MERLIN H2020 - Workshop #1 "Business Model Canvas"
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Materials of the first MERLIN (https://merlin-ict.eu) workshop, delivered in June'18. MERLIN will support market-oriented researchers, SMEs and startups across Europe, to consider the full potential of their research and to shape ideas and outputs into innovations to be ready for market validation and commercialisation, by using modern needs-first, market-led methodologies and offering free training workshops and meetup in 7 European countries. More information in video https://bit.ly/merlin_video
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MERLIN H2020 - Workshop #1 "Business Model Canvas"
- 1. H2020 GA #780460 BUSINESS MODEL CANVAS LECTOR’S NAME CITY DATE Helping today’s researchers create tomorrow’s enterprises This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 780460
- 2. H2020 GA #780460 Rules for the workshop No question is a silly question 2 What is said in the room stays in the room Support and challenge each other
- 3. H2020 GA #780460 General information Workshop length – 4 hours 3 Coffee break – 20 minutes Slide availability
- 4. H2020 GA #780460 About MERLIN project MERLIN project aims to stimulate the interest in the creation of startups, spin-offs and licensing agreements among ICT researchers, providing them with the business skills that would help them to commercialize their research findings and successfully introduce them to the market, and introducing them to their local and European entrepreneurial ecosystems https://merlin-ict.eu 4 Organization of more than 40 practical thematic workshops in several European cities, including Cambridge, Madrid, Poznan, Vilnius, Berlin, Warsaw, Bucharest, Tallinn Participation in 5 international conferences, organizing workshops and forums Organization of 8 meetups with potential customers, commercial partners, and investors Preparation of 4 webinars on SME growth and PPP business models
- 5. H2020 GA #780460 How similar are we? 5
- 6. H2020 GA #780460 Agenda Business model canvas - introduction Customer segments Value propositions Channels Customer relationships 6 Revenue streams Key resources Key activities Key partnerships Cost structure Revenue streams
- 7. H2020 GA #780460 What is Business Model Canvas? 7 A business model describes the rationale of how an organization creates, delivers and captures value A business model canvas is a tool to map existing business models, improve them and invent new ones
- 8. H2020 GA #780460 The purpose of Business Model Canvas 8 A BMC will lead to insights about the customers you serve, what value propositions are offered through what channels and how your company makes money Key benefits of BMC include: Targets needsFocused Scientific framework that works Reduce failure risk Clear and concise Front stage Back stage
- 9. H2020 GA #780460 Customer segments 9 Customer Segments Building Block defines the different groups of people an organization aims to reach and serve An organization must make a conscious decision about which segments to serve and which segments to ignore For whom are we creating value? Who are our most important customers?
- 10. H2020 GA #780460 Customer segments examples 10 • Internet users • Advertisers, marketers • Developers Facebook • Advertisers • Subscribers • Free listeners Spotify • Environmentalists • Above average income individuals Tesla
- 11. H2020 GA #780460 Value propositions 11 Value Propositions Building Block describes the bundle of products and services that create value for a specific Customer Segment Value proposition solves a customer problem or satisfies a need Value proposition is a bundle of benefits that a company offers customers What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? Which customer needs are we satisfying? What bundles of products and services are we offering to each customer segment?
- 12. H2020 GA #780460 What contributes to value creation? 12 Newness Performance Customization ”Getting the job done” Cost reduction Price Examples of elements that contribute to value creation: Design Risk reduction Convenience / Usability Brand / Status Accessibility
- 13. H2020 GA #780460 Customer relationships 13 The Customer Relationship Building Block describes the types of relationships a company establishes with specific Customer Segments What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How costly are they? How are they integrated with the rest of our business model?
- 14. H2020 GA #780460 How to be appealing to customers? 14 • Same-side network effects • Cross-side network effects Facebook • Healthy options • Nutritional information • Kids menu • Kids play room McDonald’s • Drivers, riders - safe, secure, fair • Public - communal/social footprint Uber
- 15. H2020 GA #780460 Channels 15 The Channels Building Block describes how company communicates with and reaches its Customer Segments to deliver a Value Proposition Through which Channels do our Customer Segments want to be reached? Which ones are most cost-efficient? How are we reaching them now?Which ones work best? How are we integrating them with customer routines? How are our Channels integrated?
