This blog will explain what a BMC is and a step-by-step explanation of how to define a business model with this famous canvas. To learn more about business models I recommend the following blog: Types of business model in less than 800 characters.
What is BMC and what is it for?
BMC is an acronym of the words Business Model Canvas; in Spanish it is called lienzo de modelo de negocio. The BMC is a tool to show how the organization captures, delivers, organizes, and creates value. It is an essential tool for creating business models. With the help of this tool, the main aspects of the business idea that are necessary for the project to work properly are described. The main components of a BMC are explained below.
- What is BMC and what is it for?
- Essential components
- Step-by-step explanation of the BMC
The business model canvas can be designed with multiple aesthetic variants. But there are certain main components that the tool must have so that the business model can be created in a satisfactory way. In addition, it must be defined in a way that makes it truly clear what the business idea and the value proposition with the customer is. The main components are these 3:
- Cost Center
- Value Proposition
- Profit centre
Step-by-step explanation of the BMC
In the picture above you can see a gift that represents your company's value proposition to the customer. Everything to the right of this gift corresponds to the profit center and everything to the left corresponds to the cost centers. Below is a more detailed diagram of how these components are divided and what questions need to be answered:
- Value Proposition: What customer problem is being solved and how?
- Cost Center
- Key Partners: Who should you partner with to deliver and create a solution?
- Key Activities: What actions must be taken to create and deliver a solution?
- Key Resources: What is needed to produce and deliver a solution?
- Cost Structure: What are the components involved in the business model and the cost associated with each component?
- Profit Center
- Customer relationships: How do we acquire new customers? What would be the desired customer relationships in the business model?
- Customer segments: To which groups of people do we want to offer our solutions?
- Channels: How do you deliver your solution to your customers? Where can customers find your solution?
- Revenue streams: How do you generate revenue?
What is the best way to use the tool?
While the use of this canvas does not have a rigid structure that prevents, for example, a preliminary brainstorming that allows for a better design of the business model, the questions where the organization is clearer about its business model can be answered. You could even answer the questions where the organization is clearer about its business model, and once the confidence to provide ideas grows, you could go into the questions that require a more detailed analysis. Even so, I recommend that when creating your first BMC you follow the steps below:
1. Choosing customer segments
A useful strategy for segmenting customers is to group them according to their needs, the channels they can be reached through and the different types of offerings or relationships. In this way you are also creating ideas for the other sections and have a very orderly way of understanding the customer.
2. Define the value proposition
What features and benefits are created for the customer of the segment(s) specified in the previous step? It is recommended to use the following criteria to justify the value proposition:
- Novelty: How novel are the products and services offered.
- Performance: What is the quality and speed that increases the value of the business model.
- Customization: How customizable are the services and products offered.
- Design: How our design differentiates us from the competition.
- Price: How high or low the price will be (depends on the chosen business model).
3. Choosing channels
Channels can be very varied; they can be partners' or own and simultaneously direct or indirect. Channels exist in the different stages of the customer journey. In the Buyer Journey these three stages are Awareness, Consideration and Decision.
4. Establishing the customer relationship
Customer relationships are of utmost importance to deliver, reach and communicate the value proposition to our customer. In this section it is necessary to determine how new customers are acquired and which relationships are in line with the solution that the company needs to deliver.
5. Determine revenue sources
How is the company generating revenue for each client, is it recurring revenue or does the client pay only once for the solution? The clearest examples of revenue generation are:
- Sales: The company sells a product or service for which the customer will owe a one-time payment.
- Subscription: This is a recurring payment for a specific service.
- Pay-per-use: This is like subscription; it is a recurring payment. But the cost of this varies according to the customer's usage.
6. Determine key resources
Resources are everything that is needed to successfully carry out the business model. They can be divided into: Physical, Intellectual, Human and Financial.
7. Establish the core activities
These are all the tasks to carry out a business model that provides the target user or customer with a solution to their problems.
8. Choose key partners
This includes the stakeholders, the network of suppliers and partners needed to carry out the business model. Some factors that make the business model need a partner are: Optimization of economies of scale, risk reduction and the acquisition of resources or activities especially by outsourcing companies.
9. Differentiate the costs incurred in the business model
Finally, to run a successful business model you need to ensure financial viability. For this it is necessary to divide the operating costs as follows: Fixed Costs, Variable Costs. In addition, economies of scale, cost minimization and premium value propositions that generate the maximum possible value must be considered.
In conclusion, the way you do your BMC should not be rigid at all but following a series of steps ensures that the process is sequential and logical. This makes the design process a high value activity.
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