Lesson 9: Business Model PDF

What is a Business Model? business model is the main idea of the business together with the description of how it is working. Understanding the problem you are solving for your customers is undoubtedly...

What is a Business Model? business model is the main idea of the business together with the description of how it is working. Understanding the problem you are solving for your customers is undoubtedly the biggest challenge you’ll The business plan goes into detail to show how this face when you’re starting a business. Customers need to idea could work. A business model can also be want what you are selling and your product needs to solve considered the mechanism that a company has in a real problem. order to generate profits. At the same time, the business plan also does its part being the way a But, ensuring that your product fits the needs of the company can present its strategy. It is also used to show market is only one part of starting a successful business. the financial performance that is expected for the near The other key ingredient is figuring out how you’re going future. Comparing how business models and business to make money. This is where your business model plans work to help you in different ways is important. comes into play. A business model can help you be sure that the A business model describes the rationale of how an company is making money. It helps to identify services organization creates, delivers, and captures value. It that customers value. It also shows the reciprocation of should answer important questions about your business funds for the activity that a business renders to its and set out a strong vision for the business. The key customers. Any business can have different ways of components of a business model should include relating generating income, but the goals of the business model to your target customers, the market, organization should aim to simplify the money process. It does this strengths and challenges, essential elements of the by focusing on the large income generators. product, and how it will be sold. So, we now understood that a basic business model is a At its core, your business model is a description of how gateway to show how an organization is functioning. A your business makes money. It is an explanation of business plan is a document that shows the strategy how you deliver value to your customers at an of an organization together with the expected appropriate cost. As you can see, a business model is performance details. We can find the details of a simply an exploration of what costs and expenses you company when we check its business plan. What it have and how much you can charge for your product does is offer more info about the business model. It does or service. this by explaining teams needed to meet the demand of A successful business model just needs to collect more the business model. It explains the equipment needed, as money from customers than it costs to make the product. well as resources that need to be obtained in order to start This is your profit—as simple as that. creating. In their simplest forms, business models can be broken Explaining the marketing steps, and how the business is into four components: going to attract and retain more customers over the competition, will be part of a model. Another interesting 1. Business Offering 2. Customers 3. Infrastructure thing when it comes to comparing business models and 4. Financial Viability business plans is that they cannot function without each New business models can refine and improve any of other. Just remember this, the business model is going these four components. Maybe you can lower costs to be the center of the business plan. during design and manufacturing. Or, perhaps you can Different Kinds of Revenue Models find more effective methods of marketing and sales. Or, maybe you can figure out an innovative way for customers You don’t have to invent an entirely new business model to pay. Because there are so many types of businesses to start a business. The vast majority of businesses use out there, business models are constantly changing — existing business models and refine them to find a there is no one-size-fits-all model that can be applied to competitive edge. Here’s a list of business models or every business. revenue models you can use to start your own business. Try to adopt these business models in your Difference Between Business Plan and Business startup. Model 1. Franchise model. Best for the company’s expansion, If you aspire to be an entrepreneur, that means you franchising allows the franchisor to license its resources, already have some ideas in mind. Knowing what the brand name. Intellectual property and rights for a difference is between a business model and a business franchise to sell its products and services in exchange for plan is going to help you. Each has its own use, so a royalty. McDonald’s is the best example that has 93% understanding them is important. Any successful of its franchised restaurants worldwide. business owner will have to do some business planning. There are a lot of benefits to doing this, and the more Example: Subway, McDonald’s, Gold’s Gym organized you get, the better it is going to be for you. In 2. Multi-sided platform model. Any company that offers the digital era, you don’t have to do it on paper – you can services to both sides of business carries out a multi- do it much more efficiently using IdeaBuddy, for example, sided business model. The perfect example is LinkedIn, but the better you understand the essence, the higher which provides subscription services to people to find job chance for building a successful plan you have. opportunities as well as to HR managers to find The business model Is the foundation of a