Did you know, the 8 out of 10 businesses fail in the first-year stat is actually a myth? The stats are referenced to a Bloomberg article that is nowhere to be found…
The actual stats are quite the opposite, 8 out of 10 businesses thrive in the first year. However, they are not out of the woods from this point, over the next 4 years, that number will diminish to only half of those businesses succeeding. Not to despair though, perseverance pays off in this instance.
The main reason?
Lack of business planning and being out of touch with the customer. Something so simple yet many people brush over.
A lot of people think business planning takes months of work. And for someone who has reviewed, scrutinised, and created well north of 20 business models over the past 12 months, you can knock a comprehensive business model over in a weekend with the right tools and people.
One of our go-to tools?
The Business Model Canvas!
Developed by Alexander Osterwalder, it’s the perfectly simplified model that any entrepreneur, consultant, general manager, CEO, or anyone looking to start or improve their business should have in their tool kit; no matter if they are starting out or very senior. Osterwalder boasts that the canvas can be knocked over in 20 minutes; which is possible with the right people!
The model consists of 9 segments which are completed with the business details. Some experts say you should complete these consecutively, but I’ve found you need to jump back sometimes as you discover more information. Either way, I’ve found the following order the easiest:
- Customer Segments:
Developed from the Value Proposition Canvas (which we’ll post about in the coming weeks). Who are the groups of people that will gain value from the business’s activities and products? Who is most important out of this group? Who are you really wanting to speak to? We like to develop personas for each of these segments to drill down into what really drives them.
- Value Proposition:
Pulled directly from the Value Proposition Canvas as well. What is the value customers are receiving? How is the businesses fulfilling the customer needs through relieving their pain points and problems? What is unique about your business and solution? Why might your customer prefer you over your competitors?
How is the product distributed to the customer? How do they become aware of the solution? If how your segments purchase or engage with the business differ, you can link the two here.
- Customer Relationships:
How will the customer engage with the business and people who work there? How will you maintain relationships with clients? Customers are important and many like a personal experience, communicate with them in a style or format they prefer.
- Revenue Streams:
How much is the customer willing to pay? How would they prefer to pay for the product? Then how much does each of these revenue streams create? At this stage you should look to link the customer segments with the value propositions to identify what will be driving revenue.
- Key Activities:
What needs to be done to execute value creation? This looks at the supply chain of the product and which of those is the most important. For example, if developing a retail product, then you’ll place a lot of focus on distribution channels and learning about the end users to continuously develop new relevant products.
- Key Resources:
What resources does the business need to fulfil so value is created for the customer? What’s needed in the distribution channels, customer service, sales, all departments and activities of the business? The resources should be the strategic assets the company needs to put in place, typically categorised under; products, scope, and infrastructure. You should then look at what key activities will use what key resources to identify what resources may encounter future growth pressure.
- Key Partners:
Who are the crucial suppliers and partners needed to create value? What are their motivations for working with the business? Do you need to work with resellers, or do you already have clients to sell the product too? Sometimes partners could come down to complementors to increase value for players.
- Cost Structure:
Pretty self-explanatory; identify what the costs in the business will be? Wages, infrastructure, inputs, etc. Is economies of scale achievable at this point? How concerned is the business of cost inputs, or are they more focused on creating value for the customer? Are you happy to lose money for 5 years because you know the product will be profitable at that time?
Printing off the canvas on A1 paper and work-shopping each segment with a team is the best way to work through the template. Grab those post-it notes and write away - thinking outside the box.
This canvas is one of the final tools we tend to use when reviewing or developing a business structure. You can use the tool to assess competing against larger competitors as well; but it should be used in conjunction with a number of other tools; such as the value map, core competencies, or value net.