A business plan plays a key role in the decision-making process for its internal and external users. The very first challenge entrepreneurs face is the writing of this business plan. Unfortunately, sometimes it looks like such a daunting task that it becomes the reason for procrastination to start the business. Finally, when a business plan is written, the market realities in today’s fast-paced world are effectively changed. To cut it short, entrepreneurs may get stuck into this cycle of updating business plans multiple times.
If you are a professional business plan writer you will know that a very much ignored tool to stay on top of a business plan is Business Model Canvas! It outlines the plan of action and core business functions at a 40,000 ft. height.
Business model canvas is an internal document and generally not shared with external users such as lenders or investors. It assists to design, structure, and visualize the whole business model. A carefully crafted one gives a first-hand look at the business’s operations, customers and partners, and finances of the business.
Business Model Canvas – Why is it so Important?
Business model canvas is such a valuable tool that its importance cannot be understated.
A strategic tool to develop any new business model. It can be started on its own by the entrepreneur or let the others pitch in their ideas. Serving as a Canvas for the raw concepts and ideas, building blocks are built for the key activities of the business. It helps entrepreneurs staying fixed on key structure squares to save time while drafting the business plan.
Not only a business plan but it can also be updated from time to time and helps to keep tabs on your development in different key functions of your business. In short, it helps to narrow down your perspective and gives you an approach to hit the objective in a brief time frame. Not to mention, it compels you to think about your business more logically and formally.
An added advantage of preparing a solid business model canvas is that you may not have to write a business plan! If there is no external user (investors, lenders, or someone else) expecting you to submit a business plan, you can simply skip business plan writing and prepare a business model canvas! Shift the energy on splitting the objectives into series of expectations and stay on track.
More and more businesses, especially companies in Fortune 500, are using business model canvas as a very building block of their business model.
“At Maroof HS CPA Professional Corporation, we always prepare the business model canvas in close coordination with the clients before writing their business plans. A structured approach to developing a business model is what has helped our clients convert their ideas into successful brands!”
Elements of a Business Model Canvas
Following are the elements or blocks of the business model canvas:
- Key Partners
- Key Activities
- Key Resources
- Value Propositions
- Customer Relationships
- Customer Segments
- Cost Structure
- Revenue Streams
The organization of these blocks on the canvas is really important.
If you notice in the above diagram, the value proposition is at the very center of the canvas. The right side of the business model outlines our customer segments and relationships, sales channels, and revenue streams. On the left side, how do you plan to create that value i.e., who your key partners are? What key activities need to be performed and what resources are needed? Finally, what are the costs?
In short, the right side gives an overview of how to monetize your value proposition, and the left side tells how to offer that value!
How to prepare Business Model Canvas?
A structured and sequential approach is critically important while developing any business model.
- Start with the idea and identify what is the value for the customers. If your idea or concept does not offer any value, you should stop right there.
- Once you have identified the value proposition, focus on who your target customers are and how do you deliver that value to them!
- How can you deliver this value to customers? What are the key partners, key activities, and resources needed to generate that ultimate value?
- Now, finally, test this business model with real numbers by identifying the revenues and costs.
Let’s look at the individual blocks of the business model canvas and see how they connect to each other.
Start with Value Proposition
Value Proposition – The center of the Business Model!
Your business must be able to solve a problem! By solving a problem does not mean that your customer is in actual trouble and you are trying to save them! Traditional Value Proposition Canvas (Yes, another Canvas) is used to identify the products and services that create value for the customers.
A value proposition canvas customer job(s). For any customer job, there are associated Gains and Pains. Once the gains and pains are successfully identified, gain creators and pain relievers are listed that helps in creating products and services. In other words, how your products or services help customers do their job better or reduce the problems.
Right side – Customers and Revenues
Once the central building block of Business Model Canvas is identified, start filling up the right side of the canvas.
- Identify the customer segments. Customer segments are the categorization of your target customers. There may be only one segment or multiple depending on the items listed in your value proposition. In order to correctly identify target customers the best is to answer the questions like who are the people getting value out of your products or services.
- How are you going to maintain relationships with customers? How the customers are obtained and retained are listed in this section. This can include both sales and after-sales relationships.
- How do you intend to deliver value to the customers? This is mentioned in the Channels block. It includes sales channels, service delivery, and after-sales service delivery. In nutshell, you try to match each customer segment with the delivery channel.
- Finally, identify and list down revenue streams generated from the customer segments. Here, the business concept is monetized!
Left Side – How to deliver the value
The next step now is to complete the blocks on the left side of the canvas.
- Start with the Key Partners. Who your key suppliers or vendors will be and what key activities are they going to perform. Match your organizational goals and principles with those key partners. Be extra cautious in picking up those partners.
- What are the Key Activities needed for the value generation process? For example, is it a manufacturing or a tech platform?
- In order to perform key activities what resources are needed? Resources include both tangible and intangible assets, human resources, and financial resources.
- Finally, what are the costs associated with the whole value generation process? Identify fixed and variable costs flowing from the previous three steps here.
Connect the Blocks and Fine Tune the Model
So you just finished all the blocks of the canvas now!
Hold on! you are not done yet…
Connect those blocks now. Review the right side and see if everything is connected to revenue streams. Next, if there is anything on the left of the canvas that is not required for the value generation or not connected to the right side. Please remove those items and review all the blocks again until you are able to connect everything.
Common Mistakes while Preparing a Business Model Canvas
It’s very easy to make mistakes and kill the whole objective of the business model canvas:
- Incorporating the future expansion in the canvas. Leave the future plans aside, use the business model canvas to generate the current business model. By including future plans, you might corrupt the connections between different blocks.
- Not linking each customer segment to the value proposition(s) and the revenue streams.
- Not including enough incentive/value for each segment.
- Not thinking from the customer’s perspective. Make sure, you are creating value for those customer segments.
- Using industry as a customer segment, not narrowing down further.
- Not connecting the blocks on the left to right and center! This can affect the commercial aspect of the business model.
More often than not, with experience, these errors get adjusted as you go through the cycle of experimentation and information examination. But with some planning and proper guide, you can keep all the above mistakes away, then why not?
Next, you might like the Essentials of a business plan.
Maroof HS CPA Professional Corporation is a CPA firm registered with CPA Ontario and CPA Alberta in Canada. Other than our income tax and accounting services, we do provide a full-scale business consultancy for businesses in Canada. With our unique business plan writing approach, we have helped many businesses in Canada. We are a Toronto-based firm and provide business plan writing services for immigration, banks, and investors.