Ever since startups started getting investor money in millions of dollars, everyone is in a race to get a piece of the pie. This is even more common in the past few years as everyone is comfortable with over 50% failure rate of startups. While there are a bunch of known strategic and market reasons for the failure of the large ones, one of the biggest reasons for the failure of the small ones is lack of planning. Almost everyone is in the rush to add founder or co-founder under their names even before running through the plan and feasibility analysis.
This problem can be easily solved through a bunch of openly available tools and templates. We will go through one of the most basic templates today to evaluate any idea – the Business Model Canvas. Proposed by Alexander Osterwalder in his 2005 book, the visual approach to analyzing a business idea has been hugely popular across the world and is widely used by startups and businesses alike.
The Business Model Canvas (BMC) consists of nine blocks to analyze all the activities within a business. These activities are essentially an umbrella of activities that different teams within a business would perform. Let’s look at these blocks to see what they contain
- Customer Segments – The most important part of the business is deciding the target customer. This means who the business is primarily selling to. This is usually the toughest part of a business and undergoes constant revision as feedback pours in. However, even in the beginning, the business should be clear on who to target with your offering.
- Channels – This determines how the target customer segment would like to consume this offering. A lot of businesses get this wrong in their understanding.
- Customer Relationships – This block captures how the firm will interact with the customers to form a long-lasting relationship. This is largely driven by what methods the customers prefer instead of forcing the relationship through the firm’s method.
- Value Propositions – The second most important part after the customer segment is the value proposition of the business. This determines what the firm is offering its customers that sets it apart from its competitors.
- Key Activities – This block lists all the important activities that the business must undertake to provide its value proposition to its customer segment.
- Key Resources – This block lists all the resources (think people, processes, money, etc.) that are needed to perform the key activities.
- Key Partners – Most startups can’t perform end to end activities. Partners are essential to reduce resource requirements and risks during the founding stages.
All these activities performed above culminate in these two final blocks that determine the financial feasibility of a business.
- Cost Structure – This block lists all the costs the firm must incur to run the business. This includes initial setup costs, fixed costs, and variable costs. The key to good costing is not making assumptions and keeping the detail of every cost involved as that helps in cost optimization, when needed.
- Revenue Streams – Finally the money block. This block determines the various revenue streams that the business has from its customer segment. There are tons of revenue models in the market and businesses are free to choose based on their customer segments.
A business is successful in the long term only if there is a strategy to have Revenue Streams greater than the Cost Structure.
You could read about these concepts in “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers” from Alexander Osterwalder & Yves Pigneur. A lot of material is also available on the web.
So whatever your inspiration may be to start your own business, we recommend going through the process instead of rushing through and getting lost soon after. Always remember “Failing to plan is planning to fail” by Alan Lakein.
