BUSINESS MODEL DEVELOPMENT

A business model is a firm` s plan for how it competes, uses its resources, structures
its relationships, interfaces with customers and creates value to sustain itself on the
basis of the profit it earns. Almost all firms partner with others to make their business
model work.

The development of a firm`s business model follows the feasibility analysis stage of
launching a new venture but comes before the completion of a business plan.

Having a business model is important because:

 It serves as an extension of feasibility analysis (it asks the question: Does the
business make sense?).
 It focuses attention on how all the elements of a business fit together and
constitute a working whole.
 It describes why the network of participants needed to make a business idea
viable is willing to work together.

Some business model are developed so that other competitors will not be able to
understand how the firm makes money.

An effective business model consists of the following components:

 Core strategy (how a firm competes)

 Strategic resources (how a firm acquires and uses its resources)
 Partnership network (how a firm structures its partnerships)
 Customer interface (how a firm interacts with its customers)

The core strategy describes how a firm competes relative to its competitors and its
elements are: the firm`s mission statement, the product/marketing scope, the basis for
differentiation .Mission statement describes why the firm exists and what its business
model is. It is important that a firm`s mission not to be defined too narrowly because
the business model that merges may become too singularly focused and resistant to
change.
AUTOMATION TOOLS FOR BUSNESS MODEL DEVELOPMENT-

Here are the 5 tools that help you get there:

Value Proposition Canvas (VPC): Use this tool to make explicit how your products
and services create value for the customer by addressing the most critical jobs, pains,
and gains that they care about.

The Value Proposition Canvas: a business tool that can help you create, design and
implement value propositions. It is a tool which is used by tutors, trainers and business
start-ups to look at the ‘fit’ between customers and our products/services. It is used as
a bolt-on to the Business Model Canvas.

Value proposition canvas has two sides:

 the customer segment who you intend to create value for and
 the value proposition which will help you attract customers.

The value proposition canvas has two section-

Section -1 The Customer Profile Map is composed of your customers’ characteristics
and can be used to map out each of your customer segments. For example, our
customer base is composed of ambitious people who want to do things differently.
So, you will essentially complete a value proposition canvas for each of your
customer segments. This can be a great place to start—once you really know your
customers inside out, you can start designing your business model around their core
needs.

This section of The Value Proposition Canvas is composed of Customer Jobs, Pains
and Gains:

 Customer jobs are the things the customer does with your product or service.
These can be functional, social or emotional. For example, if you’re an architect
providing a home extension, your customer’s job might be to entertain family or
friends within their newly designed home.
 Customer Pains are the things stopping them from buying your product or
service. For example, it might be too expensive, they may not know the cost, or
have other uncertainties related to the customer job.
 Customer Gains are positive outcomes or benefits for your customer—
essentially, how they measure success. These can also be functional, social
and emotional and can be expected or unexpected. When mapping these out,
consider what value you can deliver for your customers.

Section 2–The Value Map.

Now we have mapped out your customers’ characteristics, we can start designing our
products or services to meet their needs.

This section of the canvas is composed of

 Products & Services,

 Pain Relievers and
 Gain Creators.

Each of these relate back to your Customer Map: your Products & Services provide
Customer Jobs; your Pain Relievers alleviate Customer Pains and your Gain Creators
ensure their Gains.
  Products & Services are the things you provide for this particular market
segment. These allow your customer do to do their Customer Jobs and directly
address their Gains and Pains.
 Pain Relievers are things that aid your customers and make their lives easier.
When mapping out this section, consider how your products and services are
Pain Relievers. What problems do they solve? These should directly alleviate
the Customer Pains you identified on The Customer Profile Map. For example,
a common pain our customers shared was not understanding the language
their previous accountant spoke to them in. We alleviated this by speaking to
them human to human, without any technical jargon and in a language they
understand. Remember to keep in mind that your Pain Relievers should always
provide an answer to a specific customer problem.
 Gain Creators are the additional values provided to your customer as a result
of alleviating their pains. Gain creators maximise customer outcomes and
benefits. Ask yourself—how do your products or services provide Customer
Gains? And how can you really provide that value that your customers are
looking for?

