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hello and welcome to today's lesson
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where we're looking at the business
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model canvas now in this video we'll
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examine the nine steps needed to create
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your first business model and we'll look
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at some examples to bring the theory to
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life but Before we jump in and look at
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the canvas let's just take a brief
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moment to define what we mean when we
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use the phrase business model so a
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business model is defined as a plan for
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the successful operation of a business
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identifying sources of revenue the
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target customer base products and
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details of any financing now essentially
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it tells us how the key drivers of a
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business fit together now if you think
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about writing all this down in a
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document such as a word document then
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it's obviously going to require multiple
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pages to capture all of that information
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now if you think about trying to get all
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that information you've just captured
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into your brain and playing with this in
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your brain then it's a really
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complicated and confusing task and it's
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really easy to see why people get
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overwhelmed when thinking about business
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models and that's where the business
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model canvas comes in it gives you a way
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to create a pretty clear business model
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using just a single sheet of paper and
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what is great about it is that it can be
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used to describe any company from the
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largest company in the world to a
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startup with just a single employee so
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why would we want to use a business
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model canvas well we've just touched a
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Polish that it can describe a business
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model in a single sheet of paper and
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that's the first point here that the
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business model canvas is easy to
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understand but it's also focused it
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removes all the fluff that might have
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been present in a traditional business
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model it's all killer no filler it's
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flexible because it's quick and easy to
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make changes to your model and sketch
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out new ideas its customer focused and
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that's because it forces you to think
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about the value you're providing to your
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customers and only then what it takes to
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deliver that value
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it shows connections so the single page
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and graphical nature of the canvas shows
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how the different
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parts of the model in to relate to each
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other and that's something that's really
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hard to understand from a traditional
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business plan and finally it's easy to
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communicate and again that's because the
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canvas is so easy to understand you'll
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be able to share and explain it easily
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with your team making it easier for them
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to get on board with your vision so here
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in this diagram you can see a business
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model canvas a blank business model
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canvas and that canvas is made up of
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nine building blocks so the first one we
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have is customer segments and that
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answers who are your customers then we
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have value proposition and that answers
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why do you customers buy from you what
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is the game that you provide or the need
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that you satisfy then we have channels
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how are your products and servers
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services delivered to the market then we
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have customer relationships how do you
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get keep and grow your customers we have
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revenue streams how does your business
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earn money we've got key resources and
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that answers the question what unique
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strategic resources does your business
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have or does it need we have key
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activities what unique strategic
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activities does your business perform to
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deliver your value proposition we have
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key partnerships what non key activities
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can you outsource to enable you to focus
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more on your key activities and finally
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we have cost structures what are the
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major costs incurred by your business
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now before we take deeper into each of
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these elements there is one thing you
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should be aware of and that is that
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broadly speaking we can say that
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elements on the left-hand side of the
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business model canvas represent costs to
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the business and similarly elements on
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the right-hand side of the can this
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represents revenue for the business or
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they generate revenue for the business
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so with that let's dig into each of
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those building blocks in a little bit
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more detail so the first building block
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is customer segments and in this
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building block you enter the different
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customer segments
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you will serve one really important
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point to get across here is that
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customers don't exist for you but rather
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you exist to serve your customers and
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many business will serve just one
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customer segment but not all so for
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example Google serves two customer
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segments obviously it serves people who
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perform searches but it also serves
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advertisers the next building block is
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the value proposition and this describes
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the value that you deliver to each
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customer segment what problems do you
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solve for each segment what needs do you
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satisfy and the value proposition
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answers the question why will customers
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buy from us now some of the most common
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value propositions are shown here things
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like it's the most high performing
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product the design of the product is
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fantastic or the brand is really strong
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or it's really competitive around price
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but there's lots of others too so the
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third building block is channels and
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these refer to how your products or
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services are sold to customers ask
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yourself how do customers want to be
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reached or even how are you reaching
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them right now now broadly speaking you
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can either have your own channels or you
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can partner with someone else who has a
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channel so your own channel your own
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channels might include any combination
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of things like stories you own a sales
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force you employ or even your website
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partner channels could include a
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multitude of options so for example
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using a wholesaler or maybe working with
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affiliates or even using Google AdWords
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to advertise on Google the fourth
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building block is customer relationships
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and this answers the question how do you
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get keep and grow customers so when we
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say get we mean how do customers find
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out about you and make their initial
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purchase decision so for example as we
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just said you could advertise through
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Google keep how do you keep customers
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once you've got them so for example
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excellent customer service might help
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you to keep your existing customers grow
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when we say grow we mean how do we get
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your customers to spend more so for
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example you could send out a monthly
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newsletter to keep them informed about
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your latest products or your latest
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services now the easiest way to define
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all this is to walk through the entire
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customer journey in detail and that is
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to define you know how do customers find
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out about you how do they decide whether
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to investigate your product how do they
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buy your product and then how are they
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managed after they've made the purchase
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the fifth building block is revenue
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streams where does the money come from
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and this might sound really super simple
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but it isn't so what you're actually
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trying to figure out is what strategy
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you'll use to capture the most value
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from your customers and in a practical
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sense there's a bunch of ways you could
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do this so will customers pay a one-time
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fee will you have a monthly subscription
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fee perhaps you give away your product
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for free like Skype does and hope that
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some portion of your customers upgrade
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to your premium product so let's just
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take a step back for a moment if you
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look at what we've done so far we've
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filled in our value proposition and all
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the building blocks to the right of it
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and in a nutshell we've developed our
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understanding of everything that relates
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to our customers but now what we need to
