Stories of business plans written on the back of a beer mat or sketched out in a restaurant on the back of a napkin are the stuff of legends. Though this seems bizarre to those of us who are used to concepts running to several hundred pages with extensive appendices on performance indicators and financial indicators, it can actually be helpful to reduce everything to the bare essentials when evaluating a business idea. Once the idea is created, it must be shaped and evaluated, all as quickly as possible to keep the time-to-market to a minimum to gain a head start on the competition. One current method for structured finetuning and development of an idea is the Business Model Canvas (BMC). This method is used to condense the process as far as possible, and also to visualise the idea, resulting in a basis for discussion which fits on one single page.
“The Business Model Canvas method is used to create a robust, successful and sustainable business model from a single idea.”
In the course of business modelling, target customers are segmented, the value proposition worded and the channels through which the company can present its value proposition to customers are identified. The cashflows are also analysed: Where must money be invested and where is profit generated? Where can money be saved? The core issue is how can a solution be found to a specific customer requirement, and how can this solution be designed so that it can earn revenue?
The Business Model Canvas is ideal for describing an existing business model in a concise format, for creating a general understanding of the core business and for developing insights for its further development, including adaptation of new ideas. It is also a powerful communication tool for showing the function of a new business model. Various stakeholders who have their own views of the priorities and need to implement an idea must be involved in the development and elaboration of new business models. The fact is that a new business idea can lead to disruption, and therefore understanding and acceptance must be supported throughout the company.
The Business Model Canvas shows how the business model can work as a whole and how its individual elements can interact. To do this, the company and its products are broken down into basic components, and these are visualised in the form of a pre-designed poster. Using the compact, concise format, the key business model assumptions can be recorded as sketches and handwritten text during a meeting. The participants can sketch out a concept chart in the literal sense without losing key elements. Time can then be taken to compare the raw concepts and to evaluate their commercial benefit. This tool also helps to prepare a business idea to be presented to management for a decision on implementation. The method is simple to apply and follows the approach of “fail fast, fail early, fail often” for the more agile the environment the quicker the feedback, and the shorter the feedback loops the steeper the learning curve. This produces pragmatic solutions for future innovation quickly and with a minimum of effort.
“The Business Model Canvas is an extremely efficient tool, enabling you to concentrate on the essentials when developing new business ideas.”
A cautionary note: although the method and the resulting business model sketch appear to be clear and schematic, a certain expertise and experience is needed to control and manage the multi-level process needed to scrutinise, evaluate and refine a business idea. Ideally this management task should be handed over to an impartial external expert who has no qualms about addressing the “pain points” from an objective viewpoint. The expert must get the right people on the right levels to join the team, ask the right questions and encourage all those involved to be creative. This expert therefore needs a broad knowledge of interactive techniques and a good sense of how this can be individually and flexibly tailored to the specific company and its needs. The consultant should also have knowledge of the upstream and downstream phases in the innovation process and have the right tools to hand for each step, therefore enabling the customer to create commercially viable and profitable business models, starting with the idea itself to its validation and right through to the engineering (FIG. 3).
While the method alone cannot develop a sound, successful business model from an idea, it does specify a structure that a skilled consultant can use to fill with the necessary tailored content, depending on how far the customer has progressed with the idea.
Example 1: USING THE BUSINESS MODEL CANVAS (BMC) TO PREPARE AN ORGANISATION FOR DIGITALISATION
A non-governmental organisation (NGO) needs a new, cutting-edge website. Since this is a highly operational need, we are engaged to search for a suitable partner to implement the idea. In meetings on the objectives and expectations of the new online presence, it is quickly found that there is no broad understanding within the NGO on the purpose and performance of such a presence. In order to address the homepage properly from the outset, it is considered important that the business model itself and the individual services for various customer groups are scrutinised and developed. A further difficulty lies in the fact that the NGO is faced with a trend towards professionalisation and commercialisation in its sector, which is still not seen as relevant to what it does. A series of workshops is arranged in which – together with the board members – the sector, the recipients of the non-profit services and the services themselves discuss and evaluate the cost structures, income streams and measures to optimise resources and activities. By applying the Business Model Canvas, a business model is gradually developed, visualised on an A0 poster and displayed in a central location. The business model is fine-tuned in front of the poster or in passing during daily work; additions are noted on Post-It notes and elements are rescheduled and reassigned. Following these discussions, the resulting business model is summarised on one page (FIG. 4).
At a glance it becomes clear which audience is being addressed by a service, what sort of image is being portrayed and which value proposition is being made. In the meantime, the website goes live. Yet the Business Model Canvas has produced new channels and measures from the business model presenting a cost-benefit optimised corporate image to the public.
Example 2: DEVELOPING NEW MARKET OPPORTUNITIES WITH THE BUSINESS MODEL CANVAS (BMC)
The market sector outlook for a high-tech industrial enterprise is somewhat negative. Falling sales and a reactive customer relationship places the business model under scrutiny. As an external consultant engaged to find a solution, we start with a root cause analysis. Industry knowledge as well as technical expertise are brought to the table – and in particular the innovation process from ideation to development, right through to service design and concept creation is covered. An integral part of this process is the development of various models by the BMC method with regard to their effects on the business model. All Business Model Canvases are distributed during the decision-making process and discussed in regard to their advantages and drawbacks for business development. All relevant company stakeholders – management, marketing, Chief Innovation Officer, R&D, finance and sales – are always involved in this discussion to obtain a broad view. The processes are managed with a number of workshops and the customer is enabled to build up its own problem-solving expertise. A solution is finally agreed on with the help of the individual Business Model Canvases; detail is added to the solution and prepared for the Management Pitch. The result is an application based on the final concept which improves the interaction between company and customer as an advanced service and creates new market opportunities.
