Business Model Canvas: Business Plan Made Easy | Emirul Academy | Skillshare

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Business Model Canvas: Business Plan Made Easy

teacher avatar Emirul Academy

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

13 Lessons (1h 4m)
    • 1. Intro Business Model Canvas Business Plan Made Easy

      1:28
    • 2. Benefits of the Business Model Canvas

      4:05
    • 3. The 9 Elements Of Business Model Canvas

      6:10
    • 4. The 9 Element: Value Propositions

      4:21
    • 5. The 9 Element: Customer Segments

      6:43
    • 6. The 9 Element: Channels

      2:27
    • 7. The 9 Element: Customer Relationships

      3:06
    • 8. The 9 Element: Revenue Streams

      5:23
    • 9. The 9 Element: Key Resources

      3:38
    • 10. The 9 Element: Key Partnerships

      9:44
    • 11. The 9 Element: Key Activities

      6:04
    • 12. LectuThe 9 Element : Cost Structure

      10:02
    • 13. Summary

      0:56
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About This Class

This online training covers the essentials of building business models using the business model canvas developed by Alexander Osterwalder.

In this training, we will learn how the business model canvas can help in developing your ideas by mapping your customer segments and value propositions you offer, the channels you will use to reach your customers, the relationships you will maintain with them, the key resources, activities and partners you will need to deliver on your plan along with the cost and revenue generation models. We will also use the value proposition canvas to ensure we are creating compelling products or services that match our customer’s needs and desires.

After learning this course, you should be able to:

  • Understand the important of business models in your business.
  • Describe how the Business Model Canvas would be valuable to help in the development of your business ideas.
  • Describe the nine elements of the Business Model Canvas.
  • Describe why a good value proposition is central to a successful Business Model Canvas.

Meet Your Teacher

More than 10 years of experience in general management and manufacturing industry, Emirul Academy provides consultancy, training and technical support services in the field of Quality Management and Improvement in order to enhance product and service quality, competitive edge as well as reducing the cost attributed to poor quality.

Our courses are structured to provide high quality training courses for corporate and personal development to help organizations’ create an environment of continual learning and close skills gap.