company, candidates for their vacancies. while the business plan is the structure. So, a Example: LinkedIn, Freelancer.com 3. Cash machine business model. Also known as the Examples: Google, Facebook, Instagram, Twitter cash conversion cycle (CCC). It means how quickly a 9. Razor and blade business model. In this model, one company converts cash to goods and services and then item (Razor) is sold at a low price while another again into cash. This model is used by the companies who associated item (blade) is sold at a premium price. It is make low-profit margin but survive in the market with a also known as a printer and cartridge business model. For disruptive position. Like, Amazon generates a massive example, the price of an inkjet printer itself was just a one- amount of cash from its online store before it pays to its time expense, however, getting a new ink cartridge suppliers. Another way to look is that Amazon runs its replaced is an ongoing expense for consumers. The supply chain on vendor credit. Cash Conversion Cycle: model is great if you have a loyal customer base and if Cash  Product & Services  Cash you can create some sort of lock- in situation with Example: Amazon, Alibaba, Apple Pro tip: This type of customers. business model is most suitable for inventory type of Example: Xbox or PlayStation Video Games, HP businesses. Printers, Nespresso coffee machines, AT&T Mobile 4. Freemium business model. A mix of free and paid phones with a 2-year contract. Pro tip: Use this model, if services, the freemium model is mostly used by tech there is a need for recurring sales of an associated item, companies in the Software as a Service (SaaS) or apps which can generate a continuous flow of revenue. business model. To grow business and acquire 10. Reverse Razor and Blade business model. The customers, companies offer free (lite) versions to business model is contrary to the razor blade model. It customers but for a limited time or with limited features. implies offering low priced products to encourage To unlock the upgraded features, the customer has to opt customers to buy high priced items as well. for paid services. Example: Apple’s App Store and iTunes sell apps, Examples: Zoom, Dropbox, MailChimp, Evernote, etc. movies, songs, etc. at reasonable rates but charges Pro tip: It’s an excellent way to encourage customers to premium prices on its devices like iPhone, iPad, and Mac. try the software or application. S type of business model is most suitable for inventory type of businesses. 11. Direct sales business model. In this model, products are directly sold to the end customers either in a one-on- 5. Subscription business model. This model allows the one conversation or small gathering, remember customer to get services by paying a fixed amount every Tupperware house parties? The salesperson gets a share month or year. In this case, the company has to provide of every sale. Although technology has superseded the enough value to its customer, so they visit the website direct sales method in many ways, still many companies over and over again. prefer to give a personal touch to its customers. Examples: Netflix, LinkedIn, Amazon Prime, Dollar Examples: Tupperware, personal care & nutrition brands Shave Club, are few of its examples. Pro Tip: This model (Avon, Arbonne, and Herbalife) is useful for content or service-based websites. 12. Affiliate marketing business model. In this model, 6. Peer-to-peer business model. As per this model, a companies make money by featuring, reviewing, and company acts as a middleman between two individual recommending other company’s products or services. parties and creates value for both demand and supply Think about product review websites. These websites are side. It’s different than a typical relationship of a business paid based on sales opportunities that they bring to their selling its services to consumers (B2B or B2C). It makes vendor companies. money through commissions. Airbnb is the right example that allows transactions between hosts and hostesses. Examples:NerdWallet, Capterra,MoneySavingExpert.com, and thewirecutter. Example: Airbnb, Uber, eBay, Offerup, Freelancer.com 13. Consulting business model. Companies that 7. One-for-one business model. The one-for-one provide consulting services by hiring experienced and business model can be referred to as a social qualified people and having them assigned on client’s entrepreneurship business model. It’s a hybrid solution, a projects follow the consulting business model. These combination of both profit and not-for-profit services. companies tend to charge on the hourly basis and/or they Although there are some debates about its long-term take a percentage share based on the successful sustainability, many companies are pivoting their completion of the project (cost reduction project). business models to cater to socially conscious millennials. Mckinsey and Boston Consulting Group are multi-billion- The best example is TOMS Shoes that provides shoes to dollar businesses that are based on this model. underprivileged children globally for every pair of shoes sold. Examples: Deloitte, Mckinsey, BCG, software or website development firms Pro tip: if you are a subject matter Examples: TOMS Shoes, Warby Parker (donated expert (SME) in a field, and when the duration of the eyeglasses), Two-degree Food, Soapbox Soaps. project is uncertain (based on the change in client’s 8. Hidden revenue business model. This model refers requirements) then consulting business model is an to a revenue generation system in which users don’t have excellent way to charge your clients. to pay for the services offered, but the company still earns 14. Agency-based business model. This is a project- revenue streams from other sources. Like, Google earns based business