10,000-word long article: build a commercial combat map of the product through the commercial canvas

In the two articles "Value Chain Analysis Magic, Leading You to Find the Golden Node of Market Position" and "Value Curve, the Secret Weapon Entrepreneurs Need to Know", Uncle Feng introduced the basic principles and methods for determining market segment positioning. After determining the market segment positioning, we also need to further think and design the most appropriate business model.

Business model is a word that appears very frequently, and there are always a lot of descriptions of business models in business books, magazines, media and magazines. What exactly is a business model? Before we start thinking about it, we need to define it.

"A business model is a process by which an organization creates and delivers user value, and continues to make a profit from it."

From the above definition, we can find four key words.

1. Value creation: Creating user value is the premise of the business model, if a company obtains excess profits without creating user value, this is not a business model, but may be plunder.
2. Deliver value: Delivering value is the channel of the business model, the business model is not made behind closed doors, "the wine is good and the alley is deep", only by delivering the value to the hands of the target users, can the business model be implemented.
3. Profit: Profit is the result of the business model, which is not charity, but needs to be for profit. A business model that does not make a profit is not a good business model.
4. Continuity: Continuous profit is the purpose of the business model, and the act of only doing one vote cannot be called designing a business model, but can only be called speculation.

First of all, it's not appropriate to think about the business model before you have determined the niche positioning, because we don't know what to do yet, and we can't talk about the design of the business model.

Secondly, the design of the business model is also a more in-depth analysis of the business plan in advance, which is used to evaluate whether the matter is worth continuing to do, and only when the business model evaluation is feasible can there be a subsequent process of value creation, value delivery and value verification.

In this article, Uncle Feng will introduce a very effective way of thinking about business models, Business Canvas.

1. Understand the commercial canvas

A complete business model that includes nine core elements: target customers, key problems, value propositions, solutions, partners, channels, key metrics, revenue models, and cost structure.

The division of these nine elements can be applied to almost any subdivided industry. Designing a business model is all about thinking, analyzing, and designing the content, strategy, and relationships of these nine elements.

1. Target audience

The target customer group is the core of any business model, and only by providing products and services that meet the needs of customers to the target customer group will there be commercial profits. In "STP, an analytical framework that every product manager should be proficient in", Uncle Feng introduced the method of target customer segmentation in detail, which will not be repeated in this article.

2. Key Questions

The key problem refers to the problem that the target customer group needs to solve the most in a specific scenario, and the so-called problem is the task that the customer needs to complete. Each key question needs to explain a clear and detailed user story, that is, what characteristics of the person, in what scenario (time, place, environment, context), what kind of tasks need to be completed, what problems the TA encountered, and what kind of distress or loss was caused to the TA.

The number of key questions does not need to be too much, at most three, but it must be detailed, the more detailed we understand the key issues, the more we understand the real needs of the target audience. While listing the key problems, it is also necessary to list how the key problems of the current target customer group have been solved and what are the shortcomings of the current plan.

3. Value proposition

A value proposition is a collection of benefits for a business to provide to a target customer, and it is why the target customer group chooses us over a competitor. In "Value Curve, the Secret Weapon Entrepreneurs Need to Know", Uncle Feng focuses on several common value propositions, as well as value curve analysis methods to help determine value propositions. It's important to note that the target audience and the value proposition are mutually reinforcing, and they influence each other when designing a business model.

4. Solution

A solution is a solution that we design around a value proposition to solve a key problem for our target audience. The solution can be a product or a service, and the core is to help the target customer group complete the task in a specific scenario. We need to think about how our customers are solving these problems now, and how we can better help them solve them. Usually there is more than one solution, we can list the best three solutions, and make a comprehensive comparison in terms of customer problem solving, solution cost, added value, competitiveness, etc.

When thinking about solutions, we also need to think about the core resources we rely on, such as production resources (including production equipment, plants, warehouses, stores, computers, systems, etc.), knowledge resources (including patents, copyrights, brand authorization, customer data, etc.), human resources (the operation of enterprises is inseparable from R&D, design, marketing, management and other talents), financial resources (including own funds, bank loans, stock option pools, etc.).

5. Partners

The solution is the key partner we rely on to solve the key problems of our target audience. Partners are our companions on the road of business, and they are enterprises or individuals who create and deliver value with us.

