Tired of Business Plans? The Business Model Canvas Explained.
The U.S. Small Business Association (SBA) stresses the importance of a business plan for any entrepreneur to structure, run, and grow a small business. And most business plans run into one of two categories: traditional or lean start-up.
Traditional business plans are more common but can be lengthy and require additional work up-front because they encourage you to go into detail in each standardized section.
Lean startup business plans still use a standard structure but summarize only the most important points or key elements of the plan and are therefore shorter in length.
What if neither business plan is appropriate for you? How would you like a one-page snapshot to carefully vet new or existing small business ideas?
Good news! The business model canvas (“BMC”) may be your solution. It’s a simple one-page sketch and is an excellent alternative to a lengthy, traditional business plan. Think of fewer sentences and more visuals or bullet points.
Business Model Canvas Framework
In this article, I want to share a six-step framework for working through the business model canvas template. I’ll also share business model canvas examples to clarify the concepts. The six steps are as follows:
Start with customer segments.
Figure out your customers’ jobs, pains, and gains.
Turn your findings into products/services, pain relievers, and gain creators.
Focus on customer relationships, channels, and revenue streams.
Reflect on the key resources, activities, and partnerships that will enhance your business model.
Identify the cost structure.
Let’s dive in.
#1: START WITH CUSTOMER SEGMENTS.
Many business owners are tempted to make a product or offer a service that appeals to everyone. It seems counterintuitive, but focusing on a specific customer segment or group will actually increase your likelihood of success.
When a product or service is too general, branding and marketing become very difficult. Even companies that sell products that most of us need, like toilet paper, don’t actually consider everybody to be their target market.
Think about the Charmin’ Forever Roll (and no, this is not a promotion for Charmin’... I’ll leave my toilet paper preferences a mystery).
Who are their target customers?
Single Millennials, Gen Zs, and aging adults living alone in apartments are the target customers for Charmin’ Forever Roll. The appeal is only needing to change the roll once a month or so and optimizing storage in a small space.
The point here is this: trying to appeal to everyone really means that you stand out to no one.
In doing so, the product or service is so general that few people purchase it. Most start-up businesses lack brand recognition and a sizable marketing budget. Thus, the offering itself should be unique. Developing a target customer segment (aka niche) becomes critical for differentiation.
#2: WHAT ARE YOUR CUSTOMERS’ JOBS, PAINS, AND GAINS?
The next step of the business model canvas template invites you to get inside your customer’s head. Once you’ve identified one or two customer segments who can strongly benefit from your offering, focus on their jobs/duties, pains, and gains.
a. What does your ideal customer do regularly? Think about his or her stage of life. If it is a mother of young children, does she stay-at-home or work outside the home? What tasks does she have to complete each day? Outside of the functional aspects, there are social and emotional aspects too. How does your customer want to be perceived by others? Emotionally, what is your customer seeking – happiness, status, security, or pride?
Don’t focus purely on demographic information like age and gender. Go deeper with psychographics.
b. What are the pain points of your ideal client? What keeps her up at night? Which items annoy, frustrate, or challenge your ideal customer? What does she fear losing?
c. Finally, focus on gains. What would surprise or delight your client? Does she care most about saving time, money, or effort? A seventy-five-year-old widow likely has time but may not have the physical strength to renovate her home. She probably cares most about the effort you will put into the home renovation.
#3: TRANSLATE TO PRODUCTS/SERVICES, PAIN RELIEVERS, AND GAIN CREATORS.
Brainstorming and documenting ideas are critical throughout the business model canvas, especially within the third Value Proposition section. Take these discoveries and incorporate them into marketing and promotional materials.
What can you do to relieve your client’s stress? How can you help him or her sleep better at night?
Many of our purchases are fueled by emotion rather than a genuine need. When someone purchases a luxury car like a BMW, they could just as easily choose to purchase a more affordable vehicle like a Toyota. They are choosing luxury for a reason. Perhaps they perceive that a BMW better demonstrates power or affluence.
BMW will not be marketing to the same group of customers as Toyota. They are two different markets. Their perceived pain points (and thus pain relievers) will vary.
Elements of a value proposition should be focused on the transformation a customer will experience after he purchases your product or service.
#4: FOCUS ON CHANNELS, CUSTOMER RELATIONSHIPS, AND REVENUE STREAMS.
a. Business model canvas channels are the avenues to increase awareness among customers, deliver your product or service to the client, and provide post-purchase support. Think about how each customer segment wants to be reached, not just how you prefer to reach them.
For example, I contemplate offering online classes on personal finance topics. However, financial planning is a relationship-focused offering, and my ideal client may not want to interact through an online classroom.
