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E signature business model canvas

hello and welcome to today's lesson where we're looking at the business model canvas now in this video we'll examine the nine steps needed to create your first business model and we'll look at some examples to bring the theory to life but Before we jump in and look at the canvas let's just take a brief moment to define what we mean when we use the phrase business model so a business model is defined as a plan for the successful operation of a business identifying sources of revenue the target customer base products and details of any financing now essentially it tells us how the key drivers of a business fit together now if you think about writing all this down in a document such as a word document then it's obviously going to require multiple pages to capture all of that information now if you think about trying to get all that information you've just captured into your brain and playing with this in your brain then it's a really complicated and confusing task and it's really easy to see why people get overwhelmed when thinking about business models and that's where the business model canvas comes in it gives you a way to create a pretty clear business model using just a single sheet of paper and what is great about it is that it can be used to describe any company from the largest company in the world to a startup with just a single employee so why would we want to use a business model canvas well we've just touched a Polish that it can describe a business model in a single sheet of paper and that's the first point here that the business model canvas is easy to understand but it's also focused it removes all the fluff that might have been present in a traditional business model it's all killer no filler it's flexible because it's quick and easy to make changes to your model and sketch out new ideas its customer focused and that's because it forces you to think about the value you're providing to your customers and only then what it takes to deliver that value it shows connections so the single page and graphical nature of the canvas shows how the different parts of the model in to relate to each other and that's something that's really hard to understand from a traditional business plan and finally it's easy to communicate and again that's because the canvas is so easy to understand you'll be able to share and explain it easily with your team making it easier for them to get on board with your vision so here in this diagram you can see a business model canvas a blank business model canvas and that canvas is made up of nine building blocks so the first one we have is customer segments and that answers who are your customers then we have value proposition and that answers why do you customers buy from you what is the game that you provide or the need that you satisfy then we have channels how are your products and servers services delivered to the market then we have customer relationships how do you get keep and grow your customers we have revenue streams how does your business earn money we've got key resources and that answers the question what unique strategic resources does your business have or does it need we have key activities what unique strategic activities does your business perform to deliver your value proposition we have key partnerships what non key activities can you outsource to enable you to focus more on your key activities and finally we have cost structures what are the major costs incurred by your business now before we take deeper into each of these elements there is one thing you should be aware of and that is that broadly speaking we can say that elements on the left-hand side of the business model canvas represent costs to the business and similarly elements on the right-hand side of the can this represents revenue for the business or they generate revenue for the business so with that let's dig into each of those building blocks in a little bit more detail so the first building block is customer segments and in this building block you enter the different customer segments you will serve one really important point to get across here is that customers don't exist for you but rather you exist to serve your customers and many business will serve just one customer segment but not all so for example Google serves two customer segments obviously it serves people who perform searches but it also serves advertisers the next building block is the value proposition and this describes the value that you deliver to each customer segment what problems do you solve for each segment what needs do you satisfy and the value proposition answers the question why will customers buy from us now some of the most common value propositions are shown here things like it's the most high performing product the design of the product is fantastic or the brand is really strong or it's really competitive around price but there's lots of others too so the third building block is channels and these refer to how your products or services are sold to customers ask yourself how do customers want to be reached or even how are you reaching them right now now broadly speaking you can either have your own channels or you can partner with someone else who has a channel so your own channel your own channels might include any combination of things like stories you own a sales force you employ or even your website partner channels could include a multitude of options so for example using a wholesaler or maybe working with affiliates or even using Google AdWords to advertise on Google the fourth building block is customer relationships and this answers the question how do you get keep and grow customers so when we say get we mean how do customers find out about you and make their initial purchase decision so for example as we just said you could advertise through Google keep how do you keep customers once you've got them so for example excellent customer service might help you to keep your existing customers grow when we say grow we mean how do we get your customers to spend more so for example you could send out a monthly newsletter to keep them informed about your latest products or your latest services now the easiest way to define all this is to walk through the entire customer journey in detail and that is to define you know how do customers find out about you how do they decide whether to investigate your product how do they buy your product and then how are they managed after they've made the purchase the fifth building block is revenue streams where does the money come from and this might sound really super simple but it isn't so what you're actually trying to figure out is what strategy you'll use to capture the most value from your customers and in a practical sense there's a bunch of ways you could do this so will customers pay a one-time fee will you have a monthly subscription fee perhaps you give away your product for free like Skype does and hope that some portion of your customers upgrade to your premium product so let's just take a step back for a moment if you look at what we've done so far we've filled in our value proposition and all the building blocks to the right of it and in a nutshell