This is the first lesson in our free business model canvas course. It is all about customers and why they are so important to your business. The most important thing to remember is that customers are not passive objects that you do things to. They are people who have problems and needs. Your product or solution is designed to make that problem go away. If it does you have created value. if it doesn’t you have destroyed it. Most businesses only partially achieve this. The more you understand and define the problem that a customer has the better value you can provide. This lesson about business model canvas customers in our free business model canvas course helps you to do just that.
Customers and the Business Model Canvas
Customers are a key component of the business model canvas. Without customers you don’t have a business, a business model or a useful business model canvas. When you are starting out it can be difficult to identify who exactly are your customers. In this lesson we discuss what a customer segment is and how do you identify them. Some businesses may have lots of different type of customer in their business model canvas. Others many have a single segment.
An organisation serves one or several customer segments.
Customer segmentation groups individuals with similar characteristics together. The reason that we do it is to target our value proposition as the people who really need it. One way of thinking about this is to imagine that we are selling cars. If we have a big black car that seats 10 people does it make sense to offer it to mother with small children, elderly couples and minibus companies? Would it be better if we just offered it to mini bus companies because we figured out that that is who buy the most of this type of car?
Who are the business model canvas customers?
We can segment customers in a wide variety of ways
Types of Customer Segments
- Demographic –
- Age,
- Race,
- Religion,
- Gender,
- Education Level,
- Ethnicity,
- Income etc.
- Geographic (by area) –
- Countries,
- Cities,
- Rural area,
- Regional
- Psychographic
- Social Status,
- Lifestyle,
- Personality Traits
- Behavioural
- Consumption,
- Usage Rate,
- Desired Benefits
There are thousands of ways of doing this. Two rules apply: If it doesn’t help you identify the customer better it’s a waste of time. It should make sense to your company, it doesn’t have to make sense to anyone else. And the third – it should boost your return on investment……
Customer segmentation provides a more in-depth understanding of the targeted customers. This allows you to determine what they value, leading you to design a solution that better suits them.
An example,
I have financial background and am passionate about helping others. By understanding with my customers drivers and fears I can really help them.
My target customers are:
Entrepreneurs with children + 30 to 45 years old + Want to earn extra income + Aims to financially support their child’s future
Finding Your Customers
In most cases, entrepreneurs tend to start with a solution for a broad target group.
Starting with a Problem:
How might we encourage underprivileged children to attend school?
By first understanding the individuals involved and its environment, you can then identify the problem. Starting with the solution is irrelevant as the problem could lie under the lack of transportation to schools or the lack of quality educators in school that discourages children to go to school.
Starting with a Solution:
I want to create a mobile application that allows students to track their financial expenses.
The application is able to help track financial expenses but is not tracking finances the real issue? How are they currently tracking their finances, why is it not working? You might end up pushing a solution that has minimal impact on the targeted customer. That then doesn’t create value and wastes your marketing dollars.
Determine Your Segments
When determining your customer segments in the business model canvas, take the following into account:
- Depth of Pain – The bigger the pain (need), the higher chance your customer will be open to your solution.
- Budget – Are customers willing to pay for your solution? How much? The bigger the pain (need), the more customers are willing to spend.
- Ease or Reach – How are you reaching your customers? Is it too costly to deliver personally or more effective?
- Each of Product – Customer groups have different requirements for the solution. Is your product or service flexible or becomes very complex if a change is needed.
- Size of Market – What market share do you need to serve? Does this market share consist more than 10% of your market size? Is this safe?
- Value – How do you feel about serving this segment? Do these customers match your company’s mission?
Based on the information gathered, it is time to validate your assumptions by ranking the segments in a matrix using High (H), Medium (M), Low (L).
The Early Adopter Pyramid will guide you when talking to your segment.
The ideal customers are the ones who are aware of the problem and have attempted to solve it. When they fail, they are willing to pay for a solution. They are the best customers to interview and the most important step for you to do next.
More on talking to customers: Problem Interview
Types of Markets
Niche Market
A niche market consists of customers with very focused and specific needs. This segment requires the product or service to be tailored to meet the specific need. Targeting a niche market is extremely useful if you are entering a highly competitive market. Specialising will distinguish you from the competitors and attract a specific group.
However, market size could be a disadvantage. Be realistic, calculate and reassure you have sufficient market share to hit the revenue target. If you capturing 40% markets here you are seen as dominant. For a startup to realise this in a crowded space this is not very realistic.
An example,
A service providing financial advice on mortgages for midsize company owners that enable them to buy a house in the city of Brussels.
A market share of 3 to 5 percent sounds realistic. After estimating the market size, you should be able to determine the revenue potential.
Multi-Sided Markets or Platforms
When the customer segments are dependent, the business will have to serve both groups simultaneously.
For example,
Credit card companies not only have to cater to customers who signed up for credit cards, but also ensure stores accept these credit cards.
If one of the segment fails, the other will follow.
More examples of successful online Multi-Sided Platforms are
e-Bay, AirBnB and Bookings.com.
Mass Market
McDonald’s is a perfect example that serves a wide variation of people that have a common problem or need.
Segmented Market
This is suitable for companies with different segments with a specialised value proposition, distribution channel and customer relationships. In the beginning, the business focuses on the most promising segment, builds its market share and then move on to the next segment.
How Business Model Canvas Customers are Important to your Business Model
In the business model canvas customers are a critical foundation for everything that comes next. Typically when we work with entrepreneurs creating a business model canvas for them we find that the weakest part of their business model is customers. Why is this? A lot of the time we see a problem and build a solution for it without being clear about who the customer for it will be. That is a frequent route to disaster.
If you have covered these topics you can be sure you have addressed your customer segments sufficiently. This is one important part of your Business Model your Customer Segments.
Kickstart your business and follow through to one of the next buildings blocks.
How to Build a Great Business Model Canvas – The FREE Course
- Introduction
- Customers
- Value Propositions
- Marketing & Distribution Channels
- Customer Relationships
- Revenues
- Key Resources
- Key Activities
- Key Partners & Suppliers
- Costs