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Transcripts

1. Intro Business Model Canvas Business Plan Made Easy: Business Model Canvas, business plan made easy. Starting a small business as a monumental task. It seems like there are a million things you have to take care of before you can make your first. You need to register your business, set up your website, work out your budget, figure out your marketing plan, test your products, and establish good relationships with their manufacturers and suppliers. You also need to create your business plan and your business model. So much to do, you need real clarity on your business model so you can design your business for success. A business model is simply a design for the successful operation of a business. How you create value for yourself while delivering products or services to your customers. Business model canvas is now the standard business plan used not only by startups, but also companies like Microsoft, GE, MasterCard. The goal is to look beyond spreadsheets, market research, and financial projections. It is interesting to note that although the main focus of the business model canvas is to establish the foundation of your business model. It also helps in enhancing your business as it evolves. The question is, how do you use a business model canvas to achieve the results you want? This course going to give you an overview of the Business Model Canvas to get you started. Yeah. 2. Benefits of the Business Model Canvas: Benefits of the business model canvas. The concept of the business model canvas was to provide a simple, intuitive and flexible tool that can be developed rapidly and applied ongoing to iterate and refresh the business strategy. Here are the benefits of using the Business Model Canvas structuring tool. Some entrepreneurs take business model canvas sheets to meetings and use the building blocks to guide brainstorming. Grouping comments and ideas under the nine headings quickly gives ideas shape. Focus. The business model canvas is designed to guide thinking through each of the key components building blocks for devising a business model. In this respect, it allows the business to understand how each aspect relates to the others. How the functions, activities and processes interlink and interlock. It gets you to think about your business in a more systematic and formal way, ensuring that each area as effectively covered to produce a more comprehensive and considered picture of the business. The business model canvas focuses the business on the strategic elements that matter most and will have the greatest impact on driving growth. It's visual nature aids comprehension by being able to see the overall picture of the business and thereby spot areas of strength and weakness depending on the inputs. It builds the business models such that the whole is comprised of and greater than the sum of the parts, speed, and agility. That key principle of the business model canvas as to concentrate on quality rather than quantity. It is not an exercise in filling boxes like the swat analysis or creating a document with pages and pages. Rather, it is about determining the key inputs to each building block. The business model canvas is construct as simple and focused, hence quick to get started with development iterate. It is a living document that should be tested and reworked over time, fostering an agile mentality of planning, verification and iteration. And point. It is purely a set of hypotheses that need to be tested and validated with actual customers. The business model canvas is fluid and progressive in this respect. Common language. The beauty of the Business Model Canvas is that it creates a common reference and language that can be used to articulate, share, and thereby gain feedback on each business model and its constituent parts. It's intuitive nature, doesn't take any deciphering and is therefore easy to interpret and consume. It provides a straightforward yet transparent reference that can be used internally across teams as well as externally with advisors, investors, and partners. The business model canvas is a great starting point for discovering, building, ratifying, and developing the organization's business models. There are other considerations to business success that are implied but not explicitly covered by the business model canvas, such as the level in nature of competition, roles and responsibilities, core competencies and capacities, and defining measurable goals. Yet the business model canvas framework covers and connects the primary driving factors centered on the value proposition. Critically, at the heart of the business model canvas as the value proposition. To the left, the business model canvas considers factors relating to your product in which are mostly under your control. The right side concerns the market, many aspects of which are not directly under your control. In the middle though, straddling both dimensions is the value proposition. It is the central pillar around which all the other elements revolve. It is the defining component of the business model canvas. It is the reason why the business exists. It determines the core behaviors and activities of the business, providing the guiding direction for all aspects and impactful, engaging and resonant value proposition as vital to the overall success of any business model. 3. The 9 Elements Of Business Model Canvas: The nine elements of Business Model Canvas. The business model canvas is broken into nine building blocks. We'll break down each of those segments so you can get a better understanding of what each of them means for your company. The right side of the business model canvas focuses on the customer, which is the external components. While the left side of the canvas focuses on the business, which is the internal components, both external and internal factors meat around the value proposition, which is the exchange of value between your business and your customers or clients. Value propositions. The first section is about your value proposition. Your value proposition as what your company is making and who they're making it for. It's not about your specific idea or product. It's about solving a problem or filling a need. It's also about who you are solving that problem for. Once you know what problem you're solving and who you're solving it for, you can get into what exactly your product or services. This is where you list all the benefits and features of your product and what they do to solve the problem. Customer segments, perhaps the most important part of your canvas as the customer segments. If you don't know who your businesses catering to, you'll never be able to sell to them. You need to figure out who your customers are and why they would buy from you. You want to get very specific and figure out where your customer lives, what their social habits are, how old they are, if they're male or female, etc. You want to be so detailed that you could draw a picture of your customer, put it on a wall and have it detail their exact persona. On day one, this is nothing but a hypothesis, but as you start testing and selling your products, you will be able to change this accordingly. Channels. Your channels are what you use to deliver your product from your company to your customer. In the old days, you really only had one channel, and that was the physical channel. You had a store front and your goal was to get people to visit your store. With the rise of technology, a store front is no longer necessary. Now, many people use the Internet and mobile devices as their channels. Even if you have a physical channels setup, you're most likely still going to have a web presence. You need to decide which outlet or outlets are best for you to get your product to the customer. Customer relationships. Your customer relationships, or the fourth piece in your business model canvas. This section is about how you get your customers, how you keep your customers, and how you grow your customer. The channel you choose to distribute your product will also help determine your customer relationships. A physical store will acquire its customers differently than an online store. If you're using a website as your main channel, you need to figure out how to get them to your website, how to get them to buy once they are there, and how to get them to hang around and buy more of your products. Just like previous steps, this is only a hypothesis on day one and will be figured