Business Model Canvas Introduction Archives - Entrepreneurs with Denis Oakley

Entrepreneurs with Denis Oakley

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Business Model Canvas Introduction

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Don’t Copy Business Models

You have customers, value to offer them and a real problem that you are solving. That’s the core of your business model. A lot of entrepreneurs and business leaders get this far. It’s not rocket science. You can make some awful mistakes (not solving a problem). Once you know what the big mistakes are they are avoidable.

Don’t Copy Other People’s Business Models

What comes next isn’t rocket science either. It’s a simple insight that changes everything for a lot of those who hear it. Most startups and businesses at this point take the first business model that comes into their head and use it. This is a mistake. A bad one.

For example, if you are making a widget, your first thought may be, outsource to a factory in china and sell using Fulfilled by Amazon. Not a bad idea… but how many other people have done exactly the same? One reason why it came to mind so quickly.

Copying competitors business models can work in mature markets, but will generally lead to tough competition. Done unthinkingly it is a quick road to underperformance.
Copying competitors business models can work in mature markets, but will generally lead to tough competition. Done unthinkingly it is a quick road to underperformance.

Diversify or Differentiate Your Business Model

The insight that you need to get is this. If your business model is the same as everyone else you are at the mercy of the market. If the market grows fast, you will. If the market is brutal competition, you will suffer it. If the market tanks, you will sink with it.

Choosing a standard business model, not thinking about how you will get your value proposition to market will make everything so much harder. That wastes your time and your energy.

How do we make life easier for you?

Choose what your business model should look like

We pause at this stage and think about what the rest of the model should look like. You have choices. Lots of choices. Choosing to do something different here, makes you different and that can give you a huge competitive advantage.

When I work with clients I don’t let them go beyond this stage without doing a very simple exercise. I ask them for a list of their biggest competitors. Let’s say there are 3 of them.

Sketch Competitors Business Models

The first step is to draw out a business model canvas for each. Draw out that business model with what you can see on their website, off Glassdoor, google search ‘company name + business model’ and put it together.

If they are all the same, then doing the same thing is a bad idea a lot of the time. You need to do something different. If they are all very different your business model needs to be designed to exploit their weaknesses and break them.

Assume that they are all the same. The next step is to look at a number of big ideas about how you can pull your business model together.

Get a set of ideas

Let’s go back to the example that we have been working with, a consulting company that helps businesses that need to change their business models because they face too much competition, or their market is dying.

Once you have your value proposition in place and know your customs, pause, don't copy other business models, but start thinking about how you will choose your business model.
Once you have your value proposition in place and know your customs, pause, don’t copy other business models, but start thinking about how you will choose your business model.

What are some big ideas that we can play around with here?

Traditional consulting. I wine and dine clients to build relationships so I can get big contracts. I deliver these using bright young graduates (McKinsey/BCG model)

Thought leadership: I use the Philip Morgan colosseum model for independent consultants – develop amazing expertise and then create a number of products to upsell people who buy into the idea I am selling.

Silver bullet solutions – I target smaller customers with a high-pressure automated sales process. This is designed to upsell products, constantly maximising ticket prices.

Famous Author – I write a book and build a social media machine. This helps me become a new Gary V or Simon Sinek. I make money from speaking and high ticket consulting.

I’m going to leave it there. With another hour of thought, I’d have come up with another 10-20 ways of delivering the value that we identified in the previous post.

These are all business models that work and critically have lots of other people using them to deliver a similar value set.

Easy Approach: Niche

The simplest way of designing a business model is to niche. Choose a specific pain, solution and audience and use a standard business model. Are there enough people out there with the pain? Is the niche small enough that competitors won’t flock to it? Yes? Then that may be a good enough point for your business model innovation.

That’s what is taught in MBA courses. If someone else muscles in on you, your only defence is to be operationally better than they are.

If you want a better business model than that you have to put more thought in. That is what we are going to cover next time.

What next?

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Do explore these links to get more insights on how to build better business models

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Beginners Guide to the Business Model Canvas: Part 2 – Customer Segments

Yesterday we started off sketching out our business model canvases. Today we’re focusing on customers in the business model canvas. The goal is to quickly and easily extract the essence of your business into a business model. Use that to focus your attention on where you are, and then how to change to where you need to be.

If you missed yesterdays post – it’s here.

At the end of yesterday we had a business model canvas – almost totally blank, but we’d added the main problems that you are solving. I left it there because I wanted you to let your subconscious work on them overnight.

We added the problems that we are solving to the business model canvas to keep us non the straight and narrow. So making solutions for non-existent problems
We added the problems that we are solving to the business model canvas to keep us non the straight and narrow. So making solutions for non-existent problems

Often we think about solutions, not problems. It’s a classic trap that many engineers and logical people jump into. Powerful business models are built around customers. When we solve their problems we do better. Selling our solutions is always harder, especially if they are not solutions to real or important problems.

Have a look at the problems you wrote down. Are they real problems? Do have evidence for them? Real hard numbers, or just stuff inside your head. Think about it a bit more.

Now let’s get started for the day.

Customers in the Business Model Canvas

Starting with customers

We’re going to head over to the right side of the canvas and think about customers. You may have one group of customers. You may have a number.

The business model canvas works well when the value you create for each customer is similar and done in similar ways. This also includes platform designs where one group of customers has synergies with another.