- 16. H2020 GA #780460 Channel types and phases 16 Channel Phases 1. Awareness How do we raise awareness about our company’s products and services? 2. Evaluation How do we help customers evaluate our organization’s Value Proposition? 3. Purchase How do we allow customers to purchase specific products and services? 4. Delivery How do we deliver a Value Proposition to customers? 5. After sales How do we provide post- purchase customer support? School mailing lists, word- of-mouth No real competition at the beginning, ability to share photos easily Sign-up using personal details Web, mobile Support center
- 18. H2020 GA #780460 Let’s have a coffee break (20 minutes) 18
- 19. H2020 GA #780460 Key resources 19 The Key Resources Building Block describes the most important assets required to make a business model work What Key Resources do our Value Propositions require? Distribution channels?Customer Relationships? Revenue Streams?
- 20. H2020 GA #780460 4 main types of resources 20 Physical Intellectual Human Financial
- 21. H2020 GA #780460 Key activities 21 The Key Activities Building Block describes the most important things a company must do to make its business model work What Key Activities do our Value Propositions require? Customer Relationships? Distribution Channels? Revenue Streams?
- 22. H2020 GA #780460 Categories of key activities 22 Production Designing, making and delivering a product in substantial quantities/superior quality. Dominates the business models of manufacturing. Problem solving Coming up with new solutions to individual customer problems. Consultancies, hospitals, service organizations. Knowledge management, continuous training. Platform/Network Networks, matchmaking platform, software, brands. Platform management, service provisioning, platform promotion.
- 23. H2020 GA #780460 Key partnerships 23 The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work Who are our Key Partners? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform? Who are our key suppliers?
- 24. H2020 GA #780460 Partnership types and reasoning behind 24 Strategic alliances between non- competitors Coopetition: strategic partnerships between competitors Joint ventures to develop new business Buyer-supplier relationships to assure reliable supplies Types of partnerships Why create partnerships? Optimization and economy of scale Reduction of risk and uncertainty Acquisition of particular resources and activities + ++
- 26. H2020 GA #780460 Cost structure 26 The Cost Structure describes all costs incurred to operate a business model Which Key Resources are most expensive? Which Key Activities are most expensive? What are the most important costs inherent in our business model?
- 27. H2020 GA #780460 Cost structure characteristics 27 Cost-driven Minimizing costs, leanest possible Cost Structure, low price, maximum automation, extensive outsourcing Fixed costs Costs that remain the same despite the volume of goods or services produced. Salaries, rent, physical manufacturing facilities Variable costs Costs that vary proportionally with the volume of goods or services produced. Raw materials, commissions, logistics costs. Economies of scale Cost advantages that a business enjoys as its output expands. Larger companies benefit from lower bulk purchase prices Economies of scope Cost advantages that a business enjoys due to a larger scope of operations. The same marketing activities or distribution channels support multiple products Value-driven Premium Value Propositions, high degree of personalized service Cost Structures Characteristics of Cost Structures
- 28. H2020 GA #780460 Revenue streams 28 The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings) For what do they currently pay? For what value are our customers really willing to pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?
- 29. H2020 GA #780460 How to generate Revenue Streams 29 Ways to generate Revenue Streams Asset sale Usage fee Subscription fees Licensing Lending/Renting/Leasing Brokerage fees Advertising
- 31. H2020 GA #780460 Main tips for building a BMC 31 Consider the document a living organism Take time to fill each building block out Make sure everything you write down is based on data Be as specific as possible
- 32. H2020 GA #780460 Conclusions 32 The Business Model Canvas gives you the structure of a business plan without the overhead and the improvisation of a ‘back of the napkin’ sketch without the fuzziness (and coffee rings).
- 33. H2020 GA #780460 Homework for everyone • Video: Visualize your business model. Link Internet resources • Business Model Canvas Try with your own idea 33 • Business Model Generation by A. Osterwalder & Y. Pigneur Books
- 34. H2020 GA #780460 Reflection Today I learned… I was suprised by... I will use... Go to XXX #YY 34
- 35. H2020 GA #780460 Info about next workshops in Vilnius 2018 April Lean startup 2018 June Using Business model canvas to assess and focus business development 2018 September How Customer Discovery guides business models 2018 October Client match- making meetup 2019 February ’I Bring the Idea’ matchmaking session 2019 May How to design a product using User Experience 2019 June How to conduct interviews and receive customer inputs 2019 July Spinout vs Startup – differences, how to operate and succeed 35
- 36. H2020 GA #780460 BUILD YOUR BUSINESS MODEL ON ONE PAGE 36 https://merlin-ict.eu @Merlin_ICT
Editor's Notes
- To indicate how the slides will be shared with others
- MERLIN project aims to equip researchers in ICT sector with business skills that would help them commercialize their research findings and successfully introduce them to the market.
