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The business model canvas, originally conceived by Alexander Osterwalder, is a simple, one-page tool anyone can use to design and refine how your enterprise creates value. I've been using it now for over five years, and have found it to be immensely useful, especially at key developmental stages such at the start-up, growth, and re-invention of an enterprise. It's a "pre-business planning" tool, that you can use to sort out the big, strategic picture of your enterprise and get your team (literally) on the same page, before you commit to developing the full business plan. Indeed, for many low-risk enterprises, a good business model canvas + a simple set of financial projections + a simple action plan is all that is needed to map things out. (It might be helpful at this point if you watch this 2-minute intro video, to give you a really nice overview. Otherwise, read on...)
The business model canvas chunks your enterprise down into nine key components:
Customer segments
Value propositions
Customer relationships
Channels
Revenue streams
Key activities
Key partners
Key resources
Cost structure
In this post, I'm going to walk you through the first five elements -- the right half of the canvas that deals with your customers -- using the working draft of the business model canvas for the Village Coffeehouse, the winner of my Social Enterprise Challenge, as a real-world example. I'm going to go through each of the elements in a logical order (presented above) that has worked best for me.
1. Customer Segments
Everything starts with your customers, without whom you have no business, and around whom the rest of the business model is built. As is the case in all elements of the business model canvas, the goal here is not to describe every detail; rather just the defining characteristics of your most critical customer segments. The Village Coffeehouse's key customer segments include those listed in the figure to the right. These customer segments are presented more or less in order of priority, although that could (and likely will) change once the doors open.
2. Value Propositions
A value proposition defines the core benefits, or value, that an enterprise provides to its customers, expressed in terms that are meaningful to them. It's often the case that an enterprise will need to offer a slightly different value proposition for each distinct customer segment. (For ease of reference, I've matched the colours of the Village Coffeehouse's various value propositions to their respective customer segments.) You will want to validate each of these value propositions by consulting with representatives of each corresponding customer segment before, during, and after you launch your enterprise -- remaining open feedback that will help you refine and enhance your offering.
Perhaps the most important thing to remember about this whole exercise is that, as a social enterprise, you will first need to ensure that you offer the same or better value (quality and price) as your mainstream competitors. Only then will your customers be open to embracing your social impact. For the Village Coffeehouse to be a successful social hub -- a "third place" where people find and create community -- it will have to offer the same excellent coffee, food, and service that customers would expect to find at their favourite mainstream alternative (e.g. Starbucks, Tim Horton's, Second Cup, etc.). Repeat after me: first, you sell them what they want to buy (great coffee), then you can sell them what you want them to buy (community). Even the best, most supportive customers will only buy once if your product is inferior, no matter how great your social impact may be. Now, of course, there will be a line that you're not willing to cross -- a product or service feature that certain customers want, but that may be at odds with your social mission. For example, the Village Coffeehouse, as a social hub, would likely never offer drive through service; it's hard to create community if everyone stays in their cars...
3. Customer Relationships
One of the things that I like about the business model canvas is that it gets you to really think about the kind of relationship you ideally want to create with your customers. Over time, that relationship will become a critical part of your value propositions, especially if you're looking to create a high-engagement relationship.
Customer relationships exist on a continuum, from low to high engagement:
Self-service - e.g. vending machine (very limited engagement)
Self-service+ - e.g. iTunes (where the "+" is tracking your previous purchases, making recommendations for new purchases, and storing your ordering information)
Personal service - e.g. your local supermarket (you'll be served by a real person, but you don't get to choose who)
Dedicated personal service - e.g. your hairdresser (who, over time, gets to know your unique needs and preferences, and who tailors their service to reflect this)
Community - e.g. your favourite pub or local farmers' market (where you feel like you're part of a community)
Co-creation - e.g. Kijiji, Facebook, or Airbnb (where customers play an active role in creating the value proposition)
As a social hub, the Village Coffeehouse's will seek to create a "community" relationship with all its customers.
4. Channels
Channels relate to all the ways that you will connect with your customers, from how they come to be aware of you, to how they make a purchase, to how you deliver your product to them, to how you will follow up with them after the sale. The channels you choose should align closely with the buying behaviour and media preferences of your various customer segments, making it easy and convenient for them to learn about and interact with your enterprise. And they should be consistent with your value proposition and desired relationships.
The Village Coffeehouse will use slightly different promotional channels for each customer segment, tailored to their unique media and buying preferences. It's as simple as asking the question, "How do they already get information about this kind of product?" You can answer this question through direct observation of your customers, or -- and this is easier and more accurate -- by just asking them directly. Don't assume that you know their preferences.
With purchasing and delivery channels, the Village Coffeehouse is somewhat limited to its retail location. And, even if it could offer drive-through service, that would be at odds with creating a community space.
5. Revenue Streams
It's just a hobby until you identify reliable revenue streams that will cover your operating costs and generate a modest profit. Social enterprises, because of the social impact they make, have the potential to access not just sales revenue, but also a variety of social revenue streams, such as gifts, sponsorships, donations, and grants. This social revenue generally comes from people and organisations who value and want to support the social impact that your enterprise will make. They are often not paying customers (although they can be), and are more likely service clubs (e.g. Rotary, Lions, etc.), foundations, crowdfunding supporters, or government agencies. And let's not forget fundraising schemes like auctions and "50/50" and "Chase the Ace" draws (in 2016, the Inverness Legion raised 15 years' worth of fundraising with just one "Chase the Ace" draw, with half the net proceeds going to support a local social enterprise). To access this kind of social revenue, your enterprise will need to be clearly seen as directly addressing a pressing community issue. In the Village Coffeehouse's case, creating an accessible community space may lack that connection, initially at least. So, the founders have decided to focus on sales revenue for now.
How it all Fits Together
Click here to see how the various elements of the business model canvas fit together. What you'll see is a simple, one-page description of the Village Coffeehouse that is great for designing, refining, and communicating the business model.
More to Come...
In my next post, I'll turn my attention to the left side of the business model canvas, where we'll focus on what the enterprise will have to do, and the resources and partnerships it will need, to deliver its value propositions. As always, feel free to post a comment below or email me directly at andyhorsnell@gmail.com