out as your business grows. Revenue streams. Your revenue streams, or how you will actually make your money from your value proposition. What value is your customer paying for, and how are you going to capture that value? Depending on your company, it could be a direct sales model, a freemium model, a subscription model, or a licensing model. Again, the model you choose depends on your business and your business could use multiple revenue models. Your revenue streams aren't about the actual pricing of your product. It's just your way of capturing revenue. Key resources. The next section of your business model canvas deals with is your resources. This is what you need to sell your product. The assets that are required for you to be successful. The most important resource for many new companies is financing. Do you have enough cash on hand to fund your business? Will you need funding or a line of credit? There are also physical needs like a store, manufacturing plant, or delivery trucks. You might need intellectual properties as patents and customer lists. You might also need a good, strong workforce of salesmen, programmers and manufacturers. Key partners. Key partners are the people in companies who are going to help you grow your business. There are some things you aren't going to be able to do and some you just won't want to do on your own. So you'll want to partner with people that can do them for you. Two of the most common partnerships are suppliers and buyers. The two main questions you need to ask yourself before forming a partnership as what you're going to get from them and what activities they are going to perform. If you have a one man startup, your partnerships will likely be different than the partnerships a larger company has. In your first year, you might choose to do everything yourself, just to save money. As your business grows, you will be able to invest in partnerships that can save you time and help grow profits. Key activities. Key activities are the most important things your business must do to make your business model work. If you're in the production business, you'll be making products. Maybe you're a consultant and you're in the business of solving problems. You could also be in sales and be responsible for getting people to buy various products, whatever it is that your business does, your key activities are what you need to become an expert in for your business to be successful. Cost structure. Cost structure is what it's going to cost you to keep the business running. You have to think beyond the obvious costs like your payroll, rent and materials and be sure you are including everything. You need to know what the most important costs are, what your most expensive resources are, and how much your activities and partnerships cost. Then you will need to ask the typical accounting questions like what your fixed and variable costs are and any economies of scale. Anything that is going to cost you money to keep your business operational needs to be included here. 4. The 9 Element: Value Propositions: The nine elements value propositions. As mentioned before, the value proposition as a building block that describes how a company delivers value to its customers. Essentially, it refers to a mix of products and services that create value for a specific customer segment. The valley lies in the difference between benefits and costs with risk is included. Sometimes the value proposition can be innovative, which is in some cases, the reason why customers decide to switch from one company to another. However, a lot of elements effective business model value proposition, Osterwalder and Pigneur have named several newness, performance, customization, brand price, cost reduction, risk reduction, accessibility, and usability. Newness, value proposition as served to satisfy entirely new needs that companies offer a new mix of products and services that match the demand in a manner it was not offered before. This happens because customers do not know what they want when a new breakthrough product or service comes out, they perceive a need and feel fulfilled. For example, Facebook created a new way of communication through the web when other formats already existed. Performance value propositions create value by simply improving product or service performance. For example, in the PC sector, manufacturers are consistently improving the product offered year in year out to attract new and existing customers. Customisation. The value is embedded with the ability of the company to tailor products and services to specific customer needs. The company will adopt the offer to each particular segment they want to serve. Customer co-design and co-creation are examples. Brand. The brand is a powerful tool of value creation. Brand is more than just a product, it is a status. A way of living. Driving a Ferrari means more than just driving a normal car. It is a status of wealth, luxury, and prosperity. Customers may find value just by wearing, using or displaying the product. Ducati enroll Royce are other examples of brand value. Price. The value proposition lies on offering the same product or service, but at a lower price. This solution allows satisfying customer segments that are price sensitive. Obviously, business models with low price value proposition changed the entire architecture of companies from the key activities to the customer relationships. No frills. Companies such as Ryanair and EasyJet, are examples of low-cost air travel. Cost reduction. The firm's help customers to reduce their costs. The value creation is embedded within the ability to find useful solutions at a lower cost for each customer segment. For instance, hosting CRM or customer relationship management software may help buyers to manage their application more easily than by install and cope with it themselves. Risk reduction. Customers are guaranteed this when they buy a new product or service. The way of creating value occurs when customers reduce their risk during the shopping process. For example, many products include a one-year service agreement with purchase. This reduces the risk of post-purchase breakdowns and repairs. Accessibility. Another way to create value is based on providing access to other customer segments, giving them access to certain products or services previously not available. For example, lending companies have started to lend money to even those customers who had financial problems. Usability. Value propositions lie on making products or services easy to use. Paypal, for example, allows customers to easily pay over the internet, which is convenient, fast, and secure. Instead, Apple offers new legal way to search, listen, and download the music, making the experience quick and easy. 5. The 9 Element: Customer Segments: The nine elements, customer segments. Customer segments are the community of customers or businesses that you are aiming to sell your product or services to. Customers segments is one of the most important building blocks in the business model canvas for your business. So getting this building block right is key to your success. Customers can be segmented into distinct groups based on needs, behaviors, and other traits that they share. A customer segment may also be defined through demographics such as age, ethnicity, profession, gender, et cetera, or under psychographic factors such as spending behavior, interests, and motivations. And organization can choose to target a single group or multiple groups through its products and services. By matching your customer segment to your value proposition, you can achieve a more lucrative revenue stream. Hence, it is fundamental for an organization to understand the trade off between different customer segments and carefully select which segment it wants to target. Then the organization must create a value proposition and employ a business model best suited to servicing their chosen customer segments needs. An organization can categorize consumers into distinct groups if they have the following characteristics. The customer groups have a particular need which justifies the creation of a product to match this need, the group needs a separate distribution channel to be reached. The groups require relationships of different kinds. There is a very clear difference in the level of profitability each group represents for the organization. Each consumer group feels strongly enough to pay for a different version of the product or service tailored to their