Welcome to Business Model Design. My name is Deonna Barnett of Aventi Enterprises and we are going to explore the different ways that you can build your business model.
A little bit about us, I’ll start with myself. I have 12 years of small business development experience. I trained over 1500 entrepreneurs here during that term locally here in Center, Ohio.
My expertise is in business planning, financial management, and community organizing. I am a graduate of Fisher College of Business at Ohio State University, with a specialization in marketing. I’m also a former non-profit executive director. I served a non-profit agency for 10 years. In the last 4 years, I served as a leader of that organization, helping with small business development programs and microfinancing. And I’m also a mother of 4, a wife, and a musician.
I am the founder and CEO of Aventi Enterprises which is a management consulting firm for small businesses, focusing on areas of business strategy and planning, preparation for financing, government contracting, and outreach to small businesses. Our clients make up of startups and emerging CEOs, and mostly Main Street and Middle Market businesses – Main Street meaning businesses under a million dollars of revenue and Middle Market meaning businesses between a million and 5 million.
So collectively, our clients make up 10 million dollars in revenues. We typically train about 150 entrepreneurs annually. In the government contracting space, we currently have a 100% approval rate and obtaining diversity certifications whether that’s women business enterprise, certification, minority business enterprise, veteran, economically disadvantaged women-owned small business, and other SBA programs. And last year in 2020, we supported small businesses in obtaining $700k in funding.
So today, we are going to talk about the business model. We are going to define what a business model is, we are going to design your business model, and review a few company case studies to help you further develop your business model.
What You Need Today
Pen, and pencil
What you might need today: something to write with (notebook, paper or pen, and pencil). Optional, you can have your post-its with you because we use post-its to design the model and your business model canvas template. You can use the word document provided so that you can start designing your business model.
What is a Business Model?
Alright, let’s get started with defining what a business model is. So, the founder of the business model canvas — which is a tool that we’ll be using today — his name is Alex Osterwalder, and he likes to define a business model as the way your company creates, delivers, and captures value. I use that definition along with my own understanding to develop the description of the business model by being the framework of how your business will operate and make money.
Business Model Canvas Map
So, here is a map of the business model canvas that we’ll be using. It’s built with 9 components. The Value Proposition is in the middle of the business model canvas and I like to say that it’s the most important element because all the other elements are based on the value proposition. So you always start in the middle, the value proposition, and then going to the right for Customer Segments, Customer Relationships, Channels, — by which how you deliver your value — your Revenue Streams — which is the cash that you receive from your customers.
And then on the left-hand side which would be key activities, — what you need to do to deliver value — Key Resources, — which you need to have to deliver value — Key Partners, — who you need to work with outside your company to help you deliver value — and then the cost structure — where the most important cost that you are going to incur to deliver this value that you set for your business.
Everything on the right-hand side of the business model canvas is directly related to customers. So, on this side, we are able to develop our marketing strategy.
On the left-hand side of the business model canvas is directly related to Operations. On the button, we see the Cost Structure revenue stream, this is the financial piece. We are not talking about numbers. We are talking about concepts of how our financial structure will be built — how our operations will be built — how our marketing strategy and communication, and relations with the customers will be built.
Business Model Focuses
The business model focuses only on key elements and not details. This is very important to understand how to build the business model. We are only going to focus on what matters the most.
A great way to understand this is to do a quick visualization exercise and I like to use the airplane model. As if you were on an airplane and you are getting ready to take off and right when you hit the clouds, you look down from the window seat that you have in the airplane. And what do you see?
You only see the key elements of that city from which you’re flying from. So here on this map, you’ll see roadways, you’ll see parcels of land, you’ll see buildings. You notice you don’t see people, you don’t see streetlights. All of those little things are details, but the most important elements or components of that city structure are what you see. How that city is built, how it operates, and how it uses its resources that it has. If you are flying from Cleveland or Michigan, you might see the water.
Water is the main resource in that city. It uses water to operate within its infrastructure, its city infrastructure. So, as you’re building your business model, we are only going to be talking about the key elements, not the details. The details are for business planning, this is the business model or the structure in which you build your business plan.