- A quick networking game – find 10 similarities. Participants split into pairs. Each pair talks for 5 minutes and has to find 10 things they have in common – either in professional or in personal life. After 5 minutes, the participants find new pairs (different people than in the 1st round) and do the exercise again. Expected length – 15 minutes (2 rounds of 5 minutes + 5 minutes for introduction of the exercise)
- This slide introduces the Business Model Canvas concept and explains what it is and that it’s a tool to map existing business models, improve them and invent new ones.
- The BMC leads to insights about the customers a company serves, what value propositions are offered through what channels and how your company makes money. The key benefits that a BMC brings to its users are: It is focused. Enterprises need a definition of how to get their products to their customers and the business model canvas helps you define them. It also gives you the competitive edge to launch a profitable business not only through product innovation but also through designing your business correctly. BMC is clear and concise. It helps you document your startup journey so you can easily modify it as you go along. The business model is a blueprint that defines your business initially and you later expand on it. It is useful for easy communication with your team, investors, partners as well as employees to come on board with your vision. It targets customers’ needs. The biggest reason for startup failure is “Product/Market fit” and not the product itself. Too often we forget this and direct our energy on building an awesome product. “Build and they will come” is a dying mantra. The business model canvas forces you to think beyond your product. When you envision how you will sell your product, what type of resources you need as well the different customer segments you can serve, the business becomes lucid. Documenting it gives you the clarity when you talk to your customers. It reduces the risk of failure. The business model canvas helps you with the execution steps requirement to take your idea to market. Connecting the dots between your value proposition + customer segments + revenue streams, is a good input to your marketing strategy, positioning statement as well as your Sales strategy. You have the edge over your competitors who are immersed in the lengthy pages of the business plan. It is a scientific framework that works. Business model canvas is a tried and tested methodology not only for startups but also for innovating in large enterprises. Nespresso, a fully owned daughter company of Nestlé, is a great example of a powerful business model. It changed the face of the coffee industry by turning a transactional business (selling coffee through retail) into one with recurring revenues (selling proprietary pods through direct channels). The BMC itself has two stages – the front stage and the back stage. The front stage is the part of the business that is directly facing the customer. The back stage is everything that the company needs to have or do in order to provide the right half.
- The first BMC block we’re covering is the „customer segments“ building block It defines the different groups of people an organization aims to reach and serve. The main questions to answer when trying to fill out this building block are „For whom are we creating value?“ and „Who are our most important customers?“. Customer segments are an important part for the development of the organization – a company must make a conscious decision about which segments to serve and which segments to ignore. Customers comprise the heart of any business model. Without (profitable) customers, no company can survive for long. In order to better satisfy customers, a company may group them into distinct segments with common needs, common behaviors, or other attributes. A business model may define one or several large or small Customer Segments. An organization must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.
- Examples of famous companies and their customer segments: Facebook has 3 distinct customer segments – internet users, advertisers and marketers, developers. Each group has different needs and use the platform for different purposes Spotify users include not only the listeners, both the ones that pay for the subscription and those that use the platform for free, but also the advertisers who pay to have their ads played for the free users. Tesla’s customer segment is comprised of people who want to be environmentally friendly are above average income individuals.
- The Value propositions building block describes the bundle of products and services that create value for a specific Customer Segment. Main question to answer – „what value do we deliver to the customer?“, „Which one of our customer’s problems are we helping to solve?“, „Which customer needs are we satisfying?“, „What bundles of products and services are we offering to each customer segment?“. The main purpose of value proposition is to solve a customer problem or satisfy a need. It is a bundle of benefits that a company offers customers. The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need. Each Value Proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment. In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers. Some Value Propositions may be innovative and represent a new or disruptive offer. Others may be similar to existing market offers, but with added features and attributes.