model, where an outside firm is hired to from advertising money spent by businesses to bid on complete a specific task. Traditionally, businesses that keywords while users don’t pay for the search engine. lack internal expertise hire agencies to get a customizable solution for their needs. Remember Mad Men? Acclaimed based on getting big deals. It is built on complex sales Netflix series that focuses on advertising agencies and with a good few potential clients. Like the clients of their clients. Some niche agencies are digital marketing, Fortune 500 usually have multi-billion dollar budgets. design & architecture, survey, promotion, media, public 23. Social enterprise business model. This model is relationship, branding, website development, social based on the fundamental that companies should make media, etc. profits without causing any harm to anyone, and a part of Example: TBWA\Media Arts lab (Apple’s go-to ad it should be spent in humanitarian works to improve agency), Leo Burnett Company (United Airlines, human living conditions. McDonald’s, Kellogg’s are some of their notable clients) Example: Brunello Cucinelli is an Italian luxury brand that 15. User-generated content business model. Allowing donates about 20% of its profits towards a social cause. users to generate quality content on websites for free to 24. Direct-to-consumers business model. This model answer other users’ questions and provide reviews, this allows companies or brands to sell their products to final business model is new yet fast-growing. customers directly. Highly effective marketing campaigns Examples: The top examples are Youtube, Quora, Yelp, and advertising activities are required to retain customers. Yahoo Answers, Reddit. Example: Unilever is the best example while being one 16. Online educational business model. Targeting the of the world’s largest advertisers. educational industry, including students and teachers, this 25. Family-owned business model. Any business that is business model allows them to get access to educational run by a family, and its decision-making processes are resources via flat course fees or subscription. It can be controlled by two or more family members is a family- said as a combination of freemium, course fees, and a owned business. subscription- based model. Examples: Khan Academy, LinkedIn learning, Coursera, Udemy, edX, etc. Examples: Ford, Walmart, Estee Lauder, Prada, Comcast are few examples. 17. Instant news business model. This model focuses on sharing and updating news instantly without any 26. Blockchain-based business models- The most intermediary. advanced, futuristic, and modern technology of Blockchain has changed the entire landscape of Example: Twitter is the best example. transactions, involving decentralized network systems on 18. Multi-brand business model. This model is based a global scale. Many crypto-currencies like Bitcoin, on marketing more than two products, almost similar yet Ethereum, and Litecoin use Blockchain technology-based competing with each other and come under a single business model. organization but having different brand names. It is done 27. Vertically integrated supply chain business to create economies of scale and to build an empire. model- This model is about owning and managing the Examples: Procter & Gamble, Unilever, and Nestle are a supply chain activities (manufacture, distribution, and few examples retail) for its products by the company itself. When a 19. E-Commerce business model. A simple yet most company has better control over how a product is promising business model, e-commerce allows buyers produced and delivered to end users, it can provide and sellers to connect and transact using an online products at lower prices (with better margin) to platform (online shop). consumers. On the contrary, for example, if a company only manufactures a product, and uses a distribution and Example: Amazon, Alibaba, eBay, OLX, Walmart, etc. retail partner. Then at every step of the supply chain, the 20. Distribution based business model. A company additional cost is added (markup) by the time the product that works by having one or a few key distribution reaches the end customer. channels to integrate with its final customers follows this Examples: Think about companies having both factories model. Example: Unilever spends its major part of and retail/online stores. Amazon, Tesla, Luxottica, Apple, revenue in maintaining a proper distribution. Walmart, and other grocery stores. 21. Drop-shipping business model. A cost-effective as 28. Combination of chains and franchise business well as an exciting business model. In drop-shipping, a model- This model is simply a mix of operated chains and business owner contacts many different suppliers/ licensed stores (franchising). Starbucks is the most wholesalers to sell their product on the website. Once an famous example that owns both company-operated order is placed on a business owner’s website, the stores and licensed stores. wholesaler drop-ships the products directly from the manufacturer to the customer. In this case, the business 29. Data licensing business model- A business model owner does not have to hold any inventory and uses the of ‘data’ has gained a new meaning in this modern world, third party to manage all the shipping and logistics needs. especially in the technology sector. Data is a critical Pro tip: It’s an excellent way to start a niche e-commerce component in web technology where companies require business website with a limited upfront cost. Examples: critical information to carry out operations and earn Doba, Oberlo, Dropship Direct, and Wholesale 2B are few revenue. examples. Example: Twitter sells real-time data to its partners, 22. Enterprise business model. Targeting and focusing which is then used for advertising and customer insight. only on large clients, the enterprise business model is all 30. Attention merchant business model- Attention Kickstarter, LEGO ideas, Unilever, Coca Cola (new flavor merchants or influencers operate through advertising of beverage) are involved in crowdsourcing. models and make money by grabbing the attention of their 37. High Touch Business Model- In the high-touch target audience. business model, customers’ interaction and involvement Examples: Snapchat & Instagram allows brands to are on the highest level to make the experience market themselves through advertising on their platform. personalized. It is a phenomenon in which a customer gets involved in a kind of partnership with the business. 