So let’s start talking about the 9 components of the business model canvas and again, we’re gonna start in the middle with the value proposition. The value proposition is the clear statement about the tangible results customers get from using your products and services or solutions. So what you’re value proposition is not a list of your products or a list of your services. It’s really the value that you get from receiving those products and services. So your value proposition should be solving a problem, it should be satisfying a need, or it should be making it easier for your customer in some way, fashion, or form.
A value proposition is a clear statement about the tangible results customers get from using your products and services or solutions. So what you’re value proposition is not a list of your products or a list of your services. It’s really the value that you get from receiving those products and services. So your value proposition should be solving a problem, it should be satisfying a need, or it should be making life easier for your customer in some way, fashion, or form.
So what are some questions that you can ask yourself on defining your value proposition? So one question is: “What problem are you solving?” And some business owners don’t believe that they are solving a problem but indeed they are. “Are you satisfying a need?”, “How are you making life easier?” “Why should customers buy from you?” So a great example of solving a problem or satisfying a need is the water bottle. So in the early 90s, when people were starting to think about bottling water and selling it, they got a lot of backlash because, at that time, water was free. So who’s going to buy water if it’s already available for use and it’s free. Those who were deciding to sell bottled water came up with the idea of addressing some problems that bottled water could solve.
And one of those problems might have been: “In case of a natural disaster, we have this bottled water that could be available for use whenever needed. If there is no available clean water, we have this case of bottled water that you could store in your house for emergencies”. There were also issues with contaminants in the city water so this bottled water then became a solution because it was filtered in the mineral spring water of some grand canyon or lake. So, what these creators were thinking of is, how can bottled water solve a problem, what problem could it solve, how could it make life easier. It’s quick and easy if you want to go, and you need to have water with you, grab a bottled water, get bottled water from the vending machine. So, what problem are you solving with your business and that’s going to help you define and develop your value proposition.
Some types of value propositions that you can start thinking about: “Does your product or service provide a faster service?”, “Do you provide convenience?”, “Is it something that is easy to use?”, “Do you offer low prices or something that’s free?”, “Does your company reduce risk?”– A great example of reducing risk is insurance companies. They have nothing to sell but the idea of reducing the risk of something happening to what you value the most. So there is nothing tangible that you receive but you get a policy and that policy is supposed to help reduce risks for you or business matters. Maybe you just have something new to the market that has never been seen before. Maybe you offer some type of improved performance of something or someone. Maybe you offer customization. Some people or some customers would rather have their product or their service delivered in this way or that way or created in such a way that more accommodating to them. That customization appeals more to those customers. Maybe you just get the job done and your customers do not have to worry about a thing. Maybe that’s the value that you wanna offer. Maybe you offer some sort of appealing design. You might see this in a lot of fashion design products or even technology. You know, there’s always an iPhone, or Android coming out with some cool design that is appealing to customers. Or maybe you’re offering better technology to help get things one. These are just a few types of value propositions. You don’t have to use all of them, you don’t have to use any of these. You might even come up with your own value propositions.
A great example of value proposition would be Slack and Digit. And what these companies did was — they used their value proposition to help develop their marketing message. And here I have two taglines that you’ll see came from their value proposition. So Slack — which is an app that allows teams or groups of people to communicate and work together — their value proposition states that it makes users’ working lives more simple, productive, and easier. That is their value proposition. Nope, they didn’t say all the features and benefits, they’re just saying, what is the true value proposition of Slack. And out of that value proposition, they came up with a tagline: Be more productive at work with less effort. So your value proposition is helping you to explain to your customers why they should buy from you, what problem it solves for them. Digit, so we move on to Digit, which is an app that allows you to save money automatically. Their value proposition is: Offering hands of savings. And the tagline that they came up with or their marketing message is: Save money without thinking about it. Sounds interesting, right?
So your value proposition is one of the most important things that you need to define and develop in your business so that customers understand why they should come to you and give you their money.