The most important partners include suppliers (supply the raw materials or parts required for the company's products, and the relationship between the enterprise is purchasing and being purchased), manufacturers (help the enterprise to produce and manufacture products, and the enterprise is a commissioned production relationship), distributors (help the enterprise sell products, and the enterprise is a commissioned sales relationship), agents (help the enterprise to represent related figures, such as advertising agency, patent agency, financial agency, legal agency, etc.).

6. Channels

Channel channel is the channel through which an enterprise delivers its value proposition to its target customers, and can be divided into two categories according to the role of the channel.

The first type of channel is the marketing channel, which is mainly used to let the target customer group know the company's products and value proposition. Commonly used marketing channels include online channels (e.g., Tmall through train, WeChat Moments, Douyin information flow, WeChat official account, etc.), offline advertising (e.g., elevator advertisements, shopping mall curtain walls, subway light boxes, etc.)

The second type of channel is the transaction channel, which is mainly used to allow the target customer group to complete the transaction purchase of products and obtain relevant after-sales service. Commonly used transaction channels also include online channels (e.g., third-party e-commerce platforms, brand-operated mini-programs/apps) and offline channels (e.g., brand-operated stores, franchised stores, supermarkets, etc.)

In many cases, marketing channels can also be transaction channels, such as enterprises opening stores on Tmall, placing advertisements on the Tmall platform, and users can directly click into the Tmall store to complete the purchase. For example, in the offline stores of enterprises, consumers can directly enter the store to consume when they see the storefront signboard.

7. Key Indicators

The role of key indicators is to quantify and track the true performance of our solutions to meet the needs of the target customer group, without the monitoring of key indicators, the business is like a ship sailing in the dark and easy to get lost. Typically, key metrics are set from three perspectives: product, channel, and finance.

1. Product indicators: The acceptance and liking of the target customer group for the product are revealed, and the commonly used product indicators include monthly activity, average daily usage times, average daily usage duration, product recommendation index, number of buyers, purchase rate, repurchase rate, etc
2. Channel indicators: It reveals whether the marketing and transaction channels of the product are smooth, and the commonly used channel indicators include the number of exposures, click-through rates, and the number of people entering the store
3. Financial indicators: It reveals whether the product can obtain reasonable commercial profits, and commonly used financial indicators include total revenue, growth rate, gross profit margin, net profit margin, return on investment (ROI), etc.

Among all the indicators, enterprises need to set the most critical indicator, which is also called the North Star indicator, and when there is a conflict between multiple indicators, the North Star indicator is the highest guiding standard.

8. Charging Model

The fee model is a way for businesses to make profits, and it is also a crucial element of the business model. Common charging models include the following types:

• Charge by product: that is, for each product sold, earn the difference between the selling price and the cost as a profit, which is also the most common way to charge, such as electronic products, clothing, beauty, home, catering, food and other industries. After the product is sold, the ownership of the product is transferred from the merchant to the consumer.
• Pay-as-you-go: Charges are based on the actual usage of the product, which is commonly found in Internet and software-related products. For example, in the field of cloud computing, users are charged according to the actual computing, storage, and network consumption of the machine, for example, in the field of e-books, users are charged according to the subscription time, and in the case of shared bicycles, users are charged according to the length of the ride. Under the pay-as-you-go model, the ownership of the product still belongs to the enterprise, and the user only has the right to use it.
• Member-by-member fee: Admission fee is charged, and you can enjoy specific services after becoming a member. The most successful membership fee model of the enterprise is Costco and Sam's, users need to pay a membership fee for a specific annual fee first, and then they can enjoy Costco and Sam's high-quality and low-cost products. Amazon Premiun and JD Membership are also in this model.
• Charge by lease: Charge a fixed lease fee according to the contract, which is commonly found in shopping malls, equipment leasing and other industries. Wanda Plaza is a typical business model that charges rental fees, with Wanda using its own brand to bring offline traffic to merchants and at the same time collect store rent from merchants. The higher the traffic, the more expensive the rent.
• Charge by traffic: Charge according to the amount of user traffic you bring, which is common in the Internet advertising industry. Due to the Internet's easy data finalization, advertising platforms can accurately count the number of impressions and clicks of each advertisement, so it is naturally suitable for charging by traffic. Ad networks typically charge CPM and CPC on a CPM basis, CPM stands for Charge Per Thousand Impressions and CPC stands for Charge Per Thousand Clicks. There are more ways to charge for advertising platforms, which Uncle Feng will introduce in detail in subsequent articles.
• Commission-based charges: Usually used for platform enterprises, a certain percentage of fees are charged as commissions according to the turnover of merchants settled on the platform. In addition to charging advertising fees, Taobao Tmall will also take a certain commission for specific industries. WeChat payment and Alipay payment are also typical commission-based charging models, according to the amount of payment by consumers, a commission ranging from 2/1000 ~ 6/1000 is extracted
• Per-license fees: Per-license fees are essentially licensing fees and are common in the software industry. For example, Windows software is a license fee.

