The Business Model Canvas
Tips on using the Business Model Canvas
Innovation is the key to business success. Research by Mckinsey confirmed that 80% of the executives that they worked with believed that their existing business models were at the risk of being disrupted. The importance of the value of innovation can be further confirmed by a report by OECD on Innovation and Growth, which confirmed innovation to be a leading cause of economic growth. A well-known tool that can help with improving innovation within existing or new business models is the Business Model Canvas, our article explains the tool and its use cases in more detail.
This article will elaborate on what a Business Model Canvas truly is and its many useful applications that companies can employ. Large firms are already utilizing most of these applications, so startups and small businesses can use this tool to compete with them on innovation and improving their business models.
It is always a wise decision to speak to your accountant to help understand certain elements of your business model canvas, alternatively, you can hire a specialist who will work with all key stakeholders to help you review your current business model or prepare one if you are starting up in business. Our startup guide is also a useful tool when starting a new business.
What is a Business Model?
A business model is the blueprint of your business, in simplest terms it is a plan of how you expect to make money from your business, a set of assumptions, ideas and the process of it all combined together creates a business model.
Business Model Canvas- The inspiration:
Your business model is what decides between success and failure, a simple innovation to your existing model can disrupt the market for you and make someone else a market leader within a blink of an eye.
Do you know the real story behind the success of Xerox 914? This plain paper copier was nothing less than a breakthrough in the 1950s but due to an extremely high price offer (almost six times higher than its alternative) only cash-rich companies were able to purchase its product. After a disappointing response from the market, the company changed its strategy and decided to lease out the copier, instead of selling it, for only $95 per month on top of charging a few cents per copy. The product, which was on the brink of failure, suddenly became a source of endless revenue. Due to its high performance and speed, customers started printing more than 10,000 copies per month.
Alexander Osterwalder intended to promote such a way of disruptive thinking and designed a way to achieve that. The Business model canvas was born, the most comprehensive template which could be used for strategic planning and lean startup development, it tends to describe the following nine business components in detail:
- Value propositions
- Customer segments
- Customer relationships
- Revenue streams
What are the ways in which you can apply Business Model Canvas?
For designing strategies and business development
The BMC is extremely popular when it comes to designing strategies for daily business activities and helping the company progress through the stages of the business development cycle. Companies employ the business model canvas to craft blueprints of their proposed business strategies. A detailed blueprint in hand can help senior management communicate their business goals and objectives to the rest of the employees effectively.
BMC, if used as the primary component of the central strategic plan can help businesses effectively communicate information about their company’s performance over the past years. This information then helps them determine their goals and objectives for the coming years. They would also indicate any changes they wish to make in their business model or for developing new building blocks with the help of colour-coding.
The most exciting aspect of BMC is that it helps design a unique strategy by taking assistance from different business departments to ensure the team’s alignment with the company’s short and long-term targets.
For tracking and measuring progress:
Another innovative application of BMC by companies is how they use it as a dashboard to track their progress. Using a BMC, companies can define several performance indicators for each part of their business model, which can then help in identifying weaknesses or further innovation. Each indicator is subject to a defined performance threshold; green indicates that everything is going just fine, orange means that improvements are needed while red is a warning that something is seriously wrong.
You might need to speak to a small business accountant to help you create and manage the financial aspect of the business model canvas.
For leading the competition:
A Business Model Canvas can act as a means for acquiring business intelligence on a business competitor, you can use the canvas to create a replica of a competitors business model to understand their strengths, weaknesses, their limitations and the dynamics of the business in detail. The acquired information can help companies design or modify a business model to disrupt the market and get ahead of their competition.
Related: Read more about the key ingredients for business success.
For comparison and analysis:
When it comes to developing new ideas and introducing innovative practices within the company, BMC is an ideal tool to compare different approaches recommended by team members. The standard language of the Business Model Canvas makes comparison and review of new ideas and its impact on the business much easier, be it process innovation or business model renovation, almost every type of business can use this user-friendly tool. For comparison between different business ideas, startups accelerators and incubators can use this tool to speed up the evaluations process.
For a better understanding of customers:
One of the most incredible applications of a BMC is to attract and retain customers by crafting innovative business models. By understanding the value chain and how the business model impacts business customers, companies can successfully work on improving value propositions to attract new customers or retain existing ones.
Video: How to use a Business Model Canvas
Watch the video to learn how a business model canvas can be used to add value to a business.
For ensuring the team’s alignment with long-term business goals:
Another primary application which we think is important is how companies use BMC to ensure everyone’s strategic alliance with the company’s long-term vision. BMC is an incredible tool for strategic diffusion and co-creating strategy by taking every employee on board. Using the canvas for developing a blueprint, the company gets much-needed information about when and how to implement the plan effectively. One important rule to keep employees engaged in a company is to keep them informed, we have also written an article which explains how effective teams can help build great startups which you can read here.
For standardizing communication within an organization:
The BMC’s success can be owed to the shared language (common and understandable language) it uses. The shared language acts as a medium of business communication that enables every business department to work around the canvas. Not only does this make business communication understandable to everyone, but also ensures that the strategic conversation always leads to solutions whose implementation is quick and logically possible.
For better resource allocation:
Business Model Canvas has enabled enterprises to make better investment decisions by knowing exactly where to invest their financial resources. The canvas helps businesses craft a business model due to which companies have the opportunity to identify the best investment opportunities to either introduce innovations in the existing business model or develop an entirely different one. Resource allocation is something that has to be done by the company no matter what the circumstances, the canvas ensures that the firm’s make the most profitable decisions by knowing how and when to allocate the resources effectively. You should always involve your accountants in the business model canvas process to ensure they understand how the budgeting and forecasting process links to the business model of the business.
Related: You might want to read how Zero-based budgeting can spark innovation within your organisation?
For better merger and acquisition decisions:
One of the most surprising applications of the canvas is how companies are utilizing it before making a merger with other organizations or acquiring them. The BMC helps create business models of both organizations through which both companies can see if they are better off as one or independent of each other. Especially for organizations operating in the same industry, it makes it easier to identify the potential opportunities both of the organizations can capitalize on and even identify the differences which might have the potential to make both organizations struggle in the long-term. To sum it up, BMC is an excellent tool that can be used by enterprises interested in small or large scale mergers or acquisitions.
For Initial Public Offerings and exiting:
Like mergers and acquisitions, companies planning to opt for Initial Public Offerings (IPO) or exiting the market can also make use of the canvas. The application of BMC can help enterprises introduce themselves to the market by deciding what to invest in? how to attract the right customers? how to maximize value proposition? and how to minimize costs along with increasing profits? If you plan to sell your enterprise to another organization, then you should see whether the nature of your company really matches with other firms in the market and if it does, then how does your company fit with others.
Clear House Accountants are expert Accountants in London who have been providing services to a countless number of businesses in the UK. Our accountants utilize growth tools to help boost the performance of businesses while helping them future proof their growth plans.