Welcome to the visualizing business model series. This video is going to be about a business model called the business model canvas. In it, I'm going to talk about and show you how to apply the business model canvas framework to your business. I'm going to start off talking about business models in general, then I'll speak about the business model canvas itself, and then finally, we'll dive into each of the nine aspects of the business model canvas. If you like this kind of stuff, please give us a like; a subscribe would even be more awesome, and don't forget to turn on the notifications. If there's a specific business model visualization you'd like me to do in the future, please let me know in the comments below. Now, back to the BMC. Let's get into it. What is a business model? Quite simply, it's a company's production design at its core. It's an explanation of how you'll produce valuable products and services. Peter Drucker says a business model is supposed to answer who your customer is, what value you can create or add for the

customer and how you can do it at reasonable costs for the series. I will look at how you can represent a business on paper as a business model. The more business model representations you can complete, the easier it is for you to understand your company's value and, in turn, how to tell the next person what it is that you do, especially useful for potential investors. The representation in this video is called the business model canvas, or the BMC. The BMC is by far the most popular business model visualization, invented by Alex Osterwalder, who is now the co-founder of strategizer.com, together with Yves Pigneur. When they put this together, what they thought of was representing the left side of the brain on a paper, and that would be internal processes and efficiencies, and the right side of the brain, which would represent external and creativity. This is a good way to think about your business; always think about it in duality, and if you're doing an MBA, duality is always a great way to bring concepts to life.

internal versus external revenue versus costs, creativity versus efficiency. The purpose of the business model canvas is to articulate a company's value proposition comprehensively. So, imagine a big rectangle split into a number of regions. These regions are going to be nine at the end. First, split it horizontally about two-thirds down, and then secondly, split it into two sides right down the middle. This gives us the left bottom triangle and a right bottom triangle that will remain untouched from here on in. The third is the tricky part to describe. Insert a rectangle in the center that kind of straddles both of those top quadrants, and that brings in that ninth piece later on. This is the center of the BMC, and as such, is going to be for the value proposition. To the left of this triangle, it'll look exactly the same as to the right. The remaining top left quadrant will be split into three parts, the far left almost being a mirror of this value proposition one that we did in the middle, and the one in between.

that last rectangle will be converted into a top square and a bottom square to the right a merit association. Then we have our canvas itself. Now it's all cut up and ready to be populated. Exactly nine blocks and aspects. Remember I asked you to always think in duality, so let's fill in our pmc with that construct in mind. The goal in doing this is to elaborate as much as possible our value proposition in a single model or picture. We'll start and end with the bottom quadrants. The left side will be efficiency-driven, so it will be labeled costs or cost structure. And you're right if you guessed it, the bottom right quadrant will be called revenue or revenue streams. Where I want to paper my explanations of examples, I suggest you and I are in the business of making and selling furniture. So let's focus on the right-hand side of the bmc, the value creation side or the creative side of the business first. This means the revenue side, which is inextricably linked to the external-facing part of the business.

the customer and the market they reside in. So, for the revenue streams, you want to list the products and services you will be selling. If you've watched my class on chat, this is what you listed under the outcome aspect of the chat framework. If you haven't done that and don't have a product that you're selling, please click over here and check it out for an idea of what you're filling. It's what your customers pay you for your products and services. In our furniture business, we sell bedroom furniture, lounge furniture, dining room furniture, and study furniture. Those are our products and services. We'll come back to the left-hand quadrant at the end. I'd like us to complete the right-hand side completely first. The next logical place is to go to the top far-right rectangle and label this one customers or customer segments. Now back to the chat. If you've done it, you'll have a beginning of your customer segments there. In this section, even though it's called customer segments, I would like you to think about where you will find the

customers who will pay for your different products and services. I have a few rules of thumb here. The first is about geography. If the market you're targeting is spread out nationally or even internationally, you could start with geographies as your customer segments. If, however, they are online, note that this means no geography or centrally located, then segment them using another method. My second rule of thumb is to segment using the products that you sell, and here I suggest a two-over-one. For every product that you listed under revenue streams, identify two distinct markets that would be interested. Our furniture store sells online and so no geographies, but we sell different furniture for the bedroom. We may want to split it into children and adult bedroom furniture, for our sitting room furniture, couches and armchairs and lazy boys, and for our dining room tables and chairs, and then finally for our study furniture. We do study desks and we do office desks. But as you can see, this list is very disjointed, so we creatively have to decide to segment across our revenue streams, and we decide