- A Value proposition creates value for a Customer Segment through a distinct mix of elements catering to that segment’s needs. Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience). Elements from the non-exhaustive list can contribute to customer value creation. Each customer values different elements depending on his/her needs. Examples of famous companies and their main value propositions: Facebook allows users to reach their friends wherever they are and marketers are able to access their target audience Volvo is known for the safety of their vehicles Spotify was one of the first services to introduce music streaming that allowed users to conveniently listen to music from their devices Apple is known for the design of their products Rolex watches show the status of the owners – they are a luxury item
- Customer relationship building block describes the types of relationships a company establishes with specific customer segments. Main questions to answer – „What type of relationship does each of our Customer Segments expect us to establish and maintain with them?“, „Which ones have we established?“, „How are they integrated with the rest of our business model?“, „How costly are they?“. A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automated. Customer relationships may be driven by the following motivations: Customer acquisition Customer retention Boosting sales (upselling) In the early days, for example, mobile network operator Customer Relationships were driven by aggressive acquisition strategies involving free mobile phones. When the market became saturated, operators switched to focusing on customer retention and increasing average revenue per customer. The Customer Relationships called for by company’s business model deeply influence the overall customer experience.
- Examples of additional services companies offer to the customers which help build the relationship with the customers: Facebook allows its users to connect to people in their immediate network (same-side network effect) and connect with people who they do not know or find information about a particular subject that is out of their traditional scope (cross-side network effects) McDonalds embraced the healthy-eating trend and started offering their customers some more healthy options as well as providing the nutritional information. Also, they have a separate menu for the kids and most of the McDonalds locations have kids play rooms/play areas. Uber provides a safe, secure and fair service for both drivers and riders and it reduces the environmental footprint and increases the communal/social footprint in communities where they operate
- The channels building block describes how company communicates with and reaches its Customer Segments to deliver a Value proposition. The main questions to answer are „Through which Channels do our Customer Segments want to be reached?“, „Which ones are most cost-efficient?“, „Which ones work best?“, „How are we reaching them now?“, „How are our channels integrated?“, „How are we integrating them with customer routines?“. Communication, distribution, and sales channels comprise a company’s interface with customers. Channels are customer touch points that play an important role in the customer experience. Channels serve several functions, including: Raising awareness among customers about a company’s products and services; Helping customers evaluate a company’s Value Proposition Allowing customers to purchase specific products and services Delivering a Value Proposition to customers Providing post-purchase customer support
- Channels have 5 distinct phases. Each channel can cover some or all of these phases. We can distinguish between direct channels and indirect ones, as well as between owned channels and partner channels. An organization can choose between reaching its customers through its own channels, through partner channels or through a mix of both. Owned Channels can be direct, such as an in-house sales force or a web site or they can be indirect, such as retail stores owned or operated by the organization. Partner channels are indirect and span a whole range of options, such as wholesale distribution, retail, or partner-owned web sites. Partner channels lead to lower margins, but they allow an organization to expand its reach and benefit from partner strengths. Owned channels and particularly direct ones have higher margins, but they can be costly to put in place and to operate. The trick is to find the right balance between the different types of channels, to integrate them in a way to create a great customer experience, and to maximize revenues. Facebook created awareness about the platform through mailing lists and word-of-mouth marketing. Facebook was created in 2004 in Harvard. The first users were Harvard and other schools’ students who were invited to join via email. At that time, the internet wasn’t saturated with so many social networks and the start captured the moment when the mobile phone usage was beginning to increase and the ability to take, upload and share photos from phones was significantly easier. The customers “purchase” the service by submitting their personal details. The services is delivered via desktop or mobile applications and the after sales support is provided via FAQ page or the support center.
- Do the BMC for customer segments, value propositions, customer relationships and channels using Robert’s example.
- The Key Resoures building block describes the most important assets required to make a business model work. The main questions to answer are „What Key resources do our Value Propositions require?“, „(What Key Resourcers do our) Customer Relationships (require)?“, „(What Key Resourcers do our) Distribution channels (require)?“, „(What Key Resourcers do our) Revenue Streams (require)?“. Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues. Different Key Resources are needed depending on the type of business model. A microchip manufacturer requires capital-intensive production facilities, whereas a microchip designer focuses more on human resources. Key Resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the company or acquired from Key Partners.