preferences. Customer segmentation provides a more in-depth understanding of the targeted customers. This allows you to determine what the value leading you to design a solution that better suits them. Here are a few types of customer segments that help you narrow down who you're going to be targeting. Mass market, niche market, segmented, diversified, and multi-sided platforms are markets. Mass market products and services which target the mass market segment or appealing or fulfill the needs of a wide cross-section of the population and does not discriminate between different customer segments. The value propositions, distribution channels, and customer relationships are meant for the consumption to a big number of people who have a common problem or need that requires fulfillment. For example, the manufacturer for a fridge will have a very broad target market because there is very little differentiation required by people from their fridge. Niche market. Niche market refers to a customer segment with extremely defined characteristics and very particular needs. This segment requires or rather expects a highly tailored product custom made to suit their needs. Therefore, the value propositions, distribution channels, and customer relationships are closely defined according to the preferences of this particular customer segment. These business models are common in supplier buyer relationships, such as those between automobile parts manufacturers who are extremely dependent on automobile manufacturers for sale of their products. Segmented. Some businesses choose to provide products and services to customers segments which may have very minute variations in their needs and requirements. The organization creates different value propositions, distribution channels, and customer relationships according to these small differences in the customer segments. In retail banking, a bank will create a distinction between consumers whose net worth is $100 thousand and those with a net worth of 500 thousand dollars. The differences between these two kinds of consumers are small but significant. Typically, a bank will find it more lucrative to invest in creating separate value propositions, distribution channels, and customer relationships for both customer segments. Diversified. An organization which opts to serve diversified customer segments is basically picking customer segments with very different needs. And once the customer profiles have few overlaps, but due to varying reasons, the organization sees value in investing in appealing to both these diverse segments. Amazon.com started by selling books online. As its business grew, its IT infrastructure became more and more sophisticated. Leveraging this value proposition, Amazon began offering its IT infrastructure through Cloud services to business customers. Hence, Amazon now has individual customers and business customers as well. Multi-sided platforms are markets. When customer segments are related through dependency, it makes business sense to serve both ends of the equation. Hence, for a credit card company, it is not just imperative that customers up to use their credit cards, but equally important for stores to accept their credit card. If either segment fails, the other will automatically follow suit. Simply put, it's a chicken and egg problem today, one of the most successful online ventures as eBay, which operates with multi-sided platform by requiring the presence of both buyers and sellers for its continued success. For example, if eBay doesn't have a sufficient customer base for its sellers, sellers will not be interested in advertising their wares on eBay. Conversely, if the buyers do not have a multitude of sellers to choose from, they may switch to other mediums to fulfill their needs. Targeting and positioning are the next steps in the roadmap following market segmentation. To evaluate the potential commercial value of a segment, use these strategies to assess the following criteria. Market size. The market share for that segment must be large enough to justify spend segment differences. What's different about each segment, and what is the value of those differences? Is one segment distinct from the others? Profit versus spend. The segment must provide returns on investment from the initial budget allocated for a campaign or project. Accessibility of segment is the segment available to your team. If not, how can your brand overcome the barriers to that segment? 6. The 9 Element: Channels: The nine elements, channels. The channels building block is focused on how companies reach their customers and how companies are able to communicate their value proposition. This important building block includes communication, distribution, and sales channels. It is also the interface by which the customers in the firm's show their ability to communicate, distribute, and deliver their mix of products and services. Channels put customers in touch with the company value proposition, playing an important role in the customer experience. Besides this, channels help companies to provide post-purchase support, raise awareness about products or services, and sell customized products. Channels have distinct phases such as awareness, evaluation, purchase, delivery, and after-sales. And each channel can cover some of them. The issue in this building block lies on finding the right mix of channels that match the customer perceived needs. So companies might pay attention to channels when they bring a value proposition to the market. For instance, and in how salesforce and a website are examples of a direct and OWN channel, while an own store as an example of an indirect own channel, partner channels instead are indirect, such as partner stores or websites, as well as wholesale distribution. Another channel which is developing quickly today is the social network channels such as Instagram, Twitter, and Facebook. Those direct and own channels have created new ways of value creation and brand awareness in the society. Understanding how to reach your customers is so crucial to your business. Good. The questions to ask when identifying the channels to reach your customers are, how are we going to tell our customer segment about our value proposition? Where are our customers? Are they on social media? Are they driving their car and listening to the radio? Are they had an event or conference? Do they watch TV at seven PM on a Friday night? Concisely, the challenge that every company has to cope with during the process of both customer satisfaction and profitable growth is to find the right combination of channels. 7. The 9 Element: Customer Relationships: The nine elements, customer relationships. As the word suggests, the customer relationships building block explains the type of relationship a company builds with its customers. It means defining which type of relationship Accompany wants to establish. How does this show up and how do you maintain the relationship. Some examples are in-person, one-to-one, third party contractors, online events, one-to-many, phone. There are three customer relationship categories, personal, automated, and community. And organization can arrange several relationships from personal to automate it. In this manner, the value proposition may be driven by different reasons such as customer acquisition, customer retention, or upselling. The strategy where the seller will provide opportunities to buy related products or services to make larger sales during the purchasing process. The hamburger fries meal as an example of upselling in the fast food industry. However, the customer relationships building block is necessary to leverage the overall customer experience. Personal and dedicated personal assistants are two examples of relationships based on human interaction. The former deals with the sales and after-sales process through call centers, e-mail or social networks. While the latter is when a company is directly dealing with a customer, dedicated personal assistance is obviously more personal and frequently develops into long-term relationships. For example, key customers have individual relationships with account managers in private banking services. On the other hand, automated and self-service relationships are based on No direct human interaction with customers and the process from beginning to end as provided automatically. In the automated relationships, personal online profiles allow customers to obtain access to different services. Moreover, automated services can recognize customer profiles and offer products or services with related information. Amazon.com is one example. After the purchasing process, the customer obtains different recommendations to a selected range of related product or services. Community and co-creation relationships are more of an interdependent category. Companies are focused mostly on customer-centric perspective and facilitating communication among people, communities, or another shared platform where members exchange their knowledge to solve each other's problems. Besides this, they help companies to develop new ideas and solutions more in line with the customer's needs. Co-creation instead is a relationship where customers and companies work together to solve problems or create new products and services. Amazon.com solicits customers to write reviews about books, creating value for the other book readers. 