What Does Your Business Model Look Like?

Photo Courtesy of www.istockphoto.com

A picture is worth a thousand words. But have you ever painted a picture of the way your business works?

Unless you’re an entrepreneurial Picasso, this might sound like a daunting task. You might find yourself staring at a blank page, wondering how to visualize concepts like business channels and revenue streams. It might even be unclear what elements of your business you should include. But if you were able to paint an accurate picture, the benefits would be many; a visual business model can help you:

• Focus on the critical, make-or-break questions
• Spot potential opportunities and areas of weakness
• Test your assumptions and improve your existing approach
• Experiment with new strategies

Enter a simple and innovative new concept called the business model generation canvas. This canvas – available as an iPad app and a downloadable PDF – combines nine elements to create a common-sense overview of your business and the way it interacts with customers.

As this 2-minute video shows, these nine puzzle pieces form a powerful, eye-opening big picture that maps everything out on a single page. Let’s take a quick look at each of these areas and see how they relate to crucial questions about your business.

Customer Segments: What groups of customers are you aiming for with your products / services? What are your best customer groups? These are crucially important questions; click here to see how a company might identify the four best market segments for its business, and here to see how it would determine what its best customer groups are.

Value Proposition: How are you creating value for your customers? Do you offer superior performance? A unique, customized solution? An innovative product or service?

Customer Channels: How do you communicate your value proposition to your customer segments? How do you make those customers aware of your product/service? How is it delivered, and how do you offer support following a sale?

Customer Relationships: How do you acquire and retain customers? How can you build a deeper, more profitable relationship with your existing customers? Do you focus on personal, one-on-one interactions, or do you prefer to take the self-service approach – for example, allowing customers to change the terms of their service on your website?

Revenue Streams: All the activities described above are going to generate income. But what are your customers willing to pay? What do they currently pay, and what would they prefer to pay?

Key Resources: What resources do you need to serve your customers, deliver on your value proposition, and tap into your revenue streams? This includes physical assets such as delivery vehicles, intellectual property and branding, financial resources such as lines of credit, and of course your human resources: the people who make it all possible.

Key Activities: How do you execute your strategy? What do you need to do in order to satisfy your customers?

Key Partnerships: Who do you partner up with to make your business more efficient? Who should you partner up with? Are any existing partners no longer a good fit?

Cost Structure: What are the costs that you incur from your resources, partnerships, and activities? How can you bring these costs down?

There’s nothing ground-breaking about looking at each of these nine areas independently; you’ve probably already given them a lot of thought. But the real “a-ha” moment comes when you see everything on the same page. For example, you’ll be able to visualize how targeting a new customer segment might change your revenue streams. You could see how new partnerships might help you bring down your costs or serve your customers more effectively.

The bottom line? Everything is interconnected. A big-picture view will help you dig deeper into those relationships, test your assumptions, experiment with new strategies, and create a better business model. So, what does your canvas look like?

• If you don’t have a firm grip on your position in the market, or you’re unclear about your strengths and weaknesses, a SWOT Analysis is a great place to start. To find out how to use this powerful planning tool, check out this example .

• Now that you know about this concept, give it a whirl! Download the app or PDF linked above, pick one of your revenue streams or customer groups, and work your way through each area. What does the canvas look like? How does each of those puzzle pieces fit together? (As this entrepreneur points out, simplicity is best when you’re using the canvas; instead of trying to fit every revenue stream into just one model, build multiple models, and then draw conclusions about your overall business.)