to do it in the following way. We service children, family, and work from home. Those are customer segments. Now we have to decide how to reach this audience that we would like to switch from whatever they currently use or have to our products and services. The bottom right square is where we go next, and here we go label that square channels. This is where we have to make our decision on how we will reach our market. The common acronyms that are used may help us narrow our focus. We usually hear of b to b or b to c or even c2c, with the b standing for business and the c standing for consumer. So if you're a b2b business, this means you are not in retail. You don't have any shops where consumers can browse and purchase your wares. So this would mean your channel section will not have retail shops. You will likely directly go to businesses that you are interested in selling to. This would mean you have a direct channel, or you could use a middleman who is much

more familiar and probably more trusted by the customer segment that you're interested in. They already usually sell products and services that the segment knows them for, and you want them to add your product to their arsenal. This would mean you have channel partners, and they sell straight to the public and keep you invisible as the producer. For our furniture-making business, we could have crushes of kindergartens and schools as our channel partners for our children's segment. Because schools focus on education, they may choose just to be resellers, the distinction being a reseller doesn't need to add any more value to our product. They just mark up our price and sell it as is. In either of these examples, they probably sell a few other pieces of furniture, making them not the best-suited people to convince our potential customer that our product is best when there's choice. This takes us to the top right square that we will label customer relationships. That's right, the only way your product will fly off your channel's shelves is if you make sure you have a personal

relationship with your future and current customers. Only you can sell your product the hardest to a customer, so you need to think about how you're going to get in front of a potential customer, regardless of your channel strategy. And then you've also heard the theory that it's much cheaper to keep an existing customer than get a new one, so you want to think about how to keep a relationship with your customers so strong that they remain loyal to you despite being wooed by other shinier and newer offerings in the market over time. Here, think about social media, trade shows, podcasts, and the type of marketing that allows you to speak and hear your customer, not just speak. That's advertising, but to listen as well to your potential customers. And then spend time thinking about how you're going to nurture a relationship with your existing customers. These are newsletters, emailers, promotions, etc. But what will you tell them in terms of customer segments? Why did our furniture shop choose children as a market segment versus maybe beds and pedestals like we?

did with our other furniture. Well, it's time to complete the center rectangle, the pistol resistance, the value proposition. The centerpiece is about the value proposition. I like to swap this name out and call it the differentiator from your chat framework. What is your niche, no matter the segment of the product? What is it that you will infuse into everything that you offer? What will a customer find in your product that they will find nowhere else? There is a rule of thumb here that I like to use when it comes to value drivers. There are five distinct value drivers that you can think about when you think about competing: price, quality, delivery, flexibility, and service. And the rule of thumb is be best in one and equal to the market in another. For our furniture-making business, we may decide to be the best in flexibility and equal to others in delivery. So, we may say in our marketing, our slogan is exact height and weight furniture in under a week. This can be our niche. Every piece of furniture that we produce is not just bespoke.

its age, height, and weight appropriate in relation to our competitors. We know we are very expensive, but we chose not to compete on price. We do, however, need to make sure that the price we charge, though expensive, covers our costs. It's time to look at the left-hand side of the BMC. If you've done the chat framework, the best place to start is actually the key resources section. But since we just came up with our furniture store and we have not done the chat, let's start with the key activities section, which is the top left square. The question is, in order for us to produce furniture that is height and weight specific and deliver it to our customers in one week via crashes and schools, what do we need to do? Now, there's another business model that I'll cover later on in this series called the levels of work. For now, it's safe to say make sure you only list level 1 activities. These are the activities with which, without you cannot produce your value, your product. Be very stingy, list only essential activities. You don't

