May 2, 2020
How to: Design a Business Model Canvas
A business model describes how a business creates, delivers, and captures value.
To build a viable product, you need to have a business model which was created by Alexander Osterwalder. We will break this down further using the business model canvas. Business model canvas is a helpful tool to map out a business model. You can create a business model canvas, which captures several components that will impact your ability to develop and bring a product to market, including things you need to build the product and their associated costs, the value props for your product, and getting your product to your customers and the associated revenue streams.
Let’s understand each component of the business canvas in detail:
Now we are going to walk through each component of the business model canvas. As we are going through each element, we will also map it out with an example for Zoom, which is a company that creates software for video conferencing.
Key Partners: These could be resellers and other partners like providers etc. Looking at Zoom, their product is mostly software-based. Still, they do work with partners to help to out their conference rooms cameras, TV’s and tablets and they also work with system integrators, integrate their technology into exiting spaces. They also work with payment processors to collect money from their customers.
Key Activities: Things that need to happen to build your product. For Zoom, there are two significant activities: the development of technology and sales & support.
Essential Resources: Things that you need to deliver value to the user. This could be people, financial backing or any other type of resources. Going back to Zoom, data centres are essential to delivering video streaming video to participants. Zoom also likely has a compression algo that allows them to provide high-quality video while reducing the amount of bandwidth required.
Cost Structure: Let’s talk about the cost associated in terms of building the product. It could include a fixed price like the salary of the engineering team and variable cost that increase as the product goes like a data centre. It’s also important to think which activities and resources are the most expensive. For Zoom example two highest cost will be people and data centres.
Value Proposition: It explains why someone would want your product. In Zoom’s case, their value prop is that they build a video conferencing product that works well, their product also works on phones, laptops and conference room TV’s and it can scale and support over a 1000 participants in a call which is quite crazy.
Customer Relationships: Think of this as how you are going to build a relationship with your customers, including through interactions in the product? You want to make sure to think about building a relationship with both the person using the product and the person who purchases the product. With Zoom, at the end of every, they ask participants to rate the call. It allows the team to understand as to how the product is performing from a customer’s perspective.
Channels: How you get the product to the customer? It’s also essential to think about which channels work best and which ones are most cost-effective. For Zoom, there are three channels that I notice: they have their website where people can sign up and purchase the product directly. They have referrals as well; zoom customer can invite others to join Zoom. Lastly, they have resellers who sell the product on their behalf.
Customer Segments: This is all about understanding who is your customer’s and which customer is the most important. For Zoom, their customer is distributed people or team who need to collaborate and communicate. It is broad, and you can split into further segments such as Enterprise, Education, Govt and healthcare etc.
Revenue Streams: What is a customer’s willingness to pay for, how much, and how do they pay. For Zoom, the primary revenue stream is through subscriptions.
Thanks for reading. Now try to create a business model canvas for your product/business.
Further Readings:
Product Strategy: https://medium.com/@shrutiproductmanager/a-good-product-strategy-53c50db0ad7b
Minimum Viable Product: https://medium.com/@shrutiproductmanager/mvp-doesnt-mean-the-broken-product-3e4284c3fcb
https://www.dummies.com/careers/project-management/product-management-dummies-cheat-sheet/