Entrepreneurs need to design the most suitable fee model for the business based on the actual target customer group and value proposition.

9. Cost Structure

The cost structure mainly describes how much cost is incurred by the various elements of the business model.

Costs can be divided into fixed costs and variable costs: fixed costs refer to costs that do not change due to the sales volume of products, including store and plant rent, production equipment, and wages of R&D and design personnel, and variable costs refer to costs that will change due to the sales volume of products, including product raw materials, sales staff costs, logistics and distribution costs, and packaging costs.

When a company's sales volume increases, the fixed cost of a single product will be smaller because it is evenly apportioned, so that it can be sold at a lower selling price and maintain the same profit margin, which is the scale effect.

We should try to choose sub-sectors with a small proportion of fixed costs to avoid investing a lot of resources in the early stage.

The above nine modules, according to the structure of the following figure, are drawn at the same time to form the business model canvas.

Before we commit resources to product development, we can think about the content and strategy of each step on this diagram. It is also possible to create a business canvas for each type of industry segment and target customer group for evaluation.

At present, in the process of actual analysis, there may be some content that you can't find the answer to for the time being, so leave it blank. The blank part may be the riskiest part of your business model

Also, the Business Canvas isn't just used before launching a business plan. Throughout the implementation of the business plan, entrepreneurs should also often review, think and even overturn the original business canvas.

2. A successful case of a commercial canvas

Notion is a note-taking application that integrates notes, knowledge bases, data tables, calendars, kanban boards and other capabilities, with a super product experience, it has achieved rapid growth in just a few years after its launch, and is even known as "the best note-taking software in history".

Notion's target customers are primarily knowledge workers, teams, and enterprises who need a simple, flexible, and easy-to-integrate solution to increase productivity. Customers experience the following pain points when using traditional note-taking software:

First of all, the note-taking process is cumbersome. Traditional note-taking software is usually powerful, with a large number of operation buttons and plug-ins, but it is more complex to use, requiring users to spend more energy and time to set up and operate, such as font, size, typography, paragraph spacing, etc.

Second, there is a lack of personalization and flexibility. Traditional note-taking software usually only provides fixed interfaces and templates, which cannot meet the personalized needs and usage habits of users. For example, users will encounter great obstacles when they want to adjust the content style, background, and layout method.

Third, there is a lack of external tool integration. Traditional note-taking software is difficult to integrate seamlessly with other commonly used tools, such as browsers, databases, emails, etc., resulting in users needing to switch frequently between different tools, reducing efficiency. For example, if a user wants to paste a table in Excel, he needs to select the table he wants to copy in Excel first, and then manually paste it into the note, which will cause serious formatting and typography problems.

Fourth, teamwork is difficult. Traditional note-taking software is more used in individual writing scenarios, and the solutions in team collaboration scenarios are insufficient, making it difficult to achieve multi-person collaboration.

Compared to traditional note-taking software, Notion offers its core value proposition of high flexibility, powerful collaboration features, and cross-platform compatibility, which makes it very easy for users to create any custom content module, manage all their notes, tasks, and knowledge base in one place, while easily sharing and collaborating with team members. To achieve this value proposition, Notion's solution includes the following core capabilities:

• Content Combination: Notion breaks the traditional way of combining content in note-taking software, and subverts the previous perception of note-taking apps through a revolutionary concept. The basic object in Notion is a Block, which can be in a variety of forms, such as a table, text, web page, code block, image, video, file or simply a Page
• Page structure: Notion's Page feature allows users to create a standalone note, similar to the functionality of a favorites. Different pages can be nested within each other to form an infinite level of knowledge base, which helps to build a complete body of knowledge and organize the content of related notes together.
• Database function: Notion's database function is very powerful, providing five different display methods: Table, Board, Calendar, List, and Gallery, which correspond to various usage scenarios. At the same time, it also supports switching between these five display methods, and with the Filter function, you can generate the most suitable display effect according to different attributes.
• Shortcuts: Notion's editing interface is very clean, it doesn't have a dense toolbar like Word, it only has a blank page. In any state, enter the oblique bar /, which can evoke shortcut commands, which is convenient for users to quickly insert pictures, tables, symbols, expressions, mathematical formulas, etc.
• Content templates: Notion provides a lot of ready-made templates, covering design, code, education, product management, sales, and other scenarios. Notion has even set up a template market, and many beautiful templates can also achieve good sales in the market, which further promotes the ecology of templates.

