Business Model and Value Proposition Canvas: Explained
22 Dec 2020Content
Table of Contents
Communicating and pitching a business model or value proposition can be confusing. It is important to get all the right points across in a way that doesn’t bore your audience to death. Whether you are explaining your business to a friend, mentor, or investor – the Business Model and Value Proposition Canvas by Strategyzer can help.
Visual structure gives your proposition consistency across each pitch and conversation. It also enables you to remember fundamental problems to solve in your business.
Think of the Strategyzer Canvas like a brainstorm for startups or new areas in your existing business. Let’s take a more in-depth look at what the Business Model and Value Proposition Canvases are and how you can use them for your business.
What is a Business Model Canvas?
Business Model Canvases is a strategic business tool that allows you to design, outline, challenge and adapt your business model. The Business Model Canvas is broken down into nine different building blocks:
1. Customer Segments: These are all the organisations or people that you create value for. Whether they are paying customers or users of your business.
2. Value Propositions: These are the bundles of services and products that create value for your Customer Segments. More on this later.
3. Channels: These are the spaces for interaction with your customers and help you deliver value to them.
4. Customer Relationships: These are the type or form of relationships that you hope to (or already have) establish with your customers.
5. Revenue Streams: This is a description of the pricing schemes or mechanisms that allow you to capture value.
6. Key Resources: Infrastructure that creates, delivers, and captures value – these require key resources to accomplish.
7. Key Activities: Key Activities are the tasks at which you need to be able to perform well.
8. Key Partners: Key Partners help you to execute on your business model by subsidising Key Resources or Key Activities above.
9. Cost Structure: These are the costs that your business will need to account for, whether regular or not.
Why Use a Business Model Canvas?
Now that we understand the elements of a Business Model Canvas, there are various different problems we can apply these elements to. Business Model Canvases are useful at three distinct layers.
Map Business Models
Business Model Canvases are a great tool to outline and map already existing business models. Your company may already make a profit or attract customers, but a lack of clarity can leave weaknesses in the shadow. Business Model Canvases help you to understand better the different elements of your business or mobile app.
If you’ve already created a Strategyzer Canvas in the past, updating your Canvas can present you with new opportunities for improvement. The visualisation could give you a unique edge in understanding fundamental weakness and strengths within your model—for example, a slow manufacturing process or over-reliance on a key partner.
Visually mapping out your business might also be useful for attracting clients and partners. Helping them to see how working with you or investing in you would benefit them can be a game-changer.
Design New Business Models
Communicating your business as a story allows your audience to visualise your brand and strategy. Visual communication is universal; it means you can make your pitch consistent.
The more visual our business model can be, the more memorable and straightforward it is. Graphic descriptions do not rely heavily on language and terminology. In a business world packed with buzzwords and business partners from diverse backgrounds – visual communication is king.
Having our entire business model on one page also helps us to consider angles and opportunities easier. Trying to brainstorm using a forty-page document is complicated and confusing. One-page documents can be handed out during a meeting or presentation without distracting too much from your prepared pitch. Potential clients or mentors can follow your pitch as you map out your business journey.
Manage Business Models
Once you have recently mapped out your business using a Business Model Canvas, you can manage a portfolio of companies using the same elements. The Export-Exploit Continuum is an excellent example of this. The Explore-Exploit tradeoff represents a balance between both continuing to capitalise on working revenue streams, whilst innovating and exploring new avenues of business success.
A good understanding of the Continuum is vital for executives and innovators to balance exploring new businesses and managing existing ones. The most successful companies are both fantastic innovators and executors. Success means entertaining two or more business models with an opposing level of certainty. The more significant the gap between these two business models, the higher the uncertainty of the new model.
So what does exploration consist of? Exploration is the search for new value propositions and business models. No business can survive by merely increasing the efficiency of its current business model; at some point, revenue will dry up. In exploration, higher risk in innovation also yields bigger projected wins.
Exploitation, on the other hand, means that higher returns (more reliance) also increase the risk of failure. The more reliant a business is on a particular revenue stream, the more risky its strategy is.
Design a Value Proposition Canvas
By now, you’ve read the term Value Proposition enough that you know it’s essential – but what exactly does it mean for your business? Customers don’t value seven out of ten new products on the market. Value Propositions are ‘bundles’ of value that you offer your customers. The Canvas helps you map this challenge, the biggest in any business – creating valuable products that your customers want to purchase.
Here’s how it works. The Value Proposition Canvas is divided into two parts, the Customer Profile and the Value Map.
The Customer Profile
The Customer Profile is a description of your market. This map allows you to test, visualise, and document your understanding of your customers. Your knowledge of your customers should get better over time, but even new business models better have a specific customer in mind. Your customers consist of three elements:
1. The problems they have or ‘jobs’ that your customers want to complete. This might be function, emotional, or social.
2. The pains they have in fixing those problems. Risk, obstacles, or dissatisfaction with existing products on the market.
3. The gains of accomplishing ‘jobs’. In other words, how the customer measures successful solutions to their problem.
The Value Map
The Value Map is an outline of how you will provide value:
1. Products and services on which your Value Proposition is founded.
2. Link these products and services to the pains of your customers – how do these creations solve, minimise, or alleviate the pains of your customers?
3. Map out the gain creation of your products and services. How do these ideas maximise, highlight or produce positive outcomes that your clients expect, desire, or would be surprised by?
The strength of your Value Proposition is dependent on how well your Customer Profile and Value Map link together. Are you solving problems that your customers care for? Do your services alleviate the most debilitating pains of your customers? The Value Proposition Canvas will help you find weaknesses and opportunities in the value that your business provides.
You can also use the Value Proposition Canvas to map out the businesses of your competitors. In doing so, you can better understand how to avoid competition or stand out from them (also known as competing or differentiating).
Time to Map
The Business Model and Value Proposition Canvases allow you to avoid costly mistakes and time investments. Continuously mapping out your business model and the value you provide to your customers brings clarity. Besides clarity for yourself, it will also help you refine your pitch to potential customers, and clients, and choose the right investors. A transparent and clear understanding of the way your business works will help you avoid or be aware of the risk.
The Canvases are short and easy to fill out. Their structure is simple and straightforward, so you can share it during pitches or presentations to visually aid your speech. The Canvas structure applies to any business model, so you can compare different business structures that you may manage or own.
If you’re unsure about where you are losing revenue streams, or how to balance innovation and exploitation of your business models – these Canvases could be for you. Risk calculation is equally important during exploitation and exploration – stagnation in your business is a risk too! If this article helped you be sure to share and check out our blog section on Business and Digital Strategy.
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