8. The 9 Element: Revenue Streams: The nine elements, revenue streams. The revenue streams building block describes how a company can make money. Essentially, it defines the capital generated from each customer segment. This building block is rather important, as it has seen, the value proposition offered and delivered to customers through different channels and types of relationships that in turn create value. This value is what customers are willing to pay for and companies are willing to capture. The prominent idea here is to generate different revenue streams for each customer segment. In this manner, companies are able to efficiently provide their value proposition to customers. Business models distinguish two types of revenue stream, transaction revenues and recurring revenues. Transaction revenues are onetime payments made when customers pay for solely the product or service needed. There is no post-purchase support. Buying clothes in an apparel store. As an example of a onetime transaction, recurring revenues are ongoing payments where customers obtain a continuous value proposition delivery as well as a constant post-purchase support. In this case, a membership at the Virgin active Jim requires a monthly payment to obtain the services offered. Each company has to find the correct method to generate revenues. Here are some examples. Asset sale, usage fee, subscription fee, lending or renting fee, licensing, commissions, advertising, acids sale. The basic source of revenue streams for companies is selling their own products and services. They sell their ownership rights incorporated in the product or service to customers. Amazon.com sells many products such as books, clothes, electronics, and gains on the Internet. Usage, the, the revenue streams are based on the use of the product or service. The usage of a particular service or product influences how much the customer has to pay. For example, cell phone companies charge the customer by how many minutes they consume on the phone. And car rental companies charge customers according to the miles driven or durations. Subscription fee. The customers are charged by a continuous access to a particular product or service. In this case, customers pay a subscription fee to use the service which generate the revenue stream of the company. Online newspaper and magazines offer the opportunity to read particular online content. And gyms charge membership fees in exchange for access to their exercise facilities. Lending or renting fee. Customers pay a fee to use the product or the service exclusively for a fixed period of time. The advantage for lenders in this case stems from recurring revenues. By repeatedly lending the same asset, it bears the cost of production and distribution. Conversely, the advantage for renters lies in a decreased expenses of the property, diminishing the full costs of ownership. Renting DVDs, cars, and apartments are some common examples. Licensing, the licenses of permission given to customers to allow use of products or services covered by protected intellectual property laws. Licensing fees generate the revenue streams. The licensors, after being granted a licensed by intellectual property law, may generate revenues exclusively by licensing their property without any manufacturing or commercializing process. Copying software or using a patented technology, for instance, can be used in return for a license fee. Commissions. The revenue streams are generated by intermediation and the services offered on behalf of third parties. It is a brokerage activity by which accompany facilitates the buying and selling process between two or more parties. Credit card payments, real estate agents, as well as travel agencies are some examples of commission revenue streams. Advertising. Advertising fees create revenue streams for companies to advertise a particular product or service in a certain location, customers have to pay a fee. Online business models have started relying heavily on revenue from advertising. In particular, the Facebook business model that is free to join. Company revenue streams may change by price mechanisms, which are price strategies that companies adopt to generate additional revenue. Companies may adopt fixed prices based on a set of static variables such as quantity, quality, or customer segment type. Dynamic prices are negotiated between two or more parties based on market conditions. Yield management and auctions are examples of dynamic price mechanisms. The former depends on strategic control of inventory, selling the company's product or service to the right customer at the right time for the right price. For example, hotels and airline companies. The ladder instead depends on competitive bidding between buyers. For example, eBay. 9. The 9 Element: Key Resources: The nine elements. Key resources. Key resources. What makes a business model function? They are the most important assets required. Without these resources, accompany cannot generate nor offer a value proposition desired to satisfy customer needs. Each building block in the business model canvas as reliant on the others. Key resources determine how a business enters the market and develops its relationship with customers earning revenues. Key resources can vary depending on industry, sector, as well as products or services delivered. Moreover, companies may own or lease key resources or acquire them from partners. Each company may use several types resources to develop its businesses below, physical, financial, human, or intellectual resources. Physical resources are resources available for running the day-to-day operations of a business organization. They include physical assets such as buildings, machineries, vehicles, manufacturing facilities, and distribution network. Physical resources are often capital intensive. Walmart and Amazon.com are two examples of businesses that require a vast amount of physical resources. The two companies has an enormous global network of stores and related logistics infrastructure. The latter has an extensive IT warehouse and logistics infrastructure. Financial resources or resources that companies utilize to be financed. Bank loans, mortgages, cash and stock options are examples of financial resources. Ericsson, that Telecom Manufacturer provides an example of financial resource leverage within a business model, Erickson may opt to borrow funds from banks and capital markets, then use a portion of the proceeds to provide vendor financing to equipment customers, thus ensuring that orders are placed with Erikson rather than competitors. Human resources or individuals that work for a company. They are assets of an organization whose value is enhanced by training and developing skills over time. In some cases, human resources are crucial for the success of businesses. Focusing on people as assets or resources means that human beings are not commodities, but are creative and social beings in a productive organization. In fact, successful companies optimize human resources in knowledge intensive and creative industries. Novartis, the pharmaceutical giant, is highly dependent on its team of top scientists, as well as its highly qualified sales force to create and sell its medicines to doctors. Intellectual resources are an important part of any business model. Brand, patents, copyrights, proprietary knowledge, and partnership are some examples of intellectual resources. These resources are very difficult to create and develop successfully. But when a company does so successfully, it generates encaptures considerable value. Microsoft, SAP and Nike rely heavily on intellectual key resources. Key resources deal with the operational end of the business spectrum and define what kind of materials you need, what kind of equipment is required and the types of people you need to employ. This aspect plays a direct role in bringing your value proposition to life for your chosen customer segment and defines the minimum you need to have to deliver to your customers. 