- Main types of resources can be categorized as follows: Physical. This category includes physical assets such as manufacturing facilities, buildings, vehicles, machines, systems, point-of-sales systems, and distribution networks. Retailers like Amazon.com and Zara rely heavily on physical resources, which are often capital-intensive. The former has an enormous global network of stores and related logistic infrastructure. The latter has an extensive IT, warehouse and logistics infrastructure. Intellectual. Intellectual resources such as brands, proprietary knowledge, patents and copyrights, partnerships, and customer databases are increasingly important components of a strong business model. Intellectual resources are difficult to develop but when successfully created may offer substantial value. Companies such as Facebook, Nike and Sony rely heavily on brand as a Key Resource. Microsoft and SAP depend on software and related intellectual property developed over many years. Qualcomm, a designer and supplier of chipsets for broadband mobile devices, built its business model around patented microchip designs that earn the company substantial licensing fees. Human. Every enterprise requires human resource, but people are particularly prominent in certain business models. For example, human resources are crucial in knowledge-intensive and creative industries. A pharmaceutical company such as Johnson&Johnson, for example, relies heavily on human resources: Its business model is predicated on an army of experienced scientists and a large and skilled sales force. Financial. Some business models call for financial resources and/or financial guarantees, such as cash, lines of credit, or a stock option pool for hiring key employees. One of the most obvious examples include banks, such as Barclays.
- The Key Activities Building Block describes the most important things a company must do to make its business model work. The main questions to answer are: „What Key Activities do our Value Propositions require?“, „(What Key Activities do our) Customer Relationships (require)?“, „(What Key Activities do our) Distribution Channels (require)?“, „(What Key Activities do our) Revenue Streams (require)?“ Every business model calls for a number of Key Activities. These are the most important actions a company must take to operate successfully. Like Key Resources, they are required to operate successfully. Like Key Resources, they are required to create and offer a Value Proposition, reach markets, maintain Customer Relationship, and earn revenues. And like Key Resources, Key Activities differ depending on business model type. For software maker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chain management. For consultancy McKinsey, Key Activities include problem solving.
- Key Activities can be categorized as follows: Production. These activities relate to designing, making and delivering a product in substantial quantities and/or of superior quality. Production activity dominates the business models of manufacturing firms. Example of a company which has production as key activity might include Toyota Problem solving. Key Activities of this type relate to coming up with new solutions to individual customer problems. The operations of consultancies, hospitals, and other service organizations are typically dominated by problem solving activities. Their business models call for activities such as knowledge management and continuous training. Any hospital falls into this category. Platform/Network. Business models designed with a platform as a Key Resource are dominated by platform or network-related Key Activities. Networks, matchmaking platforms, software, and even brands can function as a platform. Facebook’s business model requires that the company continually develop and maintain its platform: the Web site at facebook.com and mobile app. Visa’s business model requires activities related to its Visa credit card transaction platform for merchants, customers, and banks. Microsoft’s business model requires managing the interface between other vendors’ software and its Windows operating system platform. Key Activities in this category relate to platform management, service provisioning, and platform promotion.
- The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work. The main questions to be answered are: „Who are our Key Partners?“, „Which Key Resources are we acquiring from partners?“, „Which Key Activities do partners perform?“, „Who are our key suppliers?“. Companies forge partnerships for many reasons, and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimize their business models, reduce risk, or acquire resources.
- 4 distinguishable partnership types: Strategic alliances between non-competitors. Example – Facebook + Skype – at one point, Facebook and Skype were in strategic alliance – Skype video call function was integrated to Facebook. Coopetition: strategic partnership between competitors. Example - The demand for Intel chips increases when Microsoft creates more powerful software. Microsoft becomes more valuable when Intel produces faster chips.” That’s not a win/lose proposition, but rather, a win/win. Joint ventures to develop new businesses. Example - Google + Nasa developed Google Earth Buyer-supplier relationships to assure reliable supplies. This partnership dominates most business relationships between companies It can be useful to distinguish between three motivations for creating partnerships: Optimization and economy of scale. The most basic form of partnership or buyer-supplier relationship is designed to optimize the allocation of resources and activities. It is illogical for a company to own all resources or perform every activity by itself. Optimization and economy of scale activity by itself. Optimization and economy of scale partnerships are usually formed to reduce costs, and often involve outsourcing or sharing infrastructure. Reduction of risk and uncertainty. Partnerships can help reduce risk in a competitive environment characterized by uncertainty. It is not unusual for competitors to form a strategic alliance in one area while competing in another. Blu-ray, for example, is an optical disc format jointly developed by a group of world’s leading consumer electronics, personal computer and media manufacturers. The group cooperated to bring Blu-ray technology to market, yet individual members compete in selling their own Blu-ray products. Acquisition of particular resources and activities. Few companies own all the resources or perform all the activities described by their business models. Rather, they extend their own capabilities by relying on other firms to furnish particular resources or perform certain activities. Such partnership can be motivated by needs to acquire knowledge, licenses, or access to customers. A mobile phone manufacturer, for example, may license an operating system for its handsets rather than developing one in-house. An insurer may choose to rely on independent brokers to sell its policies rather than develop its own sales force.