31. Discount with high-quality business model- This High touch is needed for larger accounts because they kind of business model is usually practiced by pay more and are sticky. supermarkets and departmental stores that get products in bulk and sell on the wholesale rate. Example: Buying a car at Auto dealership, house, enterprise SaaS requires multiple interactions with the Examples: discounted products with high quality like salesperson. ALDI, Tesco, Lidl, Ross Stores, and ASDA Stores. 38. Low Touch Business Model- Low touch business 32. Pyramid Scheme Business model- A business model is, of course, the opposite of high touch business model often considered illegal or controversial. The model model where the product or service is delivered by functions on the sole principal of recruiting members by minimum customer interaction. Low touch is good for low promising them a reward in the shape of payments or price software tools where acquiring customers is easier. services if they agree to enroll others into the scheme, rather than supplying investments or sale of products. As Example: Companies like Amazon, Zendesk, the recruiting circle grows with infinite speed, the actual SurveyMonkey uses low touch business model. recruitment becomes quickly impossible, which leaves 39. Flex Pricing Business Model- Flexible pricing model members without any profit. Example: Amway is a billion- operates through a business strategy in the final price of dollar company which has used these pyramid schemes an item is negotiable. In short, buyers and sellers can 33. Nickel and Dime business Model- This consists of bargain the price to suit their purpose the best. the lowest price strategy for the basic product or service. Example: Letgo By keeping the basic price as low as possible, an additional amount is charged for the other perks and 40. Auction-Based Business Models- The model is services that are offered with the main basic service. based on the bidding option to buy a product or service. Example: Spirit and Frontier Airlines are a budget airline The model is although not very common now, it is still that charges the lowest possible price for the flight tickets used for industries like antiques, real estate, collectibles, and charges fee over additional services like printed and the sales of businesses. The modern version of the boarding pass fees, carry-on/ check-in luggage, seat auction model can be witnessed on online platforms preference, priority boarding, Wi-Fi, beverage, trade’s new and used items like eBay and Amazon meal/snack, phone booking fees, etc. 41. Reverse Auction Business Model- This business 34. Aggregator Business Model Aggregator Business model follows a strict pattern of setting the highest prices Model- is a network model which provides collective and let the buyers bid accordingly until the prices start to information about a particular service and sells them drop. under their brand name. Under this business model, most companies provide information and sources on a single Example: Bidding for government contracts industry. 42. Brokerage Business Model- Brokerage business Example: Companies like Zillow and Oyo for Hotels, Uber model provides a single platform to buyers and sellers for for taxi service, Yodlee for financial service, all use the communicating the deals. It charges a fee for any Aggregator business model. transaction between the parties either from the buyer or the seller depending on the featured category. 35. API licensing Business Model- API stands for application programming interface (API). It is basically a Example: Expedia, Century 21 set of subroutine definitions, communication setups, and 43. Bundling Business Model- Bundling is a business tools for developing software. API licensing business strategy that combines products or services to offer a model provides licensing protocols which allow package gathered as a single combined unit to sell at a developers’ community to create third-party plugin/add-on comparatively low price. It is the form of convenient apps for well-known platforms. And developers pay a fee purchasing for several products and services from a to get API access. single business unit. Example: Microsoft, Apple, LinkedIn, and Twitter, they all Example: Microsoft Office 365 (PowerPoint, Excel, Word, provide API license services. OneNote, Outlook) Value meal at Burger King or 36. Crowd Source Business Model- Crowdsource McDonald’s, Printer and ink business Model facilitates companies with access to 44. Disintermediation Model- Disintermediation Model operational solutions like ideas and technologies, removes the capacity of outsourcing or a third-party upgraded consumer interaction, opportunities for co- intermediary. In fact, the organizations following this collaboration, operation optimization, and reduced costs. model deal with the clients and customers directly via Example: Companies like Wikipedia, YouTube, different channels like the internet. Example: Dell, Tesla are good examples of companies to the transaction that makes every sale unique for the which follow