On key partners, Notion has partnered with other apps and services, such as Slack, Google Drive, and more, to enhance its product capabilities. In addition, Notion works with third-party developers to create and integrate external applications and plugins to meet the diverse intellectual work needs of users.

In the channel channel, Notion did not spend too much money on advertising, but chose the PLG growth model, that is, Product-led-growth, which uses the explosive word-of-mouth of the product to promote and spread among users. Notion also has a special position called "Notion Ambassador", that is, Notion, who is responsible for building high-quality user communities in specific countries and regions. Ambassadors take the initiative to lead their local communities, produce training sessions, create and share templates, and even organize offline meetups for users.

In terms of key metrics, Notion focuses on user growth, active users, retention and revenue growth, with Notion taking monthly active users as the North Star indicator, which reflects the stickiness and retention of users to Notion's products.

Notion's main source of revenue is the subscription-based payment model, where users can choose different subscription plans based on the storage space they need, the number of collaboration members, and other advanced features. Notion provides a free version to provide users with basic product capabilities and facilitate the rapid increase of user scale. At the same time, Notion also offers plus, business, and enterprise editions, taking the plus version as an example, compared to the free version, it provides unlimited Blocks, unlimited file uploads, and other features.

Notion's cost structure is divided into two parts, the fixed costs are mainly developer costs and office space costs, and the variable costs include marketing team costs, marketing expenses, and public cloud costs.

We combine the nine elements of Notion's business model to get a detailed Notion business canvas, as shown in the figure below.

Of course, Rome wasn't built in a day, and Notion's business model has been explored and polished for nearly a decade to gradually form what it is today. For any start-up team, it is also necessary to constantly polish the business model, and it also needs to have different focuses at different stages of development, which Uncle Feng will introduce below.

3. Gradually optimize the commercial canvas

The nine modules of the commercial canvas are all very important, but it does not mean that we should pay the same attention to each module, we should put different weights on different modules at different times and according to the actual environment.

Initiation Phase 1

At this stage, when we are just starting to create an idea to build a new business, we need to do a lot of market research and customer research, and we should focus on the target questions and key issues.

We need to go through extensive and rigorous analysis to identify the target customer profile, as well as the three most important problems that the target customer needs to solve in a specific scenario, and list the existing alternative solutions, that is, how competitors or substitutes solve this problem before our product is available.

At the same time, we need to tap potential early seed customers, because when the product is launched, it is difficult for the new product to be recognized by a large number of target customers immediately, and we need early seed users to gradually cultivate them from early adopters to loyal fans.

We can tap early seed customers on social networking sites, community forums and other channels, become friends with them, and obtain the needs and problems of potential users through more detailed communication, which helps us confirm that the market is real.

Initiating Phase II

At this stage, after the initial confirmation of the real problems of the target audience, we need to focus all our energy on thinking about the value proposition, which is the unique selling point.

Starting from the customer problems that need to be solved, combined with the characteristics of current competitors and potential substitutes, the unique selling point of the product is deduced through the methods introduced by Uncle Feng in "Value Curve, the Secret Weapon Entrepreneurs Need to Know". We are also in close communication with potential seed customers acquired in the first phase of the launch to ask if they are willing to pay for our unique selling points.

When communicating with potential seed customers, we should design an easy-to-understand language for our unique value proposition, which can be easily understood by early users and can be used for subsequent product marketing. It's important to note that we should advertise the benefits of the product to seed users, rather than introducing the specific features of the product.

Product MVP stage

At this stage, after confirming that the target customer group will pay for our unique value proposition, we need to focus all our energy on the solution and partners, that is, the development, design and production of the product, polishing the first version of the product, which is the most critical part of our value creation.

In terms of solutions, we need to think about what kind of design, technology and services can most intuitively deliver our unique selling points to the target audience. There are many needs of the target customers, and we need to prioritize the requirements, first design the first version of the product at a lower cost, and give priority to solving the core problems of the customer. The product's function, appearance, operating process, and usage guidelines all need to match the value proposition.