10. The 9 Element: Key Partnerships: The nine elements, key partnerships. Key partners are essential to any business model. This building block, a network of suppliers and partners that make the business model effective. Basically, it describes how a network of partners makes business models work. Presently, partnerships are crucial to survive in today's market. Often it has been shown how fully integrated organizations did not create value, but conversely, they disperse did along the way. In fact, most organizations must focus on their core capabilities and competencies better fulfill the customer's needs. Alliances are necessary solutions in order to capture more value, optimize the business model and reduce risk or acquiring new resources. The following factors are very important to keep in mind when forming partnerships, right? Partnership agreements. Defining expectations impact on your clients. Win-win situation. Selecting partnerships, right? Partnership agreements. Whether your partnership is with a business or an individual, it is important for all the relevant parties to have clear partnership agreements drafted along with legal counsel. Defining expectations. Many times, new businesses fail to establish their expectations from the outset, leading to much confusion and conflict later. And entrepreneur needs to ensure that he has shared his expectations openly with his partner and vice versa from the beginning. Impact on your clients. When forming a partnership, it is important to evaluate your value proposition and your key resources and make sure your partner is filling any gaps in either. This can only be done by also evaluating how the partnership will translate to the customer. Win-win situation. For a partnership to be healthy and sustainable, there needs to be visible gains on both ends. Selecting partnerships. Some partnerships may seem lucrative in theory, but fail to get off the ground practically. In addition, changes in the business context may also make some business partnerships are relevant. In such cases, it is important to end these partnerships quickly to avoid further wastage of resources. Partners and partnerships can be categorized into four different types. Strategic alliances, coopetition, joint ventures, buyer-supplier relationships, strategic alliances. These types of alliances are between non competitors. So if you are working through different channels, like a news agency can supply news to both online and offline channels. Coopetition. There can also be strategic partnerships between partners. Such a partnership will help spread the risk both companies may take. It may also help when both partners are trying to do something new. Additionally, it could mean a confirm supply stream. For example, there is a need for earth metals in mobile phones. So securing the supply of rare earth metals could be the reason for competitors to form a strategic partnership. Joint ventures. Another thing could be to develop a joint venture in a new business. Both partners could have a mutual interest in developing new business, possibly due to the emergence of a new market or access to a new geographic area, both organizations will only opt for such an option if they both provide some inputs into the business. Hence, a Dutch company that specializes in producing cheese might choose to go into a joint venture with milk-producing local company to start making cheese in the new region. Buyer-supplier relationships. These are the most common type of partnerships which assures that you have a reliable source of supplies coming in and for your supplier, this means they have a steady confirmed buyer for their product. Partnerships or a tricky business involving a lot of negotiation and an element of trust. There can be a number of reasons why organizations would make the decision to take on a key partner rather than doing things themselves or taking on a partner, but not considering them as key to the success or failure of their business. Primarily, one of the three kinds of motivations can be attributed when a business chooses to enter a partnership. Optimization and economy of scale. Reduction of risk and uncertainty, acquisition of particular resources and activities. Optimization and economy of scale. Most organizations are heavily focused on the bottom line. And many focus on cost cutting or smart spending through optimizing the allocation of either their resources or activities. This is the most common motivation for people to enter into partnerships of different types. When you are looking for efficiency in your company or optimizing your productions chains, key partners can help you achieve this goal. It is unrealistic to think as an entrepreneur that you have the resources in place to conduct all your key activities in house. Most partnerships give organizations the ability to share their infrastructures or outsource some activities to more cost-effective options. Citron. Joe and Toyota joined hands to create a small, cheap car for the masses that they tried to sell for 5 thousand to €6 thousand. These cars looked almost the same except for the chassis and a few internal and external details. Reduction of risk and uncertainty. If you have a good relationship with a key partner, you reduce the inherent risk that comes with doing your own business. You also guarantees apply to your business rather than being dependent on suppliers who aren't key partners and would therefore not give precedence to your business over others. Many competitors may form strategic partnerships to share the risk of bringing something new into the market while still competing in various aspects in the industry. A classic example of this as the advent of Blu-ray technology, which was developed in collaboration by some of the world's premier consumer electronics and computer technology firms. The development of this technology was expensive and several competitors had to get together and decide that they would all be selling their products based on Blu-ray technology. Hence, they needed to collaborate to make Blu-ray technology more mainstream. The group joined hands to bring the technology to the mass market, but still competes on the basis of their various Blu-ray based gadgets in the consumer market. Acquisition of particular resources and activities. If there are certain things that you don't have in-house and which would require a heavy investment of time, money or both. A key partner who already has these processes and the infrastructure developed would come in extremely handy. Business models can be extensive maps of the myriad activities that a business needs to perform or the endless resources required to perform these activities successfully. However, it is rare for a new company to have the resources or capabilities in place to fulfill the mandate set down by the business model. Hence, many new companies are beginning their journeys by forming partnerships that give them access to the required resources are processes that they require but are unable to own yet. Hence, many mobile operators partner with IT companies to develop the operating system their handsets require, rather than bearing the heavy investments such an endeavor would require if done in house. This also gives the IT company a steady source of revenue, as well as the advantage of publicity at the mobile manufacturer's brand is well-recognized. Bicycle companies do not manufacture their bicycle accessories. Instead, they get into selective partnerships with bicycle parts manufacturers who customize the parts, like the color or size of the bicycle seat according to the preferences of the manufacturer. Heineken is one of the most popular producers and suppliers of beers in the world. It is especially well-known in the Netherlands, where they have created very strong relationships with bar owners. In fact, Heineken frequently invests in new bars by providing not only equipment for free, but also investing in the decor of the bar. In return, the bar provides Heineken beer exclusively. Hence, Heineken gets a repeat customer for their beer while the bar owner can minimize the cost of setting up the business. Conversely, however, the bar owner is limited to selling just Heineken, which means that if Heineken increases the prices of its Spear's, the bar owner has no choice but to abide by the new prices. For fast-moving consumer goods, availability is key to the success of the company and a major value proposition for supermarkets and retail chains, distribution partners are key if you want to provide your fast moving consumer goods to the market, your advantages that your products will be available to everyone, but the supermarket will drive down your price and resultantly your margin significantly. Technologies are advancing at a very high rate that increases their risk factor as well. However, if the technology forms a significant value proposition for your business, then you can take on a partner to share the risk and cost associated with the technology in question. Focus on where you are creating value, but consider that the rest can be outsourced if needed. The activities that are adding value to your value proposition must be outsourced very carefully because they are the ones that are key partnerships for your business. 