- Do the Key Resources, Key Activities and Key Partnerships exercise with Robert’s example.
- The Cost Structure building block describes all costs incurred to operate a business model. The questions to be answered are: „What are the most important costs inherent in our business model?“, „Which Key Resources are most expensive?“, „Which Key Activities are most expensive?“. This building block describes the most important costs incurred while operating under a particular business model. Creating and delivering value, maintaining Customer Relationships, and generating revenue all incur costs. Such costs can be calculated relatively easily after defining Key Resources, Key Activities and Key Partnerships. Some business models, though, are more cost-driven than others. So-called “no frills’ airlines, for instance, have built business models entirely around low Cost Structures.
- Naturally, costs should be minimized in every business model. But low Cost Structures are more important to some business models than to others. Therefore it can be useful to distinguish between two broad classes of business model Cost Structures: cost-driven and value-driven (many business models fall in between these two extremes: Cost-driven. Cost-driven business models focus on minimizing costs whenever possible. This approach aims at creating and maintaining the leanest possible Cost Structure, using low price Value Propositions, maximum automation, and extensive outsourcing. No frills airlines, such as Southwest, EasyJet, and Ryanair typify cost-driven business models. Value driven. Some companies are less concerned with the cost implications of a particular business model design, and instead focus on value creation. Premium Value Propositions and a high degree of personalized service usually characterize value-driven business models. Luxury hotels, with their lavish facilities and exclusive services, fall into this category. Cost structures can have the following characteristics: Fixed costs. Costs remain the same despite the volume of goods or services produced. Examples include salaries, rents, and physical manufacturing facilities. Some businesses, such as manufacturing companies, are characterized by a high proportion of fixed costs. Variable costs. Costs that vary proportionally with the volume of goods and services produced. Some businesses, such as music festivals, are characterized by a high proportion of variable costs. Economies of scale. Cost advantages that a business enjoys as its output expands. Larger companies, for instance, benefit from lower bulk purchase rates. This and other factors cause average cost per unit to fall as output rises. Economies of scope. Cost advantages that a business enjoys due to a larger scope of operations. In a large enterprise, for example, the same marketing activities or Distribution Channels may support multiple products. The camera icon leads to a video describing this building block. This video should be shown at the beginning of describing this slide. NOTE: the link works only in full screen mode. In case you are not able to access the link, here it is: https://www.youtube.com/watch?v=VWxLVD99vGI
- The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings). Main questions to answer: „For what value are our customers really willing to pay?“, „How much does each Revenue Stream contribute to overall revenues?“, „For what do they currently pay?“, „How are they currently paying?“, „How would they prefer to pay?“ If customers comprise the heart of a business model, Revenue Streams are its arteries. A company must ask itself, For what value is each Customer Segment truly willing to pay? Successfully answering that question allows the firm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management. A business model can involve two different types of Revenue Streams: Transaction revenues resulting from one-time customer payments Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support
- There are several ways to generate revenue streams: Lending/Renting/Leasing. This Revenue Stream is created by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee. For the lender this provides the advantage of recurring revenues. Renters or lessees, on the other hand, enjoy the benefits of incurring expenses for only a limited time rather than bearing the full costs of ownership. Zipcar.com provides a good illustration. The company allows customers to rent cars by the hour in North American cities. Zipcar.com’s service has led many people to decide to rent rather than purchase automobiles. Example – Hertz car rental company. Brokerage fees. This Revenue Stream derives from intermediation services performed on behalf of two or more parties. Credit card providers, for example, earn revenues by taking a percentage of the value of each sales transaction executed between credit card merchants and customers. Brokers and real estate agents earn a commission each time they successfully match a buyer and seller. Example – Visa. Asset sale. The most widely understood Revenue Stream derives from selling ownership rights to a physical product. Amazon.com sells books, music, consumer electronics and more online. Fiat sells automobiles, which buyers are free to drive, resell, or even destroy. Licensing. This Revenue Stream is generated by giving customers permission to use protected intellectual property in exchange for licensing fees. Licensing allows rights-holders to generate revenues from their property without having to manufacture a product