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Entrepreneurs with Denis Oakley

I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN

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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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Beginners Guide to the Business Model Canvas: Part 1

How do you use the business model canvas? I am going to walk through how to do your business model canvas and use it to make better decisions in a number of small steps. It will take a few days but we will slowly, together, layer levels of understanding . All you need to do is stech as I sketch, note as I note, and your own business will emerge.

This is ideal if you run, own, manage, lead or study a business. A little bit of learning in less than 5 minutes a day.

Let’s start.

Sketch the Business Model Canvas

Grab a piece of A4 (or any other size that works for you)

Sketch out the business model canvas

Beginners Guide to the Business Model Canvas: Part 1
Sketching the business model canvas out quickly makes it easy to use where and when you need it – even on a napkin in a restaurant.

An L on its side. Then another one to close the square. Don’t worry about making it pretty

Draw a line across, about 1/4 of the way up. Then Cut it in half.

Beginners Guide to the Business Model Canvas: Part 1
I’ve highlighted in green where the pen needs to go when you are sketching the business model canvas. I know this sounds obvious, but that’s what the awesome team at Scriberia.com showed me when I started drawing

Then four strokes in the upper block, equally spaced. Then cut the two middle panels in half.

That gives you your basic business model canvas.

It’s that simple

Don’t bother using a template unless you have an easy way of keeping them handy. Being precise just slows you down and your mental focus is on the drawing, not your business.

Starting on Your Business Model

To make this a little bit more real and give you an example to follow I’m going to put my business in. This makes it easier for you because like me, you’ll have a bunch of thoughts about your business and the process will help you structure them.

Beginners Guide to the Business Model Canvas: Part 1
Start with the problem that you want to solve

The first thing that I usually do is to write down the problems that the business is solving. I use the space at the bottom of the value proposition section.

Hit the Problem

In this case, I’ve written

  • The old business models don’t work any longer
  • finding new business models that work is tough

That captures the heart of it. Is it the best formulation? Probably not. As you repeat and iterate you get it smoother. It is however good enough – and gives us the focus that we need to build the rest of the model.

Really, what I want you to appreciate here is that you can’t get this wrong. Putting together a great business model is an iterative process.

It’s always going to be solving a problem. A big problem. A painful problem.

The data shows me that over the next couple of decades tens of millions of SMEs will be destroyed by market forces. At the same time, a similar number of startups will form. Trillions of dollars and hundreds of millions of lives will be affected.

Is that a problem worth solving? I think so. What’s the problem you are solving?

Condense it down into 2-3 bullet points. A couple of words in each. If you need to write an essay you aren’t there yet. You’re not wrong, so much as focused at the wrong level. You need to come up to a higher level.

As we go through the process, if you change the problem, that’s ok. Come back to this point and start over. As many times as you need.

Tomorrow we’ll carry on 🙂

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Hilti Business Model

Hilti is a Power Tool company in Lichtenstein. A few years ago it decided that selling power tools, it’s core strength was a poor business model and left it in a red ocean of competition. So it changed the way it did things and came up with an enormously successful business model. This article is all about Hilti’s new business model and why it works.

The Hilti Business Model on Slide Share

Hilti Business Model Canvas

Hilti Business Model Canvas
Hilti Business Model Canvas

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Quora Business Model Canvas

This is a quick walk through of the Quora business Model using the business model canvas. In the video I use the business model triangle to look at who Quora is for, the value proposition, it’s value chain and the profit mechanism.

We then move on to look at the Quora business model through the lens of the business model canvas

You can view and download the slides on Slideshare, I appreciate credits and backlinks if you use them in your own work

Quora Business Model – Presentation on Slideshare

Alexander Osterwalder – Quora Business Model Canvas

Quora Business Model Canvas
The Quora Business Model Canvas

Business Model Triangle – Quora

Quora Business Model Canvas
Quora Business Model Triangkle

Feel free to reach out and ask me any questions about the Quora business model or applying business model innovtion to your own business.

Are you an Entrepreneur?

Are you copying a business model?

Are you creating a new one?

I can help you get it right

Review YOUR BUSINESS MODEL
Quora Business Model Canvas