11. The 9 Element: Key Activities: The nine elements, key activities. Key activities are the main things you need to do to have a successful business model and to deliver your product or service. This building block of the business model canvas allows you to map out the vital activities you need to undertake to properly function as a business. These activities enable you to deliver your value proposition, reach markets, nurture customer relationships, and create revenue. Key activities will differ from business to business depending on your product or service. So firstly, you should establish what your key activities or for your value proposition. Then consider how these integrate with your distribution channels, customer relationships, and revenue streams. To be successful, a company must carry out key actions that are primarily dictated by its business model. As we studied with the key resources building block, key activities are similarly pivotal in an organization fulfilling its value proposition, reaching its customer segments, sustain its customer relationships, and ultimately create long-term revenue streams. Key activities are different according to the business model of the organization carrying out the activity. Hence, an organization that relies heavily on its third party contracts will list channel management as a key activity. A product-driven business will end more significance to activities such as continuous research to understand their users better, as well as constant innovation in technology. He activities can be split into three main categories. Production, problem-solving and platform or network production. These activities are generally a characteristic of manufacturing firms and entail the design, creation, and delivery of significant quantities of the product. For example, a company that manufactures and sells pantyhose, typical value propositions are listed like these. This pantyhose lasts longer and therefore saves consumers the money they would spend on frequent replacements. It provides resistance so feet don't slip in heels. The product is machine washable, easy to store packaging. Based on the value propositions given the key activities for the company would then be control of production and manufacturing, manage website, online orders, and the distribution of the product. Create a branding strategy, marketing and promotion of the product. Product and packaging design. Problem-solving. Consumers or customers have chronic problems. Organizations that list problem-solving as a main activity are usually aiming to find unique solutions to these individual problems. Consultancies, hospitals and most service organizations typically are trying to solve customer problems uniquely. These organizations are characterized by lots of knowledge management and a focus on continuous learning. Jiffy Lube as a chain of over 200 businesses in North America, which offers oil change and other automotive services to its clientele. Hence, it is a service firm that aims to provide a solution to a recurring problem. Its target customers may have. Gps value propositions are keep cars healthy, keep clothes clean and garages tidy, and save customers time and help them avoid the hassle of their cars breaking down. Based on these value propositions, that key activities performed a Jiffy can be as follows. Change the oil of cars, perform other maintenance work, promote their services to customers through upselling and other marketing activities. Such organizations will have detailed records on repair work done on the automobiles of their repeat customers. And we'll be able to handle the car with full knowledge of its history. Much like a doctor with a regular patient platform or network. A business model where the platform as a key resource usually has platform or network-related key activities. Networks, brands, and software can all be a part of a platform or network-related business. Agile enterprise architecture, or AAA, offers its services to companies experiencing a surge of work or a cascade of models that need to be done within a limited amount of time. The company's value propositions are as follows. Low cost architecture modeling, agile and available when needed by customers in the Cloud. It's environmentally friendly, especially if the client company is willing to forego travel, efficient and effective, and involves minimal risk. Based on these value propositions that key activities for this organization, our Cloud-based architectural modeling as a Service, cloud-based enterprise architecture software as a service, and frequent health checks for the architecture to make sure it remains robust with changing environment. When evaluating your business through the key activities building block, it is essential that you take a holistic view of the business and evaluate related building blocks as well. To understand how they will contribute to your key activities, you should consider these set of questions when drafting your key activities. Based on our value propositions, what kinds of activities are key to our business? What kinds of activities are key to our distribution channels? What kinds of activities are important if we want to maintain our customer relationships? What kinds of activities are fundamental to our revenue streams? 12. LectuThe 9 Element : Cost Structure: The nine elements cost structure. This building block represents all the costs that a business can or will incur if it opts for a particular business model. At least three other building blocks are contributors to the cost structure block. One must evaluate the cost of creating and delivering the value proposition, creating revenue streams and focus on long-term customer relationships. All three of these blocks represent a financial investment into the business. However, when an entrepreneur has effectively figured out their key resources, key cities and key partnerships, the aforementioned costs become easier to calculate. If you have a major cost stream which cannot be matched to a key activity, it needs to be given a closer examination. Either your key activities block is missing a vital activity or your costs are being inflated by an activity which is unimportant and yet has still been included in the business model. It is important to note that cost can be a fundamental concern for some business model. Costs will always remain a major concern for all businesses. It is in fact the universal concern. However, some businesses make it an organizational mission to minimize costs as much as possible and all of their strategies and tactics are derived from this one goal. Hence, businesses can be categorized into two extremes based on the volume of goods produced. Both ends of the spectrum are either cost-driven or values-driven. Realistically, though, companies usually falls somewhere in the middle of this spectrum. Cost-driven. As the name suggests, such a business model is utterly focused on reducing costs. This is essentially a race to the bottom. This obviously impacts the other building blocks. A business which is cost-driven, focuses on creating a lean cost structure through offering cheaply priced value propositions, a high degree of automation and outsourcing of costly functions. It is important to lower your prices based