a disintermediation model. given customer. For example, think of custom travel agents who book trips and experiences for wealthy 45. Fractionalization business model- Fractionalization clients. You can also find customization happening at a model is selling a product or service for partial usage or larger scale with products like Nike’s custom sneakers. separate parts. It’s a strategy which divides products and services into further subcategories to introduce variety in Examples: NIKE, Journy This is by no means an the products, charging for each category separately. exhaustive list of all business models that exist—but, Example: You can sell a pizza by the box or individual hopefully, it gets you thinking about how you might slices of different varieties( cheese/ pepperoni) Another structure your business.The key thing to remember is that best example of this business model is timeshares, where you don’t need to invent a new business model when a group of people owns only a portion of a vacation home, you’re starting your business. Using existing models can enabling them to use it for a certain number of weeks help lead you to success because the model has been every year. proven to work. You’ll be innovating in smaller ways within that existing business model to grow your business. Examples: Disney Vacation Club, NetJets The business model canvas — as opposed to the 46. Pay as Go (Utility) Business Model- The business traditional, intricate business plan — helps organizations model charges as per the usage of the product or service. conduct structured, tangible, and strategic conversations Example: This model includes electricity, water, and cell around new businesses or existing ones. Leading global phone companies and Amazon Web Services companies like GE, P&G, and Nestlé use the canvas to manage strategy or create new growth engines, while 47. Product as a service- Product as a service means to start-ups use it in their search for the right business sell the service of a product rather than selling the actual model. product. The canvas’s main objective Is to help companies move Example: Zipcar, Fedex Printing service follows the beyond product-centric thinking and towards business product as a service business model. model thinking. Business Model Canvas is a lean startup 48. Standardization business model- Standardization template for developing new or documenting existing means to make a service universal, which was once a business models. It is a visual chart with elements customized one. This attracts customers due to describing the four major aspects of a business; convenience and low prices. customers, offer, infrastructure, as well as financial viability. Example: MinuteClinics (a subsidiary of CVS health) is a good example of Standardization. The Business Model Canvas categorizes the processes and internal activities of a business into nine separate 49. User Base Communities- User base communities categories initially proposed in 2005 by Alexander earn by developing an interactive platform where users Osterwalder, each representing a building block in the communicate on their own with each other and can creation of the product or service. advertise at the same time. The model generates revenue with both subscription and advertising fee. Example: The Nine (9) Building Blocks Craigslist, Angie’s list A business model can best be described through nine 50. Leasing business model- Leasing refers to renting basic building blocks that show the logic of how a large or high-profile items like machines and electronic company intends to make money. The nine blocks cover equipment instead of them selling it. the four main areas of a business: customers, offer, infrastructure, and financial viability. The business Example: Home Depot (Tool rental) MachineryLink, model is like a blueprint for a strategy to be implemented Hertz, Enterprise, etc. have adopted a similar business through organizational structures, processes, and model. systems. 51. Advertising- The advertising business model has 1. Customer Segments (CS) been around a long time and has become more sophisticated as the world has transitioned from print to The Customer Segments Building Block defines the online. The fundamentals of the model revolve around different groups of people or organizations an enterprise creating content that people want to read or watch and aims to reach and serve. then displaying advertising to your readers or viewers. In The total customer pie is divided into segments based on an advertising business model, you have to satisfy two the way your products or services address a specific need customer groups: your readers or viewers, and your for the segment. The customer segment is an essential advertisers. Your readers may or may not be paying you, part of your business model and is key to ensuring that but your advertisers certainly are. An advertising business the product features are aligned with the segments model Is sometimes combined with a crowdsourcing characteristics and needs. model where you get your content for free from users instead of paying content creators to develop content. To carry out an effective customer segmentation, you must first know your customers, both through their current Examples: CBS, The New York Times, YouTube and future needs. You must list your customers in terms 52. Concierge /customization- Some businesses take of priority, including a list of potential future customers. existing products or services and add a custom element Make a thorough assessment of your customers by understanding their strengths and weaknesses and The Channels Building Block describes how a company exploring other kinds of customers who may benefit the communicates with and reaches its Customer Segments company more if you are to focus