Today we will learn about the business model. We have a business idea and preparing the business model is the next step. We will use the business model canvas of nine business model building blocks developed by Osterwalder and Pigneur and presented in their book in 2009.
WHAT IS A BUSINESS MODEL?
A business model describes how an organisation creates, delivers and captures value. The nine business model building blocks of the business model canvas show the logic of how a company intends to make money. The building blocks cover the four main segments of operations:
• And financial sustainability.
The first building blocks are customer segments (CS)
- A company serves one or several customer segments – mass market, market niche, etc.
- E.g.: a group of teenagers buying a specific brand; apple users
The second building block is value proposition (VP)
- It solves customers’ problems
- E.g.: price, speed of service, design, functionality, etc.
The third building block are channels (CH)
- Value propositions are delivered to customers through communication, distribution, sales channels
- E.g.: own stores, online store, agents, wholesalers, etc.
The fourth building block are customer relationships (CR)
- These are relationships that the company establishes with specific customer segments
- E.g.: personal sales, self-service, automated services, co-creation, communities, etc.
The fifth building block is revenue stream (RS)
- It shows how a company generates cash flow, how it makes money
- E.g.: use of assets, user fee, membership fee, commission, advertising, loaning, leasing, renting, licensing, etc.
The sixth building block are key resources (KR)
- They answer the questions of what we need to make a business model work
- E.g.: intellectual capital – know-how, patents, licences, human, physical and financial resources
The seventh building block are key activities (KA)
- They answer the questions of what the company needs to do to make a business model work
- E.g.: problem-solving, product development, supplier management, manufacturing, sales, marketing, etc.
The eighth building block are key partnerships (KP)
- Some activities are ensured through partners (outsourced), some from the company
- E.g.: a network of suppliers and partners enabling the functioning of the business model, e.g. strategic connections between competitors, non-competitive companies, joint companies – all so as to optimise operations
The final, ninth, building block is cost structure (CS)
- It describes all costs incurred to operate a business model – from payment for patents, salaries, payments to suppliers for inventories of material, advertising, interests on loans, rent, etc.
Example of a business model – Apple, iPod/iTunes
• Key partners: record companies
• Key activities: hardware design, marketing
• Key resources: the apple brand, people, itunes software, ipod hardware, content and agreements
• Value proposition: endless music experience
• Customer relationships: lovemark
• Channels: retail, apple.come, apple stores
• Customer segments: mass market
• Revenue stream: revenue from hardware sales, revenue from music
• Costs: employees, manufacturing, marketing and sales