Strategy Canvas: Combine the VPC with the Strategy Canvas tool to visualize if
and how your value proposition differentiates from competition (in a meaningful way).
The Strategy Canvas is a tool from the Blue Ocean Strategy book, which is
specifically focused on differentiation.
Strategy canvas is basically an action framework which is represented by a line graph
to pinpoint

X-axis –‘factors of competition’

Y-axis – ‘degree of offerings’

Competing Factors are those elements in which the industry competes and invests.
These factors vary according to the nature of the business.

For example, for the airline industry,

Factors of competition are:

 meals
 prices
 lounges
 hub connectivity
 friendly service
 Speed etc.

For the hotel industry,

Factors of Competition are:

 Room size
 Furniture
 Restaurants
 Architecture
 Price
 Receptionist
 Quality services.

These all factors should be plotted on a horizontal axis to highlight the current areas
in which the company is currently investing and also the potential areas where it can
create new customer value in the future.

On the opposite side in a vertical axis, the offering level or the degree to which a
company invests in each factor, alongside its competitors’ offering is to be plotted.
These are marked as ‘High’ and ‘Low’.

The more a company invests in a specific factor, the higher a point will be marked at
‘Offering Level’ and vice-versa.

How to create Strategy Canvas graph

This graph is very easy to create. All you need to do is plot points according to your
current organizational performance and your competitors’ performance.

Draw a point in those factors you are currently investing and at how much extent you
make your offerings in that area to your customers.

Subsequently, connect all the points through a line that displays a value curve of
your and your competitors’ companies.

What this Graph represents

This graph allows you to take innovative advantages out of it. It gives you three
primary information pieces which are shown below:

1. It allows you to see the current market scenario and industry benchmarks along
with your competitors. Here, you will be able to answer the following:
 What is your position?
 What is your competitors’ position?
 Do your strategies differ from your competitors’ or are both of you on the
same page?
2. It tells you where you and your competitors’ strategies diverge:
 In which areas are you different from your competitors?
 How significant is the difference?
3. It enables you to realize the empty spaces where new opportunities can be built:
 How more innovative can you become?
 What new competitive differentiation can you bring?
 How can you reach untapped areas where no competitor has gone so far?
 How can you target more customers?

Thus, with this depiction, you will be able to understand where your company is
heading to and how can you improve those areas where you see lacking.

4 step how to draw a strategy canvas

1. Identify the competition

The first step to drawing a Strategy Canvas is to know who your competition is. In fact,
this is essential to any strategic thinking process. Depending on the nature of your
industry, you could identify individual competitors by name, or, as in the example
above, you might find it easier to cluster them into a smaller number of semi-
homogeneous groups. Don't forget to include your own business, whether you are in
the market yet or not.

When identifying competitors, it is always important to look at the problem from the
customer's perspective - who or what else could satisfy your customer needs? Had
Southwest Airlines not done this, they would simply have listed the other airlines, and
not realised that, in many cases, customers are choosing between flying and other
modes of transport. It is unlikely they would have had the insight that led to their
very successful strategy if they had not taken this broader view.

2. Identify the factors of competition

The second step is to identify the factors that your customers value when choosing
the product or service you are offering. In the above example, these include the price,
meals, lounges, seating choices, etc. The simplest way to do this is to actually get out
and speak to your target customers, but there are many research approaches you
could adopt. Remember, it is important to speak to people who already buy your
product and service, people who buy it but from your competitor, and people who don't
yet buy your product and service but might in the future (especially if your strategy is
successful). And don't forget that people don't always know what they want so you
may need to get a little creative in order to find out.

3. Evaluate the competition

The third step is to draw the actual chart - draw a line for each competitor/type of
competitor showing how well they perform in terms of each of the factors that your
customers value.
It is often interesting to do steps 1 to 3 with a team in a closed room, just to see how
different peoples strategy maps look in terms of the competitors/groups they select,
the factors they consider important, and how they rate the competition. Strategy
Canvases prepared on this basis can be significantly different, and the ensuing debate
can be a valuable team building and strategising exercise if managed well.