on them. to deliver a Value Proposition. Various customer segments are: The medium through which an organization provides its value proposition to its customer segment is known as a Mass Market: An organization opting for this type of channel. There are various options for channels available customer segment gives itself a wide pool of potential to an organization, and the selection is based on the customers because it feels that its product is a relevant channel that is the quickest, most efficient with the least need amongst the general population. A potential product amount of investment required. There are two basic kinds for such an organization could be Flour. of channels; Company owned channels such as store Niche Market: This customer segment is based on highly fronts or Partner Channels such as Distributors. A specific needs and unique traits of its clients. An example company can opt to choose either one or employ a of an organization with a niche customer segment is Louis combination. Vitton For an entrepreneur, the first step in dealing with channels Segmented: Organizations adopting the segmented is to identify the customer channels. Touch points with approach create further segmentation in their main customers can be limited or diverse depending on customer segment based on slight variations in the company strategy. Then he/she needs to evaluate the customer’s demographics and resultantly, their needs. strength of the channel by conducting an SWOT analysis on the channel. Finally, the company can identify and Diversify: An organization with a Diversified Market build new customer channels. Segment is flexible in the iterations of its product or service tweaking it to suit the needs of segments with 4. Customer Relationships (CR) dissimilar needs or traits. The Customer Relationships Building Block describes the Multi-Sided Platform/Market: This kind of segment types of relationships a company establishes with specific serves customers who have a relationship to each other, Customer Segments. i.e. blogging sites need a large group of active bloggers An organization must select the kind of relationship it will to attract advertisers. And they need advertisers to create have with its customer segment in order to create financial cash flow. Hence, only by creating a pull with both success and sustainability. Customer Relationships can segments will the blogging site be able to have a be categorized as follows: successful business model Personal Assistance: In this kind of relationship the 2. Value Propositions (VP) company interacts with the customer directly through an The Value Propositions Building Block describes the employee who provides the human touch by assisting the bundle of products and services that create value for a customer presale, during the sale and even may provide specific Customer Segment. after sales services. Value propositions can be divided into two Dedicated Personal Assistance: This kind of categories: relationship is characterized by a very close interaction between the customer and the company through a Quantitative: this stresses the price or efficiency of the dedicated representative who is assigned a set of clients product or service and is personally responsible for the entire experience the Qualitative: this value proposition highlights the customer has with the company. experience and results the product and its use Self-Service: Self-Service places the onus of the The value proposition provides value through a number customer experience on the tools the company provides of attributes such as customization, performance, “getting for the customer to serve him or herself. the job done”, brand/ status, design, newness, price, cost Automated Services: These are customized self-service and risk reduction, accessibility, as well as convenience/ relationships where the historical preference of the usability. customer is taken into account to improve the overall When creating your product’s value proposition, the first experience question an entrepreneur must ask himself is, what Communities: In today’s electronic age creating problem he is solving through his offered product or communities of clients allows organizations to service. Then one needs to look into how the product, communicate with them directly. This allows for an service or overall experience can be improved so that it enhanced client experience because the community provides greater value than the competition. Finally, it is allows clients to share their experiences and come up with imperative to identify the core value that your business common challenges and solutions. provides. One way to identify this value is for an owner to specify what he/she wants customers to remember about Co-creation: The customer has a direct hand in the form their interaction with the company. the company’s product or service will take. 3. Channels (CH) For an entrepreneur, the priority is to identify the type of relationship he/she has with the customer. Then the value of the customer must be evaluated in terms of the frequency of his expenditure on the firms product and services. Loyal customers are relationships that the activities relevant to his/her business. These activities are company should aim to invest in as they will yield steady the most important processes that need to occur for the revenue throughout the year. business model to be effective. Key activities will coincide with revenue streams. Now it is important to evaluate 5. Revenue Streams (RS) which activities are key by adding or removing some and The Revenue Streams Building Block represents the evaluating their impact. cash a company generates from each Customer Segment 8. Key Partnerships (KP) (costs must be subtracted from revenues to create earnings). The Key Partnerships Building