During COVID, a lot of businesses had to shift and modify their value proposition because there were more things important to customers than before. So some businesses shifted to these kinds of value propositions. They started offering contactless service so “you don’t have to touch me.” They started making sure that they were providing clean service. If you walk into a grocery store at the height of COVID, you would see a lot of workers just cleaning to make sure that they were able to promise or deliver that promised value proposition of a clean environment to walk into to get your groceries. Companies started offering virtual and online services. Restaurants started offering delivery services so — “You don’t have to come, we’ll put it on your doorstep, just order from us”, right? There were some value propositions for remote, doing things from home — At-home is another value proposition, very closely related to remote. Care and wellness, companies making sure that people or customers understood that they cared about their health and wellness. So as we are still in this COVID space, there are still some ways in which you can modify your value proposition to fit the times, and you will have to revisit your value proposition — your whole entire business model often to make sure that you are relevant and that you address the needs of your customers during that period of time.
So a great example of companies that shifted during COVID space is Snack Nation. So Snack Nation, their customers were companies who had a large number of employees working in their building. So the companies could purchase from Snack Nation boxes of snacks for their employees to help their work during workdays. And most of these are nutritional snacks so it’s kinda like brain food. So when everybody moved to their homes to work, no one was there to eat the snacks. So Snack Nation had to come together and think: “What can we do to make these companies still buy from us?” So what they decided to do was, allow the companies to purchase the snacks in bulk still, but provide addresses to their employees’ homes so the snacks were delivered to the employees’ homes. So it was just kinda like being in the office, the snacks are still there. The companies still provide some for you. The Snack Nation just had to make some changes to make that work. Another great example is Club Vino. Club Vino is known for wine tasting and as well, everyone went home, and there weren’t a lot of gatherings for wine tasting. So they developed a package that allowed people to buy boxes or bundles of wine bottles so that they can do wine tasting experiences at home.
These are just small shifts that these companies did to address the needs of their customers at that time. They didn’t have to change their products or their services, they simply modified the way in which they deliver the value that was most important to their customers at that time.
So as you’re thinking about it, refer back to the types of value propositions and understand what a value proposition is, and start writing your own value proposition.
Defining Your Customer Segments
Let’s move on to customer segments on the right-hand side of the business model. Customer segments are groups of people or organizations that want your value proposition and will pay for it — this is very key. If the customers are paying for it, but they’re receiving it, they’re technically not your customers, they may be a beneficiary. But they have pay, whoever is paying you, those are your customer segments. How do you define your customer segments, ask yourself the following questions: “For whom are you creating value?”, “Who wants the value that you are offering?” — Out of all those people who may want your value, who are the most important customers, the ones who have the big bucks for you. And then find some common characteristics. If you have a long list of customers that you came up with based on who wants your value and who are the most important customers, find some common characteristics to help you narrow down your customer segments.
Ways to Segment Your Customers
Some ways to segment your customers, you can segment them by Demographics, that’s like population characteristics — Gender, race, age, income, residence, or occupation. Or Psychographics: lifestyle characteristics, how they behave, what their traits are, what they do in their spare time, their mindset, their motivations, or their functionality — How they function at home or how they function at work. I wouldn’t enlist all of these things, these are just ways in which to come up with one or two customer segments and I don’t suggest more than two if you are new in business because every customer segment requires a new marketing strategy. So if you have five customers, you have five marketing strategies, and every time you have another marketing strategy, that’s more time to spend on developing and implementing those strategies and you can be increasing your marketing costs. So focus on one or two customer segments.
These customer segments are really simple. They’re not the full explanation of the customer like a woman between the ages of 35-55 with an income of $50,000 — no! We just want a word that describes customer segments. So great examples are users – a lot of technology apps, use the term “users’ as a customer segment.
The business model is just defining where the focus is. In the business, planning is going to define the user in more detail.
So that user made in high paying professional income more $100,000 that live in growing cities, so on and so forth, has two children, and typically married. So business planning is just that.
