How can you convince an investor to fund you? How can you best explain your business model and succeed at your elevator pitch?
The first difficulty an entrepreneur faces is describing their idea and clearly explaining their business model. Developed from the Lean philosophy, the business model canvas is the right tool to help you do this. The business model canvas and often associated with the lean canvas. However, these two models are different, they don’t solve the same type of problem. The lean canvas is oriented towards identifying problems and finding solutions for startups.
Although different, both models have the same purpose: they allow you to plan and write down the essential elements of your business plan. These are simple patterns that can give you an overview of your business. The business model canvas supports your business plan, which is often only skimmed or even ignored by investors interested in your project. An analysis of the main points of Lean Canvas provides a framework for understanding your business model.
The lean canvas builds on nine main points to identify and analyze the steps necessary for your project to succeed. Here are the key questions and underlying reflections on this model you should ask yourself.
- Problems: a brief description of the three main problems you want to solve.
- Customer: Who are your target customers and what are their needs? Can they be segmented? Who do you create value for? If you have very different customers, it is better to make two separate canvases, especially considering the answers in each block might vary significantly?
- Unique value proposition: a what need and/or problem do you meet or solve? What is the slogan for your product or why you are different or better? What value are you creating?
- Solution: What are the minimum features that create your product’s value and differentiate it? This usually results in a unique value proposition. What level of contribution do you expect from your customers or third parties involved in the creation of value outlined in your business model? This is to do the work by others (including your customers!). For example, LinkedIn based its business on data provided by users.
- Key indicators: describe the related actions that correspond to income or customer retention.
- Channel: List the free and paid channels that you can use to reach your customers.
- Cost: Make a list of your fixed and variable costs. Is your cost structure different or better than your competitors?
- Revenue: Identify your revenue model (subscription, commission, freemium, etc.), your gross margin, your profitability threshold, etc.
- Competitive advantages: what can be copied or purchased by your competitors (entry barriers, etc.). Your competitive advantage can also be linked to innovation or the establishment of a solution for generating recurring revenues, like the Zara model. Zara differs by restocking its stores with new products very quickly (frequent change of collection) or through subscription sales.
Finally, this model is rooted in a solid knowledge of the market and empirical experience. Go outside! Starting a company requires first hand contact with real customers to be ensure that your product will meet their needs. This will enable you to find a market for your product, or at least make sure your product can find customers or potential customers. It begins with a customer base discovery phase, which leads to customer validation, which in turn leads to the creation of the product and the company. Continuous learning and the constant iterations promote the success of your startup.
Business model canvas
The Business model canvas helps entrepreneurs to ask and answer the right questions, to maximize the chances their business will succeed. It captures the essential components of the business plan. Here are the main advantages of this model:
Adopt a common language within your team
Develop your business model in collaboration with your team members to share the same understanding of the opportunities and threats faced by your company to make strategic choices.
Effective for all your company’s growth phases
Whether your business is a startup, an SME or a multinational, the lean canvas approach is relevant for any company wishing to improve its business model.
A comprehensive overview of your business
The nine blocks of the business model of the matrix are designed to cover all areas of your business. Make links among your activities, develop innovative processes, optimize your expenses and generate new revenue.
Visually represent and easily communicate your business model
Communicate effectively your good ideas with single page to get the support from your business partners and to gain credibility.
Your turn now! Adapt the business model canvas to your business to realize your ideas!