However, once again, you can also ask your customers directly, just by talking to them
or using a variety of research techniques, to get a more accurate and objective picture.

4. Chart your competitive differentiation

Now you are ready to map your new strategy onto the Canvas. The objective is to
chart a line which is substantially different to the lines of any of your
competitors/groups. That difference, that unique blend of competitive factors, is your
competitive differentiation.

Of course, not just any differentiation will do. You must pick a combination that a
sufficient number of your target customers will find compelling, in order to sustain your
commercial objectives. You will undoubtedly have to dig deep into your box of other
strategy tools to do so.

There is an art to drawing a really useful Strategy Canvas, but with a little practice,
you can learn to draw really insightful diagrams. When you do, they are a great tool
for communicating simple but powerful strategic ideas.

Business Model Canvas (BMC): Use this tool to iterate towards a business model that
is become profitable and scalable. The Business Model Canvas or BMC model is a
graphic representation of a number of variables that show the values of an
organization. The Business Model Canvas can be deployed as a strategy tool for the
development of a new organization. Furthermore, it also analyses the (business)
situation of an existing business.
It is a visual chart with elements describing a firm's or product's value proposition,
infrastructure, customers, and finances. It assists firms in aligning their activities by
illustrating potential trade-offs.

They defined nine categories for the Business Model Canvas which they refer to as
the building blocks of an organization.

The building block are:

1. Key partners-

For both start-up organizations and existing organizations it may be important to create
alliances with partners. For instance when fighting the competition and combining
knowledge and specialization.

Essential information will be acquired by knowing in advance which partners may

constitute a valuable relationship.

2. Key activities-

By having a good knowledge of the core activities of a company, a good understanding

of the value proposition of the organization will be obtained. It is not just about
production, but also about a problem-solving approach, networking and the quality of
the product and/or service. When the organization knows what the added value for the
customer is, a better relationship may develop with existing customers, which may be
helpful in the canvassing of new customers therefore, and which makes it easier to
keep the competition at bay.

3. Key resources-

Resources are means that a company needs to perform. They can be categorized as
physical, intellectual, financial or human resources. Physical resources may include
assets such as business equipment. Intellectual resources include among other things
knowledge, brands and patents. The financial resources are related to funds flow and
sources of income and human resources comprises the staffing aspect.

4. Value propositions-

The value proposition is about the core of a company’s right to exist, it meets the
customer’s need.

How does an organization distinguish itself from the competition?

on the one hand, this distinction focuses on quantity such as price, service, speed and
delivery condition, and on the other hand it also focuses on quality including design,
brand status and customer experience and satisfaction.

5. Customer relationships-

It is essential to interact with customers. The broader the customer base the more
important it is to divide your customers into different target groups. Each customer
group has specific needs. By anticipating the customer needs, the organization invests
in different customers. A good service will ensure good and stable customer
relationships that will be ensured in the future.

6. Channels-

An organization deals with communications, distribution and sales channels. It is not

just about customer contact and the way in which an organization communicates with
their customers. The purchase location and the delivery of the product and/or services
provided are decisive elements in this.

Channels to customers have five different stages: awareness of the product, purchase,
delivery, evaluation& satisfaction and after sales.
7. Customer segments-

As organizations often provide services to more than one customer group, it is sensible
to divide them into customer segments. By identifying the specific needs and
requirements of each group and which value they attach to this, products and services
can be better geared towards these needs and requirements. This will lead to greater
customer satisfaction, which in turn will contribute to a good value proposition.

8. Cost structure-

By gaining an insight into cost structure, an organization will know what the minimum
turnover must be to make a profit. The cost structure considers economies of scale,
constant and variable costs and profit advantages. When it is obvious that more
investments must be made than the organization is generating in revenue, the costs
will have to be adjusted. Often an organization will opt for deleting a number of key
resources.