Here’s another example. Dentists are confined by geography since customers are unlikely to drive more than 30 minutes to a dental office. If the dentist is trying to gain more customers, he is unlikely to be successful by hosting a podcast or posting videos to Tic Tok because those audiences are international. The dentist will increase his chances of success through local marketing strategies, such as an advertisement in a church bulletin or sponsorship of a local race.
b. Customer Relationships focus on the level of automation or personal attention your offering provides. If you’re selling a food product to individual consumers, your level of direct interaction with the purchaser will be limited.
Offering a one-on-one service entails a much deeper relationship with clients. For instance, I know the names of my clients, their children, occupations, and ages in my work as a CPA financial planner. People share their hopes and fears with me. If I were instead hosting an online group program, I would be lucky to know the spouse’s name of my customer.
Even if you cannot personally attend to all customers in your scalable business, it may be advantageous to create a community of people who are passionate about your offering. Consider a Mighty Networks group whereby members, with the right prompting from your team, will support and hold each other accountable.
c. Revenue Streams are your sources of income. In service industries, recurring revenue is a desirable revenue stream example and is typically better than a transaction-based, hourly model due to cash flow consistency. Cash flow is king, especially in the early days of business.
Product-based businesses can replicate this type of revenue stream by offering subscription boxes or mandatory refills. I’ve been using the same eco-friendly laundry detergent for years and am automatically sent a new box each month. The likelihood of me leaving that company is low unless the product no longer works or delivery issues arise. If I buy detergent at Target each month instead, I’m likely to switch brands depending on sale prices.
#5: REFLECT ON THE KEY RESOURCES, ACTIVITIES, AND PARTNERSHIPS THAT WILL ENHANCE YOUR BUSINESS MODEL.
a. Key Resources - Which physical, intellectual, human, and financial resources underpin your business model? Which assets are essential? Service-based businesses rely heavily on the professionals providing the service, so key resource examples include human capital and intellectual capital. Product-based businesses, however, depend on capital equipment and supply chain consistencies. Unless hiring for an upper management role, product-based businesses pay little attention to the educational or professional background of employees.
b. Key Activities – What actions must your company take to create long-term value for its customers?
As small business owners, we sometimes find it difficult to separate the forest from the trees. Are you spending too much time on an activity that isn’t making your customer’s life better? Or are you shortchanging customers by spending too little time on an activity that will bring meaningful transformation?
My hope is that you started your business because you were trying to solve a customer’s problem in a better, more efficient way. As the business grows, it is important to reflect on your core strengths and consider how you are using them to benefit customers. Pinpoint your personal areas of weakness and leverage technology to minimize the amount of time you’re spending on mundane tasks, or hire outside help if that activity supports the end client.
c. Key Partnerships – Which vendors do you rely upon for support? Are there any strategic alliances you can create with non-competitors to increase visibility?
Think about the small businesses that are offering ancillary services to the same target customer segment. For example, I often refer work to estate planning attorneys or insurance agents when my clients are lacking appropriate legal documents or insurance coverage. We do not have any financial agreement for these referrals; I’m simply identifying other professionals who I know, like, and trust to take care of my client’s specialized needs.
Similarly, I co-hosted a webinar in 2021 with Jason Myhre, Executive Director of Eventide Center for Faith & Investing. We helped both existing and prospective clients understand the impact they have as investors. This collaborative, key partnership allowed us to reach more biblically-responsible investors than we could on our own.
#6: IDENTIFY THE COST STRUCTURE.
Think about the key factors that impact your costs. Explore both fixed and variable costs.
Fixed costs are a necessary part of doing business. Once you’ve signed a lease agreement, you must pay rent (and often utilities) until the agreement expires — or you will face fines. Equipment leases also fall into this category due to the contractual nature of the expense. These predictable expenses often run the same dollar amount each month.
Variable costs, on the other hand, can fluctuate from month to month. In an optometrist’s office, more exams typically result in more eyeglass and contact lens prescriptions, which usually lead to a higher cost of goods sold. Payroll expenses vary as well due to employee turnover and the timing of paycheck distribution (i.e. biweekly payroll hitting three times rather than twice in a long month).
I’m only providing a handful of cost structure examples. Expenses are often industry-specific and should be evaluated through the lens of your small business.
Recap of the Six-Step Framework
To recap, the first four steps of the business model canvas framework – Customer Segments, Value Propositions, Channels, and Customer Relationships - focus on the offering itself, and how desirable it is to others. Key Resources, Activities, and Partnerships (Step 5) explore the feasibility of your offering. Finally, Revenue Streams and Cost Structure dictate the viability of your offer.
Now that you have a completed business model canvas, look at it holistically. It should provide clarity to either move forward with the concept or pivot to a new model. Don’t spend time spinning your wheels on an offering that won’t sell. Be proactive with the Business Model Canvas!
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