need finance to produce a product that's a supporting activity, and so you don't put it on this list. So, what are the minimum essential activities that would go here for our furniture-making business? My examples would be one, furniture making. Let's keep it that high level, not break it down into streams, just furniture making. Two, customer measuring using virtual tools. Three, just-in-time assembly at major hubs. And even though it's not a level one activity, we may decide to add four, score-based incentive scheme as a key activity. We don't want to lose sight of keeping our channel, which is really our customers, happy, and that's it. Now we need staff, and that will be easy to work out, but who won't be staff that we will need? This takes us to the far left top rectangle, which we will label key partners. This is where you will list the key business relationships that you cannot produce your products and services without. The reality is you can't and shouldn't hire all the expertise you require to produce your differentiated product. That would be too expensive.

the left-hand side of the BMC is all about doing it as efficiently as possible, and efficiency means one, strategic relationships with the expertise that would otherwise be too expensive to keep on your payroll, and two, long-term contracts that can allow you to get materials as cheap as possible if you agree to buy all your materials at one place. These are also called material suppliers for our furniture-making business. We'll get into a deal with and sold list. Number one would go so that we can get any quality wood at less than wholesale prices. Two, Virtual Mico is another company that creates the most amazing software that runs on any phone and has been keeping people's measurements for years. It even projects what they will look like up to five years from now. And then three, District is a business with storage facilities and distribution centers in over 70 countries. We get into a deal with them where they'll only charge us when the customer buys the furniture, but we give up 30 to our company instead of them charging us monthly storage fees. With these main partnerships listed and

in place. We now have to do the rest of the work, and for that, we need land, machinery, and other assets. This is what goes under our key resources, the left bottom square: land, machinery, and any assets that we need to buy using capex or capital expenditure. This includes any patents we have developed or licensed, and any licenses that we have bought. These are usually exclusive rights licenses that are based on geography. For our furniture-making business, we list one standard furniture-making tool, two the warehouse that will make our furniture in, and three fancy 3D printers that are completely compatible with the virtual mico, four IoT sensors for our consignment stock we have sitting in the distribution centers. And at this point, with all of this filled in, we can now finally go back to filling out the bottom left quadrant, the cost structure. At this point, we now have a fair idea of the assets we need to buy and how much they will cost. We also know the key activities that will be taking place and how much they will cost us. And finally, we know the key partnerships.

We have to sign and how much they will cost, and even though we didn't list them, we should have a fair idea of what the staff costs will be for us. Finally, marketing and back office costs can be estimated and calculated using all the stuff that we put in under the channel customer relationships and customer segments that we need to maintain. Same thing here, we didn't list them, but fear not, there's a plan. Let's fill out our cost structure. The first rule of thumb here is to clearly separate your capital needs and your operating needs. CapEx is the money that you need for key resources only. Doing a quick cross-check on the items under your planned CapEx spend, if it's missing, list that item under your key resources. Now, OpEx is your running cost money, and these are the items that go under your OpEx. Number one, your key activities, which you have in the left top square. Number two is your staff. You didn't list them, but this is our plan to just list the running staff costs here. Number three, marketing, like I said.

though not listed, customer relationships and channel give you a fair idea of how to cost for marketing. And then number four, rent, also not listed but this is a good one to put here because you've already talked well we have in our business about a warehouse space. And number five, back office, and this is a catch-all for the things that will purchase or rent for our office like computers, software, maybe even a leased car. The reason I recommend that you don't list number two to number five in any of the other sections is these are fairly standard costs for any business and investors don't need insight as to how you will be managing them. They just need to know if the costs associated to these items are reasonable. Finally, my second rule of thumb is that I like to show these costs in two ways: one per annum/monthly and two as a total towards break even. Break even is the point where you've generated enough profit to cover your initial capex investment plus the running costs up until this magical point. And there you have it, a completed

business model canvas. If you enjoy the video, please don't forget to click the like button. Have you heard about a business model canvas before? And if you have other parts that I've covered that you hadn't maybe considered, let me know in the comments below. I'd love to engage with you. That's it for this part of the visualizing business model series. Don't forget to click the subscribe button to get notified when I upload more business models.

Master the Business Model Canvas

Master the Business Model Canvas