The formula for success is a question that has long plagued entrepreneurs, but a helpful tool now exists that will assist in identifying the primary metrics of any business. The business model generation template comes from the minds of 470 contributors and was compiled in the book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, authored by Alexander Osterwalder.
The approach that Mr. Osterwalder and his team established exists to identify the fundamental elements required for a viable business venture. The method has gained so much attention that it is being used in Stanford Universities’ ENGR 245 course. Professor Steve Blank teaches his students to set a baseline model for a venture and rapidly change the design as their intuition about the customer grows.
I strongly encourage you to get the book and familiarize yourself with business model generation. Once you have, you can define your own ventures according to it. In turn, this will allow you to identify potential strategies as well as shortcomings your organization may have. A preview of the book is available here. Take half an hour and study the approach. It is fairly straightforward, so you may not even need that long.
Entrepreneurs are often their own biggest enemy because they don’t fully understand their business. A contributor to this reality is the inability to standardize business dynamics. Business model generation, however, provides a framework by which entrepreneurs can iron out all of the major elements of their venture and visually communicate them to others. The generation model consists of the following 9 elements.
It begins with the customer and the market your product or service will serve. Will you be targeting a specific demographic or geographic region, or is your focus a bit broader? What is the need you will be fulfilling, and why does it exist? These questions and more are answered through the model, and it provides an intimate understanding of your target market.
The Value Proposition
A value proposition is effectively your solution to the customer’s problem. How is your company providing value to your market? As you will see in the book, there are many ways to bring about value.
Channels are the means by which value is delivered to the customer. For physical products this could be distributors and warehouses. Digital products may include such channels as Amazon or Clickbank.
This probably goes without saying, but identifying how customer relationships are facilitated through your company is an important element to nail down.
How is the money coming in? Are their multiple streams? What are they? How do they work? What is the pricing structure? If a market is mature it will define much of this inherently. If you are competing in an emerging market, there will be more freedom to explore other possibilities.
What are the primary resources that allow you to fulfill your value proposition? This would relate to physical assets, people, and finances. This may also include proprietary methodologies that are not readily available.
What are the primary actions that allow you to deliver the value proposition? This will also be driven in large part by the nature of the market. Mass market products that focus on the general populace will require a great deal of marketing, whereas specialty manufacturing products will require specialized processes.
These are all of the relationships that aid in providing your value proposition to the customer. Suppliers, contributors, and joint venture partners would all fall under this category. Partnerships often play integral roles in small business because of the limited funding. A landscaper, for example, may team up with a home builder to perpetuate business. In all instances these will be win-win scenarios.
All businesses require money to be spent in order to operate. What will it cost to provide your value proposition? There will always be more ways to spend money than you need. Identifying the primary elements that allow you to provide your solution and accounting for them appropriately is vital for success.
Using the Tool
The canvas template tool will allow you to outline a complete organization. Mr. Osterwalder suggests exploring multiple models when addressing your start-up. Much like prototyping a product, he mentions “prototyping” your business model. You may have originally set out to supply the end user with a single product, but perhaps it would be possible to create a subscription-style compensation in which your product is only available as long as the customer subscribes. If you don’t plan on pursuing alternative “prototypes” it is wise to explore the potential alternatives.
I have taken the liberty to create a form-based Business Model Generation Template PDF.
Using this visual allows you to convey to potential investors and people within your organization how your company operates. It will also help you to see the big picture. No single part is more important than the next; they all play a role in moving the business along. Once you establish your model, it would be wise to revisit it from time to time to update it and make any changes that may be required. Small business is very dynamic and in some cases changing your model entirely may be the most appropriate move.
I have provided the canvas for SHYEntrepreneur.com to give an insider’s view of our organization.