we've developed our understanding of everything that relates to our customers but now what we need to do is obviously fill out the left side of the value sorry of the business model canvas so we need to build our infrastructure so that we're able to provide the value proposition to customers so with that let's move on and look at the next building block key resources so this building block describes your most important strategic assets that are required to make your business model work now broadly speaking resources can fall into one of four categories you have physical resources such as buildings vehicles machines intellectual resources brands and specialist knowledge you have or patents and copyrights Human Resources so sometimes your people will be your most key resource and that's particularly true in the creative industries you could have financial resources such as lines of credit or cash balances the seventh building block is key activities and these are the most important strategic things you must do to make your business model work now key activities should be directly related to your value proposition and if they're not then something is wrong because the activities that you view as being most important in your business aren't actually delivering any value to your customers the eighth building block is key partners and in this block you list the tasks and activities that are important but which you're not going to do yourself instead you'll use suppliers and partners to make your business model work so as an example think about Spotify Spotify Ski activity is probably updating their platform however as it doesn't produce its own music one of the key partnerships of Spotify will be the deals that it strikes with record labels and publishing houses you know without those deals there literally wouldn't be any music in Spotify so the final block of the business model canvas is cost structure and this is where we map key activities to costs we want to ensure that costs are aligned with our value proposition now it should be straightforward to determine your most important costs and your most expensive costs after you've defined your key resources your key activities and your key partnership so that's the theory of the business model canvas out of the way but let's take a look at some real examples so you really get a feel for how it works so the first example we're going to look at is Google and the first thing you should know about Google's business model is that it's multi-sided now that means that it brings together two distinct but related customers and in Google's case it's people who use the service for free people who perform searches and people who pay to use Google searches people who want to advertise so from the diagram we can see that Google makes money from the advertiser customer segment whose ads appear either in search results or on webpages and we can see that that money subsidizes a free offering to the other two customer segments those of search users and content owners now Google's key resource is obviously its search platform and that includes Google com it includes Adsense for content owners and AdWords for advertisers now the key strategic activities that Google must perform are obviously managing its existing platform including a really large infrastructure which is needed to support that platform its key partners are content owners from which a large part of its revenue is generated that's indirectly obviously advertisers generate the revenue but they wouldn't make that revenue without the content owners now other partners our OEMs or original equipment equipment manufacturers and OMS are companies who produce mobile handsets to whom Google provides its Android operating system free of charge now in return when users of these handsets search the internet they use the Google search engine by default just bringing more users into the ecosystem and generating even more revenue so the second model that we're going to look at is that of Skype and from the business model canvas you can see that Skype has two key value propositions so the first is the ability to make calls over the Internet including video calls for free and the second is the ability to make calls to phones cheaply now Skype operates what's known as a freemium business model and that just means that the majority of skypes users use the service for free to make calls over the internet with just about 10% of users signing up for the premium prepaid service now we can see from the customer relationship building block that customers typically have a helped them self relationship with Skype and typically this means they're using their support website the channels Skype uses to reach its customers are its website Skype comm and partnerships with headset brands now if we look at key partnerships key activities and key resources together the main thing to notice collectively about these things is that Skype is able to support its business model of offering cheap and free calls because it doesn't have to maintain its own telecommunications network like a traditional telecoms provider would have to Skype doesn't need that much infrastructure at all just back-end software and the servers hosting user accounts and that's how come it's able to offer this unique value proposition to the customer segments that it serves now the third example we're going to look at is that if Gillette and Gillette business model is based on the bait and hook business platter or business model pattern and that pattern is characterized by an attractive inexpensive or even free initial offer that encourages ongoing future purchases of related products or services now within this business model the base is often provided at a loss subsidized eventually by the hook so in Gillette case they offer an inexpensive razor handle and that's the bait and then continued purchases of the blades represent the hook so this business model is also very popular in SAS businesses a software-as-a-service businesses where typically a free initial month leads to a monthly subscription so in the diagram here you can see that we've used the thickness of the arrows to indicate where the revenue is coming from so as you can see here all revenues are Rashaad by just a single customer segment customers but within that the vast majority of revenues come from frequent blade replacements with just minor revenues coming from the purchase of handles now if you look at the left hand side of Gillette's business model canvas you will notice now all major costs are aligned with delivering the value proposition so for example marketing costs help to build Gillette's strong brand and R&D costs help to ensure that the blade and handle technology is unique and proprietary so in summary the business model canvas provides a way to show the key elements of any business model on a single sheet of paper the canvas is based on nine building blocks and the interrelationships between them now through the examples that we looked at you should be able to see just how easy it is to represent the complete business model of any company on just one single sheet of paper so that's it for this lesson I really hope you enjoyed it and I look forward to speaking to you again soon