on internal costs and expenses rather than in response to what the competition is doing. Industries prone to price wars experienced this tragedy all the time. During the price war, competitors will steadily undercut each other's prices to attract the price sensitive customer. However, if your competition is able to manage its costs and create operational efficiencies, they will be able to sustain their business on the lower price and continue to attract customers. If your business fails to do so, you may end up arriving at a price you are stuck with, which is unrealistic, considering your expenses. Ryanair as another example of a no-frills airline which provides a cheap solution to its customer segment for air travel by reducing costs incurred by in-flight meals or other amenities traditionally offered by major airlines. Such airlines have increased seats in their planes and have a limit on luggage size. However, the swift takeover of the market airlines like Ryanair have accomplished clearly show an unmet need that these airlines have fulfilled. Conversely, expensive airlines have aircrafts which now spend more time on the ground than they do in the air. Values-driven. Not all companies drive their business based on costs. Some focus completely on the value they're providing to their customers. Hence, taking the value driven approach. This strategy is characterized by complete focus on the creation and delivery of a high-value value proposition which is highly customized to the customer segments preferences. Luxury hotels opt for a values-driven approach. The highest prides itself on its customer services and amenities. They put a lot of effort into creating an experience which customers are willing to pay top dollar for. Employees of the hotel are encouraged to anticipate individual customers needs right down to greeting a repeat customer by name and providing them with a room with their preferences already in place. Cost structures have multiple characteristics. These are fixed costs, variable costs, economies of scale, and economies of scope. Fixed costs. Fixed costs are business expenses that remain the same regardless of the volume produced by the business. These costs are usually time-bound, such as monthly salaries or rent for office space, and can also be referred to as overhead costs. Manufacturing businesses are typically characterized by high fixed costs due to the investments required in renting the facilities and the equipment. However, it is important to note that fixed costs will not remain the same forever. Instead, they may change with time but will remain stable over a period of time. Hence, these costs are also known as sunk costs for the relevant period of time. Decisions for costs are often related to management, capital expenditure or CapEx or investments in the long-term. Things that are bought and go on the balance sheet of the company and will be depreciated over the years. Variable costs. Variable costs are costs which are heavily dependent on the volume of output a company produces. These are costs incurred when you produce a product. If you do not produce, you will have no variable costs. Similarly, you may have delivery costs, but if customers aren't asking for delivery, then this is a possible variable cost which you can avoid. These costs are therefore sensitive to changes in demand and supply and cannot be easily predicted. They increase directly proportional to increases in labor and capital. Variable costs are represented by utility bills and raw materials used for production of the end product. The organization and execution of a music festival will typically be characterized by high variable costs. Another cost close to the management's hearts and minds are operational costs or OPEX. These are the costs associated with the day-to-day running of the company or the used up expenses. Hence a 3D printer as an example of an expense that falls in opex. Other opex related expenditures or purchase of raw materials, electricity bills and expenditure on maintenance of buildings and machinery. Companies often have different budgets for CAPEX and OPEX. Economies of scale. The higher the volume, the lower the overall cost per unit. Economies of scale are a benefit enjoyed by most big companies with a high output quota. Essentially, this is a cost advantage which big companies can enjoy due to their size, sheer quantity of output, or scale of operation. The reason costs fall with higher volumes is because higher volume spread fixed costs more thinly making the cost per unit fall dramatically. Hence, the average cost per unit is reduced. Hence, a bigger company will have a lower cost per unit output than a smaller company. Or a company with more facilities will have more of an advantage than one with fewer facilities. Not only do economies of scale help lower fixed costs, they may also help reduce variable costs by creating synergies and increasing efficiency. Bulk buying as a common indicator of mass production and automatically leads to economies of scale. Bulk buying often leads to lower prices. When you are buying and volume, you often have a stronger negotiating position and can create lower prices for your raw material. This is a tactic used most successfully by Walmart, which uses both vying to negotiate much lower prices for the items in its stores. It is then able to transfer these savings to its customers, providing them with lower than market prices for regular items. Economies of scope. Economies of scope refers to the reduction of costs when a business invests in multiple markets or a larger scope of operations, the average cost of production is therefore expected to decrease. If accompany opts to increase the number of goods that produces, a company will have a structure in place already, along with all the departments such as marketing, finance, or HR operating, the company can increase their scope and hence economize the entire structure. Economies of scope based on product diversification or only achieved if the different products have common processes or share the use of some resource. Hence, spending on marketing the products or distribution channels may lessen per unit. If both products require similar marketing efforts are used the same distribution channel. The uses of product bundling and family branding are also an example of firms trying to achieve economies of scale. However, where economies of scale are easy to achieve and measure, economies of scope present a bigger challenge when trying to measure them. Economies of scope have multiple advantages for the business. These are a great deal of flexibility in the design and mix of the product. Increased response rate and decreased response time to market-driven changes. Processes are repeatable with a higher degree of control over their execution. Costs are reduced because wastage is minimized in this particular business model, organizations can more accurately predict changes in cycles. Software and hardware utilized more efficiently. There is less risk associated with a company which sells multiple products or targets multiple markets or does both. Even if one product or market falters, the company will have alternatives to help tide it over. Well, it readjusted strategy. Let's take a look at the Coca-Cola brand. Coca-cola already has a number of drinks launched in the brand other than Coke itself. Supposing we look into how Coke can diversify even further by launching and as yet unheard of drinks such as Coca-Cola green t. Distribution of the different products under one company will use the established distribution channel, leading to a major saving for the company. 13. Summary: Congratulations, you have now reached the end of this course. As a summary, the business model canvas is a great tool to help you understand the business model in a straightforward, structured way. Using this canvas will lead to insights about the customers you serve, what value propositions are offered through what channels, and how your company makes money. You can also use the Business Model Canvas to understand your own business model or that of a competitor. By now, you should be able to understand why business models are important. Explain how the business model canvas would be useful to apply to your own development ideas. Described the nine elements of the business model canvas. And finally, explain why a good value proposition as central to a successful business model canvas. We hope that you have enjoyed this course.