The business model just simplifies a version of customer segments. So users might be great example app developers or drivers. If you are a transportation company or doctors, if you are in some sort of healthcare field or if you have an app for doctors that you can say doctors as your customer segments that are the case. Visitors, Homeowners if you see this as customer segments are named very simply so think about who your simply customer segments would be for this business model.
Let’s move on to channels. Channels are the way in which your company reaches customers to deliver value.
Types of Channels
You make be delivering value to communication channels such as email, direct mail, social media, phone, internet, or website. You may be delivering value to distribution channels so if you have products that need a shelf, like a retail store or a wholesale outlet. A distribution channel might be your way of delivering value to your customer or Sales channels, maybe you need just a sales force to deliver the value. A great example would be Mary Kay and Avon there is no story you can go to. You can’t call the company that might be now back in a day, you can’t call the company and say I like to order on such and such you had to get the value from your cell rep. So how are you going to deliver your value?
The next component is describing how you interact and deliver value to your customers.
Types of Customer Relationships
There are six types that we are focusing on and the first type is Personal Assistance this is a one on one relationship with the customer so if you want to work with them, let’s say you are a coach you want to provide coaching to an individual to like life change or a life coach and you work in one on one basis that’s the personal assistance type of relationship.
Dedicated Personal Assistance
A dedicated personal assistance relationship is the most intimate form of all this when the customer works one on one with some in your company but always works at the same person every time. A great example is a hospital when you are.. getting checked in to a new hospital will you assign a doctor and generally you meet the same doctor every time. So it’s your company going to have this type of relationship.
Self Service this type of relationship when the customer delivers value for themself, so let’s say grocery store has a value proposition a fast check out and the way they do that is by creating self-service checkouts so in order for the grocery shopper to come in and get fast checkouts they need to check their grocery out to themself. So that will be self-service getting the value of fast checkout myself.
Automated Services are with the product services or the value is delivered to the customer automatically they don’t talk to anybody is on schedule the customer knows what’s gonna happen. A great example there a lot of people creating online courses and so when you create an online course you can put your content of the drip schedule which mean that the content or the lesson are drip to the customer or deliver to the customer when you want them to be delivered, so if you want it to deliver everyday it’s delivered every day at 9:00 am a lesson. That lesson or that content or the value of that course is delivered automatically to the customer.
Another type of relationship is Communities you deliver your value to more than one person at the same time, so a great example is a teacher delivering content to a classroom full of people so once many relationships and lastly is Co-Creation.
Co-Creation is when a company and customer come together to deliver value that the company has said that they would deliver. A great example is Youtube so youtube is a personal video platform they create the platform but they don’t create any videos. Who created the videos? Are the users. So together with the platform and the users with the personal video together they make a personal video platform. So what type of relationship that each of your customer segment has to expect from you cause this is also important to consider developing the relationship or the type of relationships should have. What do you want as a company, what do your customers expect you to have, don’t forget that.
Moving on Revenue Streams are the categories of cash or sale that you receive from your customers.
Ways to Generate Revenue
Here some ways to generate revenue. Asset sale you can sell something, something that you have, an asset that could be a book, it could be property, it could be equipment, furniture what have you – asset sale.
The next is Usage Fee this is.. how you… usage free when you sell your time – you allow your customers to use your time and the expected select service fee is a great example of the usage fee.
Subscription is a current transaction that customers get automatically, a great example of a lot of this is moving to subscription by the way. Netflix subscription, people order subscription boxes especially busy customers who don’t have time always remember to buy things. you see companies delivering subscription boxes of products that always come to your house all time promising to do this picture, medicine, or your prescription on a subscription to come to your house automatically.
Lending/Leasing/Renting – Lending if you have space, you have the equipment you allowed your customer to borrow what you have for a limited time for free.
Licensing. This gives customers the ability to use what you have from your own prophet or gain, a great example would be franchising, so they pay you for them to use what you have so that they can make money off it.
Brokerage fee here is there nothing to sell a brokerage fee is simply you pay someone to facilitate to a transaction. A great example is an insurance broker not exchanging any product or service they just helping facilitate to sell, real estate agents – that a great example.