Block describes the network of suppliers and partners that make the business A revenue stream is the methodology a company follows model work. to get its customer segments to buy its product or service. A revenue stream can be created through the To create efficient, streamlined operations and reduce following ways: risks associated with any business model, an organization forms partnerships with its high-quality suppliers. Key Asset Sale: the company sells the right of ownership over partnerships are the network of suppliers and partners the good to the customer. who complement each other in helping the company Usage Fee: the company charges the customer for the create its value proposition. Partnerships can be use of its product or service. categorized as follows; Subscription Fee: the company charges the customer Strategic alliance between competitors (also known as for the regular and consistent use of its product or service. coopetition), Joint ventures and Relationships between buyers and suppliers. Lending/Leasing/ Renting: the customer pays to get exclusive access to the product for a time-bound period. An entrepreneur must begin by identifying its key partners followed by making future partnership plans. This can be Licensing: the company charges for the use of its done through an evaluation of the partnership relationship intellectual property. to judge which characteristics of the relationship need Brokerage Fees: companies or individuals that act as an improvement and what kind of future partnerships will be intermediary between two parties charge a brokerage fee required. for their services. 9. Cost Structure (CS) Advertising: a company charges for others to advertise The Cost Structure describes all costs incurred to operate their products using their mediums. a business model When setting up revenue streams, it is important to This defines the cost of running a business according to recognize that an effective price for the product and/or a particular model. Businesses can either be cost driven service will be arrived at through the process of i.e. focused on minimizing investment into the business or elimination. Different iterations of prices should be listed value driven i.e. focused on providing maximum value to and evaluated. It is important, in the end to take a break the customer. ad to reflect on possible avenues open to you as a business. Following are some traits of common cost structures: 6. Key Resources (KR) Fixed Costs: costs that remain the same over a period of time The Key Resources Building Block describes the most important assets required to make a business model work Variable Costs: as the name suggests, these costs vary according to a variance in production These are the assets of the organization fundamental to how it provides value to its customers. Resources can The first step for an entrepreneur is to obviously identify be categorized as human, financial, physical and all costs associated with the business. A realistic intellectual. understanding of the costs of the business is one of the hallmarks of a good business model. After identification, it For an entrepreneur, it is important to begin with listing is important to list all the costs on the canvas, so they are your resources. This gives you a clear idea of what final visually present and then create plans for each cost. product or service your company needs to create for the Some costs may be decreased through certain measures customer and which resources are dispensable, resulting while others may go up if you decide that an investment in cost savings for your company. Once the final list of in a particular section will result in future gains. resources is available, the company can decide on how much it needs to invest in these key resources to operate a sustainable business. 7. Key Activities (KA) The Key Activities Building Block describes the most important things a company must do to make its business model work. Activities that are key to producing the company’s value proposition. An entrepreneur must start by listing the key This tool resembles a painter’s canvas-preformatted with the nine blocks which allows you to paint pictures of new or existing business models. The Business Model Canvas works best when printed out on a large surface so groups of people can jointly start sketching and discussing business model elements with Post-it® notes or board markers. It is a hands-on tool that fosters understanding, discussion, creativity, and analysis. Why Use the Business Model Canvas? The following are the reasons why your team must use a business model canvas: Visual Thinking: The tool allows for easy, visual representation for decision makers to ponder upon. The tool provides a neat breakdown of the major considerations impacting the business and also makes clear the direction the organization is taking through its business model. Iterate Quickly: If a poster sized of the canvas printout is taken, it can be used in combination with sticky notes for executives to evaluate current and potential tweaks in the business model and their impact. Grasp the relationship between the 9 blocks: The Business Model Canvas allows the executive team to understand how the 9 building blocks relate to each other and the different ways these relationships can be changed to increase efficiency or effectiveness. An opportunity or innovation can be spotted through the use of this tool. Short and Succinct: The tool encourages teams to keep their suggestions short and simple enough to fit on post-it notes. Easy to circulate: The tool allows easy access and shareability. Pictures of the completed canvas or simply physically passing it around so people can grasp its gist as well as add to it, if need be, make the Canvas a very portable and convenient tool.