We also need to look for a partner who can help us with the first version of the product, which means that the maturity and yield of the product are not too high, and it is not easy to find the higher quality manufacturers who are willing to provide trial production services.

After the MVP version of the product is completed, don't rush to expand the channel immediately, and don't worry too much about the revenue model and cost structure, the biggest goal is to get feedback from the target customer group as soon as possible, so that it is easy to determine whether our value proposition is real and people are willing to buy. Do you remember the seed customers you found in the start-up stage? Give the product to the seed customers for trial first, and you don't need too many customers to get effective feedback, only a few high-quality customers.

This product MVP method is not only suitable for the Internet industry, but also suitable for traditional industries. For example, if our goal is to open a chain coffee shop, then the first store we open is the MVP version, and we need to use this store to run through the business model and prove that a store can be profitable.

Product optimization phase

At this stage, after the MVP version of the product has been initially recognized by seed customers, the product has been confirmed by the market to be able to solve the needs of the target customer group. However, the specific scale can be achieved, how much output needs to be produced, and what aspects should be iterated still need further analysis and verification. At this stage, we need to start looking at revenue models and cost structures.

Focusing on revenue patterns means we need to start thinking and identifying a few questions. How should I charge my target audience?How much should I price the product?If we are going to make a fee-based product, then we should charge from the beginning, because offering a free product or service will make seed customers not want to take the time to actually experience our product, and most people will often leave it aside after getting the free thing. This kind of mistake often occurs with entrepreneurs on the enterprise side, especially SaaS products. If we offer a free product to a business, there will never be a user who will take it seriously.

At the same time, the pricing strategy will also help us to screen and identify the target group, and free will not help us to screen the customer group. Someone is willing to pay for your product, and it's also an affirmation of the rudimentary level of your value proposition. It should be noted that if we make Internet traffic products, in the end, not by the product itself to make profits, but by advertising, then the free model is the killer feature.

Paying attention to the cost structure means that we need to start thinking and determining: what are the fixed costs and variable costs? can the product price cover the costs? how much can the gross and net profit margins of the product be in the short and long term? we also need to pay special attention to the break-even point, which determines how many products we need to sell at least to avoid losing money.

Product expansion phase

This stage is after the product has been optimized and officially met the commercialization standards, and it means that after rigorous revenue and cost calculations, this matter is profitable, and then we need to shift our efforts to channel channels and key metrics.

For marketing channels, we need to know which channels our target customers are mainly active in, and deliver our value proposition to the right users. In the case of limited resources in the early stage, the author does not recommend spending a lot of resources on paid advertising promotion, but should make better use of free marketing channels, including search engine optimization, official account/Zhihu/Xiaohongshu/Douyin and other free content creation platforms.

For transaction channels, you need to decide whether to open a store on an online e-commerce platform, an offline store, or build your own private domain e-commerce from the beginning. There is no standard answer here, and you need to make judgments and decisions based on your own actual situation. At the same time, the author strongly recommends that the start-up business should not find someone to sell on behalf of the business first, and the founding team must first personally sell the product, communicate closely with the target customer group, and obtain direct feedback from users at any time. When the entire business model is successfully verified and the product enters the mature period, the consignment business will be carried out.

Finally, there are key indicators, which we need to define and track well. Marketing indicators are used to analyze whether the link from marketing to transaction of products meets expectations, and when the marketing link is not smooth, it will lead to damage to product sales. The product usage index is used to analyze the actual use of the product by the target customer group, such as the usage rate, usage time, retention rate and other indicators. Business indicators are used to measure whether the profitability of a product is qualified, including product order volume, revenue, gross margin, net profit margin, etc.

Fourth, summary

Business Canvas is a very convenient and effective visual tool for thinking and designing a company's business model, and it presents how a business creates, delivers, and captures value through nine key modules.

If the journey of entrepreneurship is compared to a march to war, then the business canvas is our best combat map, which is worth every entrepreneur's time to observe and think about seriously.

Author: Uncle Feng, WeChat public account: Feng Shuyun

This article was originally published by @风叔 on Everyone is a product manager, and it is forbidden to reprint without the permission of the author.

The title image is from Unsplash and is licensed under CC0.

The views in this article only represent the author's own, everyone is a product manager, and the platform only provides information storage space services.