Advertising this is advertising from customers, so if your customer finds value in what you offer and they want to promote their company with yours. Then you might sell them ads space or sponsorship or something like that and the customer can advertise with your company they pay you so they can advertise. This is not you advertising with customers, it’s the other way around.
Moving on the left-hand side of the business model canvas is Key Activities we’re gonna start there. This is the most important activity you need to do and order to deliver your value.
So the actions your organization must take to be in order to be successful. So that could be— if you are a restaurant the most important activity would be cooking — very simple — very simple thought here. If you are also in that restaurant, cooking, maybe serving, or cleaning, would the most important activities you have to do to deliver the value that you sell, that you need to deliver. These activities can be outsourced so they can happen with another company that can do this for you like you can hire a contractor to do your work or can keep the work in-house.
Moving on to Key Resources the most important assets required to deliver value. So for that same restaurant in order for them to cook and clean they need to have a building. They need to have some food or inventory and they may need servers. The key activity is serving — some restaurants don’t require to have servers because their key activity is not serving. So if you a drive-thru restaurant or a buffet the key activity is not going to be the server. So your resource does not have to be a server.
Types of Key Resources
Type of key resources could be physical resources like building or equipment, financial resources.
Every business needs money but the finance resources here is referring to financial resources needed to deliver sometimes financial value. So if you are a lending company or are you getting to banking and you said you are going to deliver loans of $500,000 of what happen you need to have loan money. So that what means with this regard– and again every business needs money. But we talking about key resources and necessary to deliver your value.
Intellectual resources, proprietary knowledge
Intellectual resources could be proprietary knowledge or brands. So let’s say, you do decide to franchise a well-known company — a well-known restaurant. Then, that brand is an intellectual resource or that business model or the road maps I gave you — that’s intellectual resources.
Human resources, are people that you need. Who do you need in business? Everyone does need a lot of people. So human resources are a key resource of that company. So again type of key resources would be physical, financial, intellectual, or human resources. Which one is most important for you?
Let’s move on to key partners. These are networks of suppliers or partners that make the business model work. These are generally companies outside of your company. They may provide supply. They may help you perform a key activity. They make help reduce some risks. They may help form customer relationships or they may help you with channels. They help you with something.
So, who are these key partners are for you? And if you really hold on to this to choose your partners you will see your business excel.
Cost structure – this the last component business model and is the most important cost that you are going to incur to drive or deliver your value proposition.
Examples of Cost
Salaries and wages
Examples of costs might be salaries and wages and this is connected to human resources that you may have.
Rent or mortgage
Rent or mortgage which is connected to physical resources you may have.
Product costs — phone, marketing, equipment — those are just examples. You gonna list all of your costs because many companies have all these costs. But what are the most important cost you’re going to incur to deliver value? And has you developing your business model– you will notice that everything needs to connect with something else on the model. And if doesn’t connect– then, ether doesn’t belong on this business model canvas, or you need to add something else to make it connect so nothing stand-alone, and I gave example here as we look for few case studies.
Business Model Canvas
So here is a map of the business model canvas that we will be using. It’s built with nine components. The value proposition in the middle of the business model canvas– and like to say its most important element. Because all the other elements are built base on the value proposition. So you always start in the middle — the value proposition.
And then, going to the right for customer segments, customer relationships, channels — by which how you deliver your value. Your revenue streams which is the cash that we receive from your customers.
And then, on the left-hand side, would be the key activities — what you need to do to deliver value.
Key resources — what you need to do to deliver value. Key partners — who do you need to work with outside of your company to help you deliver value. And then, the cost structure – where the most important cost that you going to incur to deliver this value that you set for business.
Everything on the right-hand side of this model canvas is directly related to customers. So on this side, we able to develop our marketing strategy.
On the left-hand side, of this model canvas is directly related to the operations. On the bottom, is you see the revenue streams — this is the financial piece. We’re not gonna talk about numbers, we are just talking about concepts of how are the financial structure will be built. How are our operation will be built? How are our marketing strategy in communication in a relationship of the customer will be built?