9. Revenue streams-

In addition to the cost structure, the revenue streams will provide a clear insight into
the revenue model of an organization. For example, how many customers does an
organization need on an annual basis to generate a profit? How much revenue does
it need to break even? The revenue streams are cost drivers. In addition to the revenue
from the sale of goods, subscription fees, lease income, licensing, sponsoring and
advertising may also be an option.

Example-
Business Model Environment - Use our “Strategyzer Environment Cards” to map out
the environment around your business model. Identify and assess trends, competition,
customer context, and changes in a macro environment. Understanding the
environment will also help you understand if your timing is right.

This canvas is inspired by methods Business Model Generation and Strategyzer.

The Business Model Environment is organised into four areas: Market Forces, Key
Trends, Industry Forces and Macro-Economic Trends. These areas surround the
Business Model Canvas as they influence the kind of business model that will be
designed. Unlike the Business Model Canvas blocks, on which you have full control,
external forces represent design constraints that you have to work with.
Market Forces: Key customer issues in your arena, such as growing or shrinking
segments; customer switching costs; changing jobs, pains, and gains; and more.
-What are the crucial issues affecting the customer landscape?
-Which peripheral segments deserve attention?
-Where are the biggest unsatisfied customer needs?

Key Trends: Key trends shaping your arena, such as technology innovations;
regulatory constraints; social trends; and more.
-Which emerging technologies are peripheral customers adopting?
-How would you characterize income and wealth distribution in your market?
-Describe key societal trends. Which shifts in cultural or societal values affect your
business model?

Industry Forces: Key actors in your space, such as competitors; rising value chain
actors; new or fading technology providers; and more.
-Who are the dominant players in our particular sector? What are their competitive
advantages or disadvantages?
-What business model traditions do substitute products stem from (e.g. high-speed
trains versus airplanes, mobile phones versus cameras, Skype versus long-distance
telephone companies)?

Macroeconomic Forces: Macro trends, such as global market conditions; access to

resources; high or low commodities prices; and more
-How easy is it to obtain the resources needed to execute your business model (e.g.
Attract prime talent)?
-How costly are these resources?

Tutorial-

While working with the Business Model Canvas, it is useful to elaborate more on the
environment of your business. This Canvas helps you visualize the environment for
your business. This is done by mapping the four main forces:

Key Trends - What are the Key Trends that influence your business?

Industry Forces - What are the Industry Forces that influence your business?

Macroeconomic Forces - What are the Macroeconomic Forces that influence your
business?

Market Forces - What are the Market Forces that influence your business?
Team Alignment Map (TAM): It helps you ensure team alignment and sound execution while
you are testing and implementing your new business opportunities.

This experiment they were able to identify 4 key elements to good collaboration:
 Joint objectives
 Joint commitments
 Joint resources
 Joint risks
Based on these findings, Stefano Mastrogiacomo created the Team Alignment Map,
a visual tool that helps team’s structure conversation and make sure they are all
aligned.
Team members use alignment maps to understand what business outcomes their day-
to-day work is meant to improve.

The Team canvas- The Team Canvas is Business Model Canvas for teamwork. It is
a free tool for leaders, facilitators and consultants to organize team alignment
meetings and bring members on the same page, resolve conflicts and build productive
culture, fast.
As a leader or facilitator, you experience moments when you need to bring team
members together, clarify their goals, figure out their motivations and help them to be
more aligned and productive.

Use Team Canvas to start a structured conversation with the team and bring
everyone on the same page. Groups that go through Team Canvas sessions report
higher clarity and alignment, with less friction and conflict.

How Team canvas Work-

1. People and Role- what are the Names and Roles of each member?
2. Common Goal- What are the Goal for whole team?
3. Personal Goals- What are individual goals of each team member?
4. Purpose- What is the team's purpose: the Why behind your goals?
5. Values- What are the core values that your share?
6. Strengths & Assets- What are your strengths: things that would move you
forward?
 7. Weaknesses & Risks- What are your weaknesses: things that would hinder
you?
8. Needs & Expectation- What are your needs and expectation from the team?
9. Rules & Activity- What are the ground rules that you want to agree on? How
are you going to communicate, make decisions, execute and give feedback ?

Example-