If you are selling petrol to consumers and armoured vehicles to customers, these are too different to go on one sheet of paper. Create two. If you are in doubt just do one business model for each customer segment to start. Simplification is everything. The smaller steps everything is broken down into, the easier it is to understand and manipulate.

If you go-to simple, that’s ok. It’s easy to add more detail. If you have too much detail it’s also ok, you just spend a bit more time being confused and trapped in thorns. You can’t get it wrong.

Who are our customer segments in the business model

Let’s choose our target customers.

If we remember – the problems that I am solving are

Old business models are not working for lots of companies in many industries because of the pace of change – technological and environmental (used broadly)

New Ventures need business models to stand out from all the other startups chasing the same opportunities.

So who are my customers?

Adding customers onto the business model canvas.
Adding customers onto the business model canvas.

The people who have problems with a changing competitive landscape are SME owners (lump in directors and CxOs). The people who see opportunity in a changing competitive landscape are entrepreneurs.

At this stage, the customers should be able to say ‘I have this problem’. Here’s an example

The CEO of the Columbus Dispatch says the paper’s longstanding business model just isn’t working anymore

Colombus Business First

Can your customers say that they have the problem you think they have? If not, change problems or change customers, or change the way that you say it.

The other thing to look at is how large your customers are.

‘Mums’ or ‘Working women’ are huge segments. I haven’t looked up ILO data but I’d imagine the first is about 3 billion people and the second isn’t a lot less. That’s including everyone from New York, to Kyrgyzstan, to Kuala Lumpur, across dozens of cultures, social classes, religions and mindsets.

Do all of them care about the problem? Probably not. Or at least to a greater or lesser degree. Who has the problem more? Can you narrow down the focus on them? The fewer you are targeting the more resources you’ll have to solve each one’s problem (and persuade them that you can.)

We've now added customer segments to the business model canvas and shown how they relate to the problems they have
We’ve now added customer segments to the business model canvas and shown how they relate to the problems they have

Better Definition of Customer Segments

So let’s reformulate my answer because I made this mistake as well.

SME owners in the UK Midlands who have undifferentiated business models in at threat industries.

Global technology English speaking entrepreneurs pre Series A with a TAM greater than $1billion.

I’ll highlight what’s on the canvas – because that’s way too much text to clutter it with.

A useful tip is to always put what you write on the canvas in bubbles. It seems to act as a focus and allow you to absorb and manipulate information faster. If that works for you – let’s do it now.

Here we've added examples of customers to the business model canvas and circled them to make them stand out a little better
Here we’ve added examples of customers to the business model canvas and circled them to make them stand out a little better

At the end of today’s little exercise, you should have

  • checked that your problems are real
  • selected your customer segments
  • checked your customer segments againt the problems you are solving.

We’ll carry on tomorrow and start looking at the solution.

Bonus Tip

Bonus tip: At this point, it’s always worth trying to size your market. To do that you figure out how many customers there are in the segment. Then consider how much money they have. In the case of the SME’s, I’d go to the Office of National Statistics (ONS) in the UK and see how many SME businesses there are in the Midlands. Then I’d filter that down by the SIC (NAICS) codes that I am interested in. Then figure out their turnover. It can take a couple of hours. The maths is usually easy, finding the data requires a bit of imagination 😉

Go back to yesterdays post and start from the beginning

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When to use the business model canvas?

When do you think about your business? That’s when you should be using the business model canvas. Is that simple enough?

The business model canvas is a tool that quickly allows you to focus on what is essential in a business. Most of the time we don’t see what is essential and we make mistakes as a result. We focus on the wrong thing or take too long to get there.

Years ago I ran a startup with my wife. She was good at some things, I was good at others. When it came to discussing how to run the business we both looked at it from our perspective and end up going round and round.

With the financial crisis of 2008 hit, we lost that luxury. Our customers still loved what we were doing, in fact, I had an email from one just as I wrote this, over a decade later, but none of the customers had any work. There was no demand for what we were selling.

It got close to Christmas and we looked at the cash we had. Christmas presents were out. It was a matter of buying some rice to eat, or some baby milk to feed the baby. Not, an ideal situation.

Sketch, Iterate Whenever Your Debate

That’s when I first started using the business model canvas. We’d sit down on a Friday evening, sketch out the business model again and look for a path to success. During the week we’d run another experiment. And repeat. We did this for 27 iterations. Every week a slight variation on the business model, changing operations or marketing, trying to find that golden path out of the meh situation we were in.

There are lots of different ways that we found that it worked. The touchstone is this.

A big report gives you data. The canvas gives you a space to explore that data and visualise it.,

When you can visualise your business more clearly, you have the ability to change it faster and with more confidence.

When you can visualise your business better you can explain it better.

So when should you use the business model canvas?

Use the business model canvas when you are confused, hesitant or uncertain about the future.
Use the business model canvas when you are confused, hesitant or uncertain about the future.

You should use it every single time when you are confused, worried, uncertain, doubtful, hesitant about the path ahead.

By visualising the business model, and how it works, you are able to run a thousand mental experiments about what to do next.

That gives you clarity of thought and allows you to make better decisions.

Over the next few days, I’ll walk you through exactly how simple that is. . .

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When to use the business model canvas?