your customers? What is interesting about your solution? What makes consumers want to choose, buy, and use your value?
- Channels: How do you make the value/solution of your problem reach the consumers?
- Customer Relationship: How do you interact to maintain customer loyalty?
- Revenue Streams: How do businesses make money from the value offered?
- Key Activities: What are the key activities or competitive strategies that the business carries out to create its value proposition?
- Key Resources: What resources must a company have in order to be competitive in creating value?
- Key Partnership: Who are the partners who support the organization to be competitive?
- Cost Structure: What are the factors that make up the costs?
I have explained those nine factors in an article titled mapping business models with Business Model Canvas and I have also made video tutorials for making correct BMCs.
Simply put, BMC consists of 3 main parts. The part is offering, customer, and infrastructure. As for the picture of this division in the following section,
BENEFITS OF CANVAS MODEL BUSINESS
BMC has become popular not only in large, well-established companies, but also popular with entrepreneurs and intrapreneurs in mapping, analyzing, validating, and innovating in existing business models.
Basically, as a practitioner, I find there are 3 main benefits of BMC.
- FOCUS: The one thing that I feel most about making this Business Model Canvas is being able to sharpen the focus and make clear about the proposed business model, rather than making a business plan that is pages thick.
- FLEXIBLE: BMC is very useful because it is easy to modify while still giving a holistic view of the business model
- TRANSPARENCY: As a founder of several businesses, I often use BMC to communicate my vision and business models to the team, and with BMC the team can more easily understand what business models are in the organization.
10 Steps Using the Business Model Canvas
When I hosted a BMC workshop, it was most comfortable doing it with hands-on practice. So I advise you to print a Business Model Canvas template on A3 paper.
Prepare sticky notes with 2 different colors, then start filling your BMC according to the business you want (or have) run. To download the Business Model Canvas template, you can download it here:
After you download, please fill out the sheet and then ask yourself, “Does the data you fill in already make sense? Is there a possibility of being filled with better alternatives?
If you want something more practical, without having to print, I’ve provided a BMC template file in the form of PowerPoint so that it can be directly filled and presented.
For those of you who have never used Business Model Canvas before, here is a short tutorial that I have prepared especially for you.
STEP 1 (out of 10): Customer Segments
Customer segments or targeted customer segments are the most important things that must be answered by the Business Model Canvas. Most business models do not provide the expected results because the customer segment cannot be clearly defined.
To be able to fill the customer segment clearly, the following needs to be considered:
Customer Segment Dimensions
Notice if your business targets single or multi-sided market consumers? The purpose of the multi-sided market, for example, Facebook has a business model to serve two parties: advertiser and user. Multi-sided markets generally have their own segments for each category.
After mapping the segment dimensions, the next step is to define the character of the segments in each of these dimensions. For example, if we have a user segment, then what kind of user characteristics? Some considerations for characteristics, for example:
- Age and gender
- Passion, habits, hobbies
- Income level
- Level of education
- Targets to be achieved
- And so forth…
Customer Problems / Needs
What problems do consumers feel that you have mapped? What pain do they want to heal? What is the target they want to pursue? What needs do they need to achieve their dreams?
One thing you need to do is reduce the assumptions of what consumers need by asking them directly. Make field observations or direct interviews so that you get closer to your customers.
Output: In this section, you will generate a list of your target customers based on different segments, plus a detailed explanation of the characteristics of each customer.
If you have a lot of segments, I suggest making a priority in serving consumers. Try asking, “If I could only serve 1 customer, who would I want to serve?”
Step 2 (of 10): Value Propositions
When the customer segment mapping is clear, then we then choose which problems or needs of the customers we want to meet?
In addition, the value proposition must also consider the uniqueness/superiority of the solutions we offer compared to other solutions?
Therefore, prepare sticky notes and write down as many value propositions that you prepare as a cure or medicine to solve problems from consumers.
For example, one of the startups that I am developing, SignifierGames.com makes a value proposition to provide Serious Games for learning complex concepts in the field of engineering, especially industrial engineering.
This solution is made in the hope of reducing the pain of various educational institutions in Indonesia in teaching difficult concepts to their students.
Some of the games developed are games in the field of operation management, such as Operation Management Games (OMG), Project Management Games (PMG), and Strategic Sourcing Management Games (SSMG).
This value proposition is different because most Serious Games developers do not develop games for engineering fields.
After you find the value proposition, make sure you connect the connection between the VP you have with the customer segment that you have mapped. An example is like this,
Output: A list of solutions or “drugs” that are better or more competitive than existing ones based on the problem or needs of the consumer.
STEP 3 (out of 10): CHANNELS
Channels in BMC are entities that are used by business organizations to make value propositions that have been made ‘up to’ to consumers.
Usually, I use the AIDA framework (Attention – Interest – Desire – Action) as an initial step, plus how to process the delivery of goods or services to consumers.
For example, what can be done to attract consumer attention to the value proposition made? Some interesting choices, including:
- Make an ad
- Install FB Ads or Google Adwords
The two examples above include channels.
For example, SignifierGames.com uses Website media, Brochures, and Books sold at retailers such as Amazon.com to deliver value propositions to consumers.
