College of Engineering - Purdue University



This presentation will explain the business model canvas.Business model canvas is explained in this book: Business Model Generation. The business model canvas asks nine essential questions about every business. We will take an overview of the canvas and then get into the details of each question.At the center of the canvas is the Value Propositions. This question asks what you can offer to customers. Why do customers come to your business? Why are you special? How can you beat your competitors?Let’s move to the right side of the canvas. Who are your customers? Are your customers individuals or organizations? Do you focus on specific age groups? Do you have customers in different countries speaking different languages?At the right side of the value propositions, the question is Customer Relationships. How do you acquire and keep customers? How do your customers know your business? What do you do to add more customers?Below is the channels. How do you deliver your products? How do you communicate with customers? Do you sell physical products such as shoes, or intangible products such as Internet connections?At the left side of the value propositions is the Key Activities. What do you actually do? Do you spend a lot of time making your products because all customers buy the same products? Do you spend a lot of time talking to customers because each customer wants something unique?The next question is the resources you have or need. Do you have physical resources like factories or delivery trucks? Do you have intellectual resources such as patents? The left side are your partners. These may be your suppliers. These may be your competitors but you form an alliance to expand the market.The bottom of the canvas talks about the financial aspects of your business. The left side is the Cost Structure. This question asks you how you spend resources. If you own delivery trucks, for example, you have to pay the trucks’ maintenance and fuel. If you have a department for research and development, you have to pay the cost of human resources.At the right bottom is the revenue streams. This question is about how your business acquires resources. Do you sell product once and get the money? Do your customers pay fees every month? If you own a hotel, customers pay when they use rooms.The answers of these nine essential questions define your business.Now, let’s get into more details and see some examples.The value proposition is the reason customers come to your business. There may be many possible reasons and often customers come for multiple reasons. Here are some examples. Maybe your business is known for the design style. Maybe your shoes are particularly comfortable. Some customers look for brand and recognition as symbol of status. Convenience is a major reason of fast food restaurants. Convenience is also important for travelers short of time. Your business may emphasize that your customers are very satisfied at your products. You may offer refund if customers are not satisfied. Some products focus on the health benefits. Some other products give the image of luxury. Of course, many businesses aim to help customers save money.Let’s move to the customer segments. Who are your customers? How are your customers different from the entire population? Your customers may be differentiated by their ages. For example, maybe your customers are mainly pre-school children. Maybe your customers are mainly teens or retired people. Your customers may be university students. Your customers may have specific occupations, such as musicians. They may in specific geographical regions. For example, your business may focus on the West Coast of the United States, or the Pacific Asia area. Your customers may have special, short-term, needs. Maybe they are sick in hospitals. Maybe they are traveling. Your customers may be identified by their income levels, such as families with 50,000 to 200,000 annual incomes. Of course, customers may be organizations, not individuals. If your products are passenger airplanes, your customers are airliners. If your products are semi-trucks, your customers are delivery companies. If your products are elevators, your customers are construction companies. After knowing who your customers are, you need to think about how to acquire the customers. How do you communicate with your customers or potential customers? Maybe you send emails to them? Maybe you put advertisements on a busy street. Maybe you provide free tasting in a grocery store. Many grocery stores send coupons to potential customers’ homes. You also want customers to come back and purchase your products again. Many businesses have customer loyalty programs. For example, if a customer has spent certain amounts of money, the customer can get a gift of some kind. Airlines allow customers to accumulate miles for get discount tickets later. Some businesses suggest customers to buy something that may be of interest. For example, if you buy a book, the seller may suggest another book by the same author, or another book on a related topic. Many businesses have referral discounts: if you introduce a new customer, you get some types of rewards.The question of channels is about how you deliver values to customers. Imagine that your business makes drinking products. Customers may purchase from grocery stores, vending machines, or restaurants. If your products are tires, customers may purchase through car repair shops. If you make medicine, your channel may be prescriptions written by doctors. Customers may order online and receive your product through delivery services. Your products may go through wholesale and retailers. In the past twenty years, electronic delivery becomes increasingly common. Streaming video is one example. The key activities section describe what your business actually does in order to create values to customers. Do you design and manufacture products? Let’s imagine what an airliner may do. They need to fly airplanes, add fuel to airplanes, maintain and repair airplanes, and obviously check customers in to board flights. Does your business need to talk to customers often and understand their needs? Do you often need to negotiate deals? Do you have a research division that invents new products? Do you apply for patents to protect your inventions? If your business is to repair water leak, you often need to enter customers’ houses to deliver your services.Your business will likely have many partners for different purposes. For example, your suppliers are your partners. If your business is an airliner, your partners include airplane manufacturers, fuel companies, the companies that provide the checking kiosk and software. You may form an alliance to expand your market reach. For example, many airlines form alliances in order to reach wider markets. Your business may focus on the routes in the North America and your partners may offer routes in Asia or Europe. Sometimes, companies in very different areas work together to develop new technologies. For example, a power company and a car manufacturer may partner to create better batteries. Another type of partners are formed by competitors to help the entire industry. For examples, different airlines may work together to set new standards for safety.What resources do you have or need in order to provide values to customers? Resources can be tangible or intangible. Tangible resources may include factories, land, office, vehicle, machine, laboratory, etc. Intangible resources may be the patents you have to protect your inventions. For many businesses, their customers are critical resources. For example, social networks rely on customers to connect to one another and grow their customers. Capital is another important resource. If your company can provide finance programs to customers, these customers may be more inclined to purchase your products, instead of your competitors’.At this point, you should have a very clear idea where your business need to spend money. This is called the cost structure. If you own a factory or a fleet of vehicles, you need to spend money to keep them running. If you have employees, you have to pay their salaries and benefits. If you have an office, you need to pay rent and utility. Some costs are easy to predict and these are called fixed costs, regardless of your other activities. For example, the rent of your office is the same every month, regardless of seasons. Some other costs may vary by seasons. For many businesses, the unit cost decreases as the volume increases. This is called the economy of scale. Some other businesses can benefit by selling different types of products. For example, if you own a delivery company. If you expand from deliver mail and packages to delivering furniture, you may be able to take advantage of the economy of scope. After knowing where your company spends money, it is natural to ask where your company can reduce the cost. This is one of the main reasons why companies invest in technologies. Technologies may offer the advantages of improving processes and reducing costs.The final question in the Business Model Canvas is the revenue stream. This asks the crucial question: How does your company make money? There are many ways companies can make money. One common method of making money is to sell things on store shelves. You can go to a grocery store, take a box of cookies and pay. Another is the usage fee. Car rental companies operate on this revenue stream. You drive a car for a few days. A hotel room is similar: you pay for the days you stay in that hotel. Another revenue stream is the subscription fee. Your mobile plan is an example. In recent years, cloud storage is very popular. You pay about one hundred dollars a year to get one or two terabytes of storage space in the cloud. Rent and lease is another form of revenue. This usually involves a longer-term commitment, such as one or two years, in exchange for lower daily costs. Licensing fee is common for using patents. A company uses your inventions and pay you money. Brokerage fee occurs as the service to facilitate transactions. For example, when you use a credit card to purchase, the credit card company charges a fee to the vendor because the credit card company provides the convenience. After explaining the nine essential questions in the Business Model Canvas, I hope you have a better understanding about how to organize your business. Of course, many businesses are very complex and need far more discussion than what I can offer in this short video. I encourage you to read the book and fill the Business Model Canvas for your business. The canvas will help you identify new opportunities and improve your business. ................
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