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do is obviously fill out the left side
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of the value sorry of the business model
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canvas so we need to build our
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infrastructure so that we're able to
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provide the value proposition to
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customers so with that let's move on and
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look at the next building block key
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resources so this building block
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describes your most important strategic
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assets that are required to make your
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business model work now broadly speaking
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resources can fall into one of four
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categories you have physical resources
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such as buildings vehicles machines
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intellectual resources brands and
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specialist knowledge you have or patents
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and copyrights Human Resources so
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sometimes your people will be your most
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key resource and that's particularly
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true in the
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creative industries you could have
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financial resources such as lines of
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credit or cash balances the seventh
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building block is key activities and
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these are the most important strategic
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things you must do to make your business
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model work now key activities should be
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directly related to your value
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proposition and if they're not then
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something is wrong because the
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activities that you view as being most
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important in your business aren't
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actually delivering any value to your
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customers the eighth building block is
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key partners and in this block you list
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the tasks and activities that are
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important but which you're not going to
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do yourself instead you'll use suppliers
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and partners to make your business model
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work so as an example think about
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Spotify Spotify Ski activity is probably
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updating their platform however as it
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doesn't produce its own music one of the
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key partnerships of Spotify will be the
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deals that it strikes with record labels
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and publishing houses you know without
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those deals there literally wouldn't be
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any music in Spotify so the final block
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of the business model canvas is cost
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structure and this is where we map key
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activities to costs we want to ensure
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that costs are aligned with our value
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proposition now it should be
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straightforward to determine your most
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important costs and your most expensive
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costs after you've defined your key
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resources your key activities and your
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key partnership so that's the theory of
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the business model canvas out of the way
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but let's take a look at some real
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examples so you really get a feel for
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how it works so the first example we're
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going to look at is Google and the first
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thing you should know about Google's
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business model is that it's multi-sided
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now that means that it brings together
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two distinct but related customers and
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in Google's case it's people who use the
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service for free people who perform
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searches and people who pay to use
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Google searches people who want to
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advertise so from the diagram we can see
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that Google
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makes money from the advertiser customer
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segment whose ads appear either in
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search results or on webpages and we can
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see that that money subsidizes a free
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offering to the other two customer
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segments those of search users and
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content owners now Google's key resource
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is obviously its search platform and
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that includes Google com it includes
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Adsense for content owners and AdWords
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for advertisers
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now the key strategic activities that
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Google must perform are obviously
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managing its existing platform including
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a really large infrastructure which is
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needed to support that platform its key
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partners are content owners from which a
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large part of its revenue is generated
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that's indirectly obviously advertisers
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generate the revenue but they wouldn't
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make that revenue without the content
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owners now other partners our OEMs or
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original equipment equipment
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manufacturers and OMS are companies who
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produce mobile handsets to whom Google
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provides its Android operating system
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free of charge
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now in return when users of these
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handsets search the internet they use
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the Google search engine by default just
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bringing more users into the ecosystem
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and generating even more revenue so the
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second model that we're going to look at
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is that of Skype and from the business
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model canvas you can see that Skype has
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two key value propositions so the first
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is the ability to make calls over the
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Internet including video calls for free
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and the second is the ability to make
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calls to phones cheaply
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now Skype operates what's known as a
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freemium business model and that just
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means that the majority of skypes users
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use the service for free to make calls
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over the internet with just about 10% of
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users signing up for the premium prepaid
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service
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now we can see from the customer
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relationship building block that
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customers typically have a helped them
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self relationship with Skype and
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typically this means they're using their
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support website the channels Skype uses
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to reach its customers are its website
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Skype comm and partnerships with headset
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brands now if we look at key
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partnerships key activities and key
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resources together the main thing to
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notice collectively about these things
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is that Skype is able to support its
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business model of offering cheap and
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free calls because it doesn't have to
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maintain its own telecommunications
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network like a traditional telecoms
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provider would have to Skype doesn't
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need that much infrastructure at all
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just back-end software and the servers
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hosting user accounts and that's how
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come it's able to offer this unique
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value proposition to the customer
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segments that it serves now the third
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example we're going to look at is that
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if Gillette and Gillette business model
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is based on the bait and hook business
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platter or business model pattern and
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that pattern is characterized by an
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attractive inexpensive or even free
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initial offer that encourages ongoing
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future purchases of related products or
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services now within this business model
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the base is often provided at a loss
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subsidized eventually by the hook so in
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Gillette case they offer an inexpensive
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razor handle and that's the bait and
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then continued purchases of the blades
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represent the hook so this business
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model is also very popular in SAS
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businesses a software-as-a-service
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businesses where typically a free
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initial month leads to a monthly
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subscription so in the diagram here you
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can see that we've used the thickness of
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the arrows to indicate where the revenue
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is coming from so as you can see here
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all revenues are
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Rashaad by just a single customer
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segment customers but within that the
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vast majority of revenues come from
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frequent blade replacements with just
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minor revenues coming from the purchase
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of handles
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now if you look at the left hand side of
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Gillette's business model canvas you
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will notice now all major costs are
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aligned with delivering the value
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proposition so for example marketing
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costs help to build Gillette's strong
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brand and R&D costs help to ensure that
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the blade and handle technology is
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unique and proprietary so in summary the
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business model canvas provides a way to
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show the key elements of any business
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model on a single sheet of paper the
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canvas is based on nine building blocks
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and the interrelationships between them
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now through the examples that we looked
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at you should be able to see just how
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easy it is to represent the complete
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business model of any company on just
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one single sheet of paper so that's it
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for this lesson I really hope you
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enjoyed it and I look forward to
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speaking to you again soon
