The Business Model Canvas - 9 Steps to Creating a Successful Business Model - Startup Tips

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so one of the interesting things about

thinking about a start-up is how is your

company going to be organized and what

we now know is the most efficient way to

think about all the pieces just all the

parts is by a business model and so the

next question is okay Steve you just

told me to think about a business model

but what is a business model what are

all the pieces well let's take a look

and a business model is how a company

creates value for itself while

delivering products or services for its

customers now if you think about it in

the old days we think about how to

organize a company around functional

organizations we think no no a company

is about its sales department or its

engineering department and you would

draw an org chart but now we're going to

draw a very different diagram we're

going to draw a diagram how to think

about all the pieces of a business and

so let's take a look at these nine boxes

the nine boxes to describe any company

from the world's largest to a two-person

startup starting in your parents garage

let's take a look at the first piece

called the value proposition the value

proposition answers the question what

are you building and for who the value


says hey it's not about your idea

product it's about solving a problem or

a need for a customer that is what pain

are you solving what gain are you're

creating and more importantly who are

your customers now value proposition is

a fancy word for what product or service

are you building this is where you

normally would list all your features

and here's all the speeds and feeds and

benefits and whatever but we're really

going to be asking a different question

than might have been used to it's not

all about your technology your

technology is just part of the value

proposition customers really don't care

about your technology the customers are

trying to solve a problem or fulfill a

need by the way we'll be talking about

this through multiple lectures the

difference between a problem and a need

is a problem is I have an accounting

problem or I want to use a word

processor and and those types of

products solve a problems but there are

other things that human beings do like I

want to be entertained or I want to have

a date those are some basic hardwired

social needs or I want to communicate

with my friends like Facebook or Twitter

those are needs these are different than

problems and by the way if you could

find products that solve needs your

total available market as you'll see

later is huge compared to I solve

specific problems

so the next thing is who are my

customers who are they and why would

they buy and as you'll hear a number of

times your customers do not exist to buy

you exist for them and what you're going

to do by getting out of the building is

figuring out all their geographic social

characteristics demographics such that

you actually could draw and put up a

picture of on your wall of who the

archetype is or who the persona is of

your customer and it turns out that in

most startups you might have more than

one or two or three types of customer

archetypes and personas but you need to

understand them in detail and there is

no possible way you could have anything

but a hypothesis on day one of who they


the next is channels how does your

product over here get to your customers

over here and we use distribution

channels to do that now what's really

interesting is pre 1990s the only

channels to get to a customer was a

physical channel that is you went to a

store you had sales people there was

physical distribution but since the

mid-1990s in the last couple of decades

we now have virtual channels the web

mobile cloud and so distribution

channels the first question you want to

ask is how will I be selling and how do

I be distributing my products are they

through physical channels or they web

mobile or given today almost every

physical channel also has a web presence

what is the relationship of how your

product gets from your company to the


customer relationships it's kind of the

fourth piece and customer relationships

has a really interesting interaction

with these other three pieces

it basically says how do I get customers

how do I keep them and how do I grow

them and just like thinking about

distribution channels these are very

different for web mobile than they are

for physical channels but visually they

kind of look like this double-sided

funnel so let's just take a look at

quickly a web example in getting

customers you're gonna be worrying about

how do i acquire them that is how do I

get them even to my website how do I

activate them that is how do I make them

do something and then later on we'll see

after I got them how do I keep them

around that is how do I not lose them

through attrition and churn and then

what can I do once I have customers to

make them spend more money or use my

product even more and so one of the

things we'll be thinking about is how do

I get keep and grow customers and just

like every other step you might have

hypothesis on day one but you're only

going to figure this out when you're out

of the building

the next thing is revenue streams how do

you actually make money from your

product or service being sold to

customer segments you know revenue

streams basically ask the question what

value is the customer paying for and

then actually has you think about what's

the strategy of how I'm gonna capture

that value is it I'm gonna just have a

direct sale and it's a complete a

transaction based on price is it a

freemium model where I'm going to give

away the product for free and hope that

some portion convert later

is it a license or subscription model

that revenue model is different than the

pricing tactics that is what is the

dollar or pound amount or euro amount

that I'm gonna be charging again the

only way to figure this out is being

able to interact with tens or hundreds

or thousands of customers so you finally

understand what the right revenue stream

and revenue model is

next piece you want to think about is

one of the key resources what do you

need to make the business model work

what assets are important and what's an

example of an asset and in a key

resource well finance do you need

capital do you need a line of credit

some assets are and resources are

physical do you need physical plan to

like the manufacturing line do you need

specialized machines do you need vans

and for delivery do you need cars is

there something else you need

if there are intellectual property you

need is there patents you need to

acquire or protect do you need to

acquire customer lists or is it just

that you need to get great people great

software programmers in a specific area

or great hardware designers or great

manufacturing people and then finally

again at the interaction between

intellectual and human capital is that's

another key resource what specifically

do you need to do to keep these people

and who are they

the next pieces who are your key

partners and suppliers and partnerships

are kind of interesting is we need to

ask ourselves before what's the deal is

what exactly are we acquiring from

partners and also what activities are

they going to perform and when and this

is where startups sometimes make a

mistake of thinking well large companies

do partnerships I guess I need those two

on day one it turns out the types of

partnerships you need in year one are

certainly not the ones you're going to

need in your three or five or ten and

the types of partnerships could be

strategic alliances joint ventures just

regular suppliers and buyers and so you

need to be thinking through who they are

and actually getting out of the building

and testing them

next our key activities what's the most

important things you need to do for the

business to make the business model work

are you in the production business

you know are you making something or are

you in the problem-solving business like

you're doing consulting or engineering

or are you managing supply chains what

what are the key activities you need to

become expert at

and then finally all this adds up on the

left-hand side over here to costs what

are the cost and expenses to operate the

business model one of the interesting

things about cost is it's not just the

obvious ones like people or buildings or

materials what you're really gonna be

asking or what are the entire costs to

operate our business model and so you

want to think about our what are the

most important costs you need to worry

about what are the most expensive

resources you're going to need to pay

for and what key activities are the most

expensive and then you want to ask the

typical accounting things

what are fixed costs what are variable

costs are there economies of scale and

you want to start getting a good handle

on what it is that will end up costing

you money to run your business