Let’s look at a case study and let’s look up them on simplest form of business and that would be a lemonade stand.
So Kelly has a identify the park that she can pull a lemonade stand and we see here her value proposition is simply cold, tasty, natural lemonade on the go. And the customer she working with or that she is targeting is not children– is not runners — is not parents — is not families.
She’s focusing on the park visitors. That everything that I listed — those are all people in the park. To identify the common characteristic for those I see people in the park and the common characteristics. They are all in the park so to simplify the customer segment that we talk about earlier. Find the common characteristics of all the people that you see would buy from you.
Find that common characteristic to help to find customer segments. So for Kelly who’s in the park — selling to runners, parents, children are customers segment will be park visitors. The relationship she will have with them is a personal type of relationship where she makes lemonade and delivers it to them personally.
When I say deliver, I say, they come to the lemonade stand and she hands it to them. They don’t make it for themselves or they don’t get it for themselves.
The channels, the mains which by she deliver the value and delivers it to them at the booth and she can deliver the value who is in her website. Revenue streams she makes money through lemonade sales and tips those to are two cash categories or sell categories.
Moving on left side key activities, The most important activities she needs to perform to keep this lemonade stand going is making lemonade, marketing it, and selling it when they get to the booth.
Key resources she needs ingredient to make lemonades so ingredient connects making lemonade. Sales people connect to the selling and boothing equipment of connecting where she needs to make lemonade. Salespeople also marketing connect to marketing and selling.
Key partners, who she needs to partner with? She needs to partner with the park – so municipalities. And co-structure where the most cost she points to incur she is gonna incur the cost of the ingredients to make lemonade.
The equipment that she needs to make lemonade. The salary — the commission of salespeople and the flyers for marketing.
See how everything connects. If there’s anything on your business model that doesn’t connect to something else is either out of place, doesn’t need to be there or something needs to be added. So that there can something to be connections.
UBER is another case of case study. UBER, the value proposition is supervised reliable transport convenient and additional income.
So for UBER– UBER has two customer segments. They have the person who need transportation and they have the car owners. So for this case study — this business model is color-coded. You can see that the people that need transportations there value proposition is reliable transportation and convenience.
They can quickly get a ride by going to their app. For the car owners who have the green back drop, the value proposition is also convenience and additional income. They can decide when they would work, wanna work to get a couple of more dollars in their pockets.
So UBER is called a multi-sided business model which means they have to have two customer segments. They have to have people who want to ride. They have to have somebody to drive them. So in order for this business model to work— they have two customer segments.
Their customer relationships are automatic or automated. They don’t talk to anyone personally to get the ride. They’re going to the app and they let people know or let the company know how well their ride was through the reading systems. So automated is their customer relationship.
The channels by which they get this value get a reliable transport, get convenient, get additional income is through the app or website. And again you can call UBER to get a ride. That’s the taxis model, this is the UBER’s model.
There revenue streams a company makes a percentage of from each ride. That’s how they make their money. So UBER makes some money and the driver makes some money out of each ride.
Key activities, platform development and supports. So really the key activity is to find what the company is. And even though UBER is in the transportation industries — its key activities are platform development and support. It is not driving — this makes UBER a technology company. Even though they’re in the transportation industries, it makes them a technology company because the key activities are highly related to managing the technology platform that they use.
They’re key resources — the technology platform. The networks of drivers and their brand. Now you starting out a brand is not that want to be the key resource for you but as you become a house whole name then you can use it as a brand key resource.
The key partners are the payment processor. How they get money so they use a…well actually i don’t know which payment process they use. But they have used some sort of finance like Stripe, or Paypal, so that they get money without the customer interacting with them. And their API providers help with tech platforms.
Cost structure. The most important cost they are going to incur is to manage this tech platform. So those costs– the marketing cost, and their personal cost. So these are a couple of case studies as an example. This model suit to help you build your own business model.