Output: List of channels that are important for distributing information and values to consumers. Usually, different segments of consumers will also be different channels.
Step 4 (of 10): Customer Relationship
The customer relationship section is filled with how we interact with consumers after a transaction occurs, to ensure consumers are satisfied with the value we offer throughout the life cycle.
Airline companies, for example, after we use their flight services, will generally be offered various email offers, provide special membership, which if it includes several points will get certain benefits.
Output: an explanation of how the organization establishes relationships with consumers who have ‘bought’ the value offered in order to create loyalty or return transactions.
Step 5 (of 10): Revenue Stream
Revenue streams are revenues received by a company or organization that comes from the value proposition offered.
The most important thing is that a clear connection must occur between the revenue stream generated from the value proposition, and which customer segment pays for it.
For example, below I took it from BMC Signifiergames.com, where revenue streams come from sales of game packages and books for academics and those who pay are educational institutions.
Output: List of revenue streams, derived from the value proposition x offered, with customer segment y being the party willing to pay.
Step 6 (of 10): Key Activities
To create a better and competitive value proposition, of course, there are a variety of key activities to be able to produce value proposition as expected. This activity is the main activity which if lost or absent, then a competitive value proposition cannot be realized.
For example, SignifierGames.com proposes a value proposition that is serious quality games developed by experts at the University of Indonesia, and the key activities required are game design & development. A clearer example can be seen in the image below,
Output: List of main/key activities to produce the desired value proposition.
Step 7 (out of 10): Key Resources
Key resources are strategic resources needed to support key activities so that they can run smoothly to produce the value proposition as expected. With key resources mapped, it is hoped that a business can become more competitive than its party.
As a ‘serious games’ development agency, SignifierGames.com relies entirely on talented HR or experts in the field of developing serious games. These Talented people then become key resources of SignifierGames.com
Output: List of the main resources needed to support key activities in order to produce the desired value proposition.
Step 8 (of 10): Key Partnership
A business organization certainly cannot run on its own. Rather than developing and running everything themselves, it is better to collaborate with those who are experts in their respective fields.
For example, one of the key activities of SignifierGames.com is creating and printing books. So, instead of handling everything alone, it’s better SignifierGames.com in collaboration with publishers who are already poor across the field of book publishing.
SignifierGames.com then only prepares the manuscript, for later changes and layouts by the main publisher.
Other key activities at SignifierGames.com, for example, are conducting training for trainers for regeneration.
However, because the regeneration of trainers and facilitators is quite long, SignifierGames.com can work with professional trainers who are experienced to become workshop speakers or seminars that are delivered on how to make games.
Output: List of key partners outside the organization that can boost the performance of key activities so as to produce a more competitive value proposition.
Step 9 (of 10): Cost Structure
The cost structure is a list of costs incurred by business organizations in order to create a value proposition to consumers. Usually, this cost structure is ‘withdrawn’ from key activities. Some important questions to ask when mapping costs:
- Are the costs incurred in order to create value?
- Which type of costs is more expensive, fixed costs or variable costs?
- If the business scale becomes bigger, is the increase linear, exponential, or constant?
Mapping the cost structure needs to be done more carefully because it is very important if the business organization wants to be made on a larger scale than before.
Output: List of elements of the cost structure incurred to finance key activities in creating a value proposition.
In the end, SignifierGames.com has the final BMC result in this form,
Step 10 (of 10): ANALYSIS & VALIDATION OF BUSINESS MODELS
For those of you, who have completed BMC, don’t be happy just because actually completing BMC is just the first step.
Yes, because actually what we have filled in at BMC (including SignifierGames.com) is subjective ‘hypothesis’ and ‘assumption’ which is considered correct by the business planner.
In fact, this hypothesis needs to be tested whether it is true that the planned business model is operating as it should.
How do you test it? The easiest way is to directly ask targeted consumers, interact directly with the field, and feel directly what consumers feel.
When I learned directly from Strategyzer, the instructor even immediately asked us who made the BMC leave the building and validate it directly to our consumer segment. Even though it was a workshop at the time, and we were really asked to leave the building! Wow!
But it is true, direct interaction with consumers can provide many new additional insights. For example, SignifierGames.com itself makes some changes to the business model plan after interacting directly with its customers.
For example, we used to assume that all educational institutions had difficulties in teaching difficult concepts to students. So, we assume that the Serious Game made by this expert will sell.
But after we studied again, it turns out that more people looking for Serious Games are private universities that are currently collaborating with large campuses such as UI.
So, we will try to bundle this collaboration with books, games, and workshops for the university. Green sticky notes show there are some additions/changes from the previous BMC.
ALREADY VALID, IS YOUR BUSINESS MODEL?
As a novice entrepreneur who wants to start a business, making a business plan would not hurt. However, the thing that needs to be ascertained in advance is whether the ideas brought have a valid business model.
Business Model Canvas is a very interesting tool for you to try in order to test your business model. With a proven business model, only then do you try to make a more detailed business plan while pitching to investors to increase the scale of your business.
To start creating your own Business Model Canvas, please download the BMC template directly, which is ready to be filled and presented at the following link.
Hopefully, it will be useful to help you realize the business plan that you have long dreamed of.