We integrate the 9 key building blocks involved in the business model into a "business model canvas", each building block corresponds to a space on the canvas, and by filling these spaces with corresponding content, we can depict the business model or design a new business model.
The best way to use it is to project it on a large background, so that people can use post-it notes or markers to draw together and discuss the different components of the business model. It's a hands-on tool that fosters understanding, discussion, creativity, and analysis.
What is a Business Model Canvas?
The Business Model Canvas covers the 4 main aspects of business: customers, offerings (products/services), infrastructure, and financial viability. Subdivided, it can be divided into 9 building blocks:
Customer segmentation: The question that customer segmentation solves is "Who are we creating value for?" and who are our most important customers?"
Value proposition: The value proposition addresses the question of "what value do we deliver to our customers?" What challenges are we helping our customers solve, and what customer needs are we satisfying?" to create value for customers.
Channel channel: The company communicates and reaches out to its segmented customers to deliver its value proposition through channel channel. "How do we integrate our channels? Which channels are the most effective, which channels are the most cost-effective, and how do we integrate our channels with our customers' routines?"
Customer relationships: Customer relationships are used to describe the type of relationships a company has with a specific customer segment. "What kind of relationships do each of our customer segments want us to build and maintain with? What are the costs of those relationships, and how do we integrate them with the rest of the business model?"
Source of revenue: If the customer is the heart of the business model, then the source of revenue is the artery. "What kind of value makes customers willing to pay? How are they more willing to pay? What percentage of total revenue is each revenue stream?"
Core resources: Every business model requires core resources that enable organizations to create and deliver value propositions, reach markets, build relationships with customer segments, and earn revenue. Core resources can be physical assets, financial assets, intellectual assets, or human resources.
Mission-critical: Like core assets, mission-critical businesses are fundamental to creating and delivering value propositions, gaining access to markets, maintaining customer relationships, and generating revenue. Critical businesses can be divided into categories such as manufacturing products, problem solving, platforms/networks, etc.
Key partners: The optimization of business models and the use of economies of scale, the reduction of risks and uncertainties, and the acquisition of specific resources and business contribute to the creation of partnerships. Many companies create alliances to optimize their business models, reduce risk, or access resources.
Cost structure: Cost structure building blocks are used to describe all the costs associated with running a business model. There are two types of cost structures: cost-driven and value-driven, and many business models fall somewhere between these two extremes.
Design new business models
Business people design unconsciously every day. We design organizations, strategies, business models, processes, and projects. In order to design a new business model, we must consider the complex environment, such as competitors, technology, law, and environment. What business people lack is a mastery of design tools that complement their business skills.
Now, I'm going to introduce 6 approaches to designing business models: Customer Insight, Ideation, Visual Thinking, Prototyping, Storytelling, and Scenario Speculation.
1. Customer insights
Companies put a lot of effort into market research, but they often ignore the customer's point of view when designing products, services, and business models. We want to look at the business model from the customer's point of view, which allows us to find new opportunities. This doesn't mean that the business model should be designed exactly with the customer's mindset in mind, but it needs to be evaluated with the customer's mindset in mind. Innovation success relies on a deep understanding of the customer, including the environment, the day-to-day business, and the customer's concerns and desires.
Apple's iPod is a good case in point. Apple knows that people need to be able to search, download and listen to digital content, including music, and that users are willing to pay for a service that successfully solves these problems. Apple has built a seamless music experience for its customers, integrating iTunes music with media software, the iTunes online store, and the iPod media player. A business model centered on this value proposition has made Apple a leader in the online digital music market.
We can use an empathy map, which is a visual thinking tool. We can call it the "Simplified Customer Profiler," a tool that helps you look beyond your customers' demographics to better understand their environment, behaviors, concerns, and desires.
2. Creative ideation
A new business model requires generating a large number of business model ideas and selecting the best ones, which is a creative process. This process of collecting and screening is called ideation.
The ideation process can take many forms: key issues of team composition, key issues of engagement, key issues of scaling, key issues of conditional selection, and key questions of "prototyping".
3. Think visually
Visual thinking is essential for work related to business models. By visual thinking, we mean using visual tools such as pictures, sketches, diagrams, and post-it notes to structure and discuss things. Because a business model is a complex concept of building blocks and their interrelationships, it is difficult to truly understand a pattern without depicting it.
There are two techniques for convenient and practical visual thinking: post-it notes and sketches that combine business model canvases. Post-it notes function like containers for ideas, and you can add, decrease, or adjust between the building blocks of your business model. And drawings can be even more effective than sticky notes. Sketches and drawings work in many ways. The most obvious role is to explain and communicate business models based on simple drawings.
4. Prototype production
Prototyping comes from the fields of design and engineering, where prototyping is widely used in product design, architecture, and interaction design. You don't have to think of a business model prototype as a sketch of a business model. Rather, a prototype is a thinking tool that can help us explore different directions – which are the directions that a business model should try to choose.
Prototypes serve as a thinking aid to explore new possibilities and can help us gain a better understanding of the nature of business models. The same design philosophy can be applied to business model innovation, and by creating a prototype business model, we can explore aspects of the idea, such as new revenue streams.
5. Storytelling
The purpose of storytelling is to present a new business model in a concrete way. The content of the story must be simple and easy to understand, and only one protagonist is needed. It can be viewed from both the company and the customer. Storytelling can employ techniques such as conversations and drawings, video clips, role-playing, text and drawings, comic strips, and more.
6. Scenario speculation
Scenario speculation can play a good role in the design of new business models and the innovation of existing models. Scenario speculation turns abstract concepts into concrete models. Its main role is to help us familiarize ourselves with the business model design process by refining the design environment. Two common scenarios are to describe different customer backgrounds and to describe future scenarios in which new business models may compete. Customer scenario speculation can guide us to make the right choice in business model design, and in the design of future business models, it is generally more convenient and effective than relying on brainstorming.
For CEOs, it's important to understand the differences between the different tools involved in designing a new business model. We do need a lot of concerns in terms of thinking, and what we need is to keep testing and innovating, so that ideas don't become rigid too early, which is very important.