When setting up or running your business you have most probably been told numerous times that a business plan is one of its most important aspects. In fact, we have always stressed its importance in various articles too. At the same time, we know that you probably get a headache from the mere thought of it. Yes, much as it is vital to your business success, it is also time-consuming and tends to be simply daunting. But what if we told you there is a way to simplify the process significantly? Today, we will show you how, by introducing Lean Canvas and Business Model Canvas.
What is Business Model Canvas?
Business Model Canvas (BMC) is the equivalent of a business plan in modern companies. Instead of analyzing and breaking down all elements of a business plan, Business Model Canvas focuses on the users and their interests. After all, analyzing funding and ways to get it should come after we establish whether the idea we have will indeed be successful. Thanks to Business Model Canvas, your company gets a simplified model that allows you to focus on the most crucial parts and their analysis.
9 elements of Business Model Canvas
The idea of Business Model Canvas derives from the business model itself. Its main aim is to analyze the elements needed to achieve profitability of the business or idea. Thanks to Business Model Canvas you can have all the structural elements of a business model in one diagram. There are nine structural elements of a business model that Business Model Canvas distinguishes:
- key partners- the entities or individuals that are involved in your business activities;
- key activities- activities undertaken to achieve profitability;
- key resources- the assets needed to run your business;
- value proposition- the practical relevance for the users;
- customer relationships- the relationship type you establish and maintain with your customers;
- channels- the channels through which you establish and maintain your customer relationship;
- customer segments- the target customers of your products or service;
- cost structure- all business expenses, such as rent, salaries, etc.;
- revenue streams- models you use to generate income, such as subscription or direct sales.
What is Lean Canvas?
If you wanted to transform Business Model Canvas to get a more problem-solution-oriented analysis, you would get a lean canvas. It is exactly what Ash Maurya, its inventor, did. Thanks to Lean Canvas, you can focus on the viability and practicality of your idea by replacing some structural elements in BMC:
- key partners -> problem
- key activities -> solution
- key resources -> key metrics
- customer relationships -> unfair advantage.
As a result, we get a model that operates a more straightforward language and shifts the application vector, making lean business canvas more practical.
Thanks to the shift, Lean Canvas is a perfect tool for startups, whereas Business Model Canvas works great for already existing enterprises. It emphasizes the customer segment instead of customer interrelation and channels. Thanks to its analysis of unfair advantage to bring a desirable product into the market, startups can take a clear problem-solution approach. Although BMC is a useful tool, it does a better job in the case of businesses which need to have a clear strategy based on a thorough analysis of strengths and weaknesses.
What are the 5 components of the Lean Canvas model?
The five core elements the Lean Canvas model focuses on are customer segments, value proposition, channels, customer relationships, key partners and revenue streams. When we analyze those five components deeper, we can get greater visibility into the viability of our business idea.
How does Lean Canvas work in Agile?
Lean Canvas is a perfect tool for teams that work in Agile. This business plan tool lets its users break down ideas into core elements that fit into a handy one-page format. Thanks to its simplicity, Lean Canvas are a great alternative to elaborate and complex traditional business plans. It works well for Lean Startups. With the Agile technique where speed and appropriate prioritization are of great importance, the ability to quickly identify and validate the core assumptions of the business model is of great importance. Lean Canvas also supports the idea of collaboration as they are designed to be completed by the team. All these elements make Lean Canvas one of the most needed tools Agile teams can use during their product development.
What purpose does Lean Canvas serve?
Lean Canvas is not only about the smart and intuitive graphic layout. It has several other functions that bring the user closer to the identification of a successful business strategy.
Help in staying lean
In lean product management, fast development of an idea and speed are of the essence. Lean Canvas not only follows lean management principles but also helps in their fulfilment. It is best reflected in the simplicity and ease with which you can complete the canvas. It also works according to the principles of changing requirements and updates. That is why you can choose not to finalize the document in case new data occurs.
Customer orientation
Customer focus is another objective of the Lean Canvas model. Through better customer understanding you can implement desired elements and improve the already existing ones based on your users' preferences. Lean Canvas examines different customer segments and therefore covers a broader spectrum of potential product users.
Time-to-market
Lean startup is characterized by a quick transition of an idea into a product as opposed to the standard methods. Therefore, a quick time-to-market (time between the idea and product release to the public) is one of the main focuses of the Lean Canvas model.
Viable metrics orientation
Lean Canvas believes that the viable metrics are more worth analyzing than the ones that give a deceptive picture of the offer. The most important startup metrics according to Lean Canvas are minimum success criteria, such as the number of referrals, subscribers, the conversion rate, etc.
How to create a BMC?
To create an appropriate Business Model Canvas, you should identify all elements of the canvas that apply to your business. The recommended steps to make the process sequential and logical should be as follows:
Step #1: Choose customer segments
Look at your customers' needs, channels of access, types of relationships or offerings, and other features. Then group them accordingly. This will bring order to your users’ understanding and help you come up with different ideas for other sections.
Step #2: Identify your value proposition
Once you specify the segments of customers, think about the benefits and features that will satisfy their needs. Take into account such elements as:
- Performance- quality and speed;
- Novelty- are your products and services innovative?
- Design- how does your design stand out among the competition?
- Customization- are your services and products customizable?
- Price- determine the price range (depending on the business model).
Step #3: Choose channels
Channels are present in various stages (such as the Awareness, Consideration and Decision) of the customer journey and can be of various natures too (own or partners’, direct or indirect).
Step #4: Establish the relationship
The value can only be delivered and communicated to the customers if you establish a relationship with them. Ensure you establish how to acquire new users and which relationships will be beneficial for the solution delivered by your business.
Step #5: Identify revenue sources
Revenue can be generated in the following ways:
- Direct sales- one-time payment for the company’s product or service;
- Subscription- a recurring payment for the company’s products or services;
- Pay-per-use- similar to a subscription; the customer pays for the services or products regularly. However, the price paid depends on the use of said products or services.
Step #6: Identify key resources
Resources are all physical, intellectual, human and financial components that you need to conduct the activity according to your business model.
Step #7: Determine core activities
All the tasks you need to carry out within a business model that will provide your customers with a solution to their problems.
Step #8: Choose key partners
These are all individuals and enterprises, such as suppliers or stakeholders, you need to carry out the business model.
Step #9: Determine and differentiate the costs
In this state, divide your operating costs into Fixed Costs and Variable Costs. Additionally, include the cost minimization and factors that bring the maximum possible value.
Need help in choosing the right tool?
Business Model Canvas and Lean Canvas are solutions that simplify many processes connected to business planning. However, it may still require further guidance to implement these models within your business. There is no need to struggle on your own, though. If you do not know which model is right for your business or have more questions regarding the business model implementation, Sailing Byte is here to help. We cooperate with many clients who have already successfully implemented appropriate business canvas models within their companies. Book a call to discuss how Business Model Canvas can help your business succeed.