or commercialize a service. Licensing is common in the media industry, where content owners retain copyright while selling usage licenses to third parties. Similarly, in technology sectors, patent holders grant other companies the right to use a patented technology in return for a license fee. Example – Volvo created what is now known as seatbelts and the technology behind it and patented it. They allowed other car manufacturers to use the license free of charge in order to increase the road safety. Advertising. This Revenue Stream results from fees for advertising a particular product, service or brand. Traditionally, the media industry and event organizers relied heavily on revenues from advertising. In recent years others sectors, including software and services, have started relying more heavily on advertising revenues. Example – Facebook and other social media platforms, as well as Google AdWords which lives off of revenue from advertisers. Usage fees. This Revenue Stream is generated by the use of a particular service. The more a service is used, the more customer pays. A telecom operator may charge customers for the number of minutes spent on the phone. A hotel charges customers for the number of nights rooms are used. A package delivery service charges customers for the delivery of a parcel from one location to another. Example - FedEx Subscription fees. This Revenue Stream is generated by selling continuous access to a service. A gym sells its members monthly or yearly subscriptions in exchange for access to its exercise facilities. World of Warcraft Online, a Web-based computer game, allows users to play its online game in exchange for a monthly subscription fee. Nokia’s Comes with Music service gives users access to a music library for a subscription fee. Example – Spotify.
- Do the Cost Structure and Revenue Streams parts using Robert’s example.
- Once the participants have had a chance to fill out the BMC on their own, they should be introduced to the main ideas to keep in mind when doing the BMC on their own: Consider the document a living organism. The BMC, like any other canvas in Lean Startup land, is supposed to be a live document. This means that you fill it out based on what you know today with the understanding that you will be revising it as you learn more from testing your hypothesis. Unfortunately doing away with a business plan often doesn't mean doing away with the habits of a business plan and so you end up with a one pager up on the wall that you will use as something to execute on rather than as guidance to figure out your next test. 2. Take time to fill each building block out. Often times new founders will download the template, print it out and then proceed to spend an entire afternoon, if not an entire day, debating how to fill every single block. But it often doesn't end up there and after a night of sleep the cycle will repeat. I've done this and it's a complete waste of time. Consider the stage you're at: are you just starting out? are you filling in the canvas for an existing product? As you can imagine those two scenarios are wildly different and that should reflect on how you use the canvas. The BMC is not a to-do list task that can be filled out in one sitting. It requires time and thought to be filled out correctly and in order to bring value to the creator. 3. Make sure everything you write down is based on data. Building on #1 you should use the canvas as a living document to figure out how to de-risk your business which means coming up with hypothesis and running tests. For example, if in the revenue stream you wrote $10/m subscription, is that how you're going to price your product? how did you come up with that price to begin with? Pricing is often a matter of understanding the value to the customer, competitors price points and other variables before you can make an hypothesis worth testing. This doesn't have to take a lengthy market research, but it's not something that makes sense to do on day one with no clear idea about your customers and how they look at the problem you're trying to solve. 4. Be as specific as possible. This is the everbad and one of the biggest causes of failure (and startups only fail when they fail to learn). Being generic in your value proposition will make it impossible to explain what you do to your customers who will smell a confused founder miles away. A generic customer will get in the way of customer development and make it hard to get any value from your qualitative tests since you won't have a clear baseline to analyze the data against. If you're not specific in your channels outreach will likely be more expensive than it should, wasting money and time with lower conversion rates than if you had a better picture of who your customer is, what language they speak and what their habits are. The same thing applies to the rest of the blocks, bottom line, specificity will save you a lot of energies.
- Homework for participants – watch a short video that covers the Business Model Canvas theory in short, do the BMC on their own idea and read the book Business Model Generation by A. Osterwalder and Y. Pigneur.
- After the workshop, the participants are asked to write on a board (or using Slido software) 3 things – what they learned in the workshop, what was surprising/new, and what ideas will they adapt in developing their product.
- This slide is used to invite researchers to participate in more workshops Reiktų kaip nors atskirti ir tą Workshopą, kuris ir dabar vyksta