Back To CourseBusiness Writing: Help & Review
10 chapters | 87 lessons
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Scott has been a faculty member in higher education for over 10 years. He holds an MBA in Management, an MA in counseling, and an M.Div. in Academic Biblical Studies.
The single most important component of a new company is its business model. A business model is a framework or high-level roadmap containing the specific details about how the startup will succeed in the marketplace. A business model canvas is a powerful tool that can be used by entrepreneurs to answer key questions regarding their business model. The canvas is a template or guide that can be used to record and develop ideas relating to a startup's business model. The sections of a business model canvas are laid out to ensure that the entrepreneur has considered all of the important factors used to determine an appropriate business model.
Let's now go over each of these.
A business model canvas will help the new company identify its customer segments. In this section of the canvas, the entrepreneur answers very important questions. Those questions are:
SendAPackage.com is an excellent example of a niche business with a narrow customer base. This innovative company became the exclusive provider of packages sent to incarcerated individuals in New York. People wishing to send a care package bought it directly from SendAPackage. The company only stocked permissible items, packaged them per prison policy, and the mailroom was able to distribute them with minimal additional inspection.
A value proposition answers the questions:
The company LegalShield offered a unique but successful value proposition: prepaid legal services. LegalShield offered the 'everyday family' immediate access to a lawyer. No, LegalShield won't defend you in a protracted legal battle, but it will provide an immediate legal consultation 24/7 for customers facing a variety of civil and criminal issues.
In this context, channels are the pathways that bring a good or service to the customer who needs it. On the business model canvas, it should include the ways the new organization will get its products to the people who value them.
The Department of Veterans Affairs (VA) is utilizing an innovative channel that is catching on all over rural America: telemedicine. When veterans living in rural areas without a physician need routine medical care and follow-up, they can videoconference with a physician and avoid a trip out of town for basic care.
Ace Hardware has used its strong customer orientation to thrive in the era of the big box stores, such as Lowe's and Home Depot. Rather than try to compete head-to-head, Ace adopted the slogan 'Ace is the place with the helpful hardware folks.' Its television ads attempt to build a customer relationship by emphasizing its approachable staff who have more than enough time to talk with a customer for as long as necessary. When customers walk into an Ace Hardware, they don't expect over a thousand varieties of weed killer, but they do expect to speak with someone who can help. That's Ace's customer relationship, and that's what makes it successful.
In the past few years, websites such as PirateBay.org have used the BitTorrent protocol to facilitate the sharing of millions of dollars' worth of bootlegged software. The BitTorrent protocol breaks a large software program into tiny pieces stored on thousands of computers all around the world. It's difficult to capture and prosecute illegal sharing using this protocol because no single individual is sharing the entire program and no illegal copies are being stored on any specific server. Large companies such as Adobe and Microsoft saw their intellectual property and revenue slipping away. These companies hypothesized that customers would actually pay for the software if it were not so expensive up front. They were right. Rather than selling a single software package for thousands, both companies launched subscription products that allowed customers to use an entire suite of products for a monthly fee. The moral of the story? When one door closes, another opens. Microsoft and Adobe found new revenue streams to make up for their losses.
One of the most common and deadly rookie mistakes made by new entrepreneurs is confusing cost with value. Reasonable cost is necessary to provide a good value, but an exceptionally low cost that reduces quality is of no value at all and may permanently damage the company's reputation. With that in mind, the entrepreneur's business canvas should contain information that reflects the intent to secure revenue streams by adding value rather than by setting a price point below the lowest competitor.
All organizations have relationships that are vital to their success. The level of dependency may be different, but a startup must carefully consider the resources it needs to deliver on its promises to customers. When a university wants to educate a biology major, it needs resources such as microscopes, anatomy labs, and animals for dissection. Without these things, the university couldn't deliver on its promise.
Key activities are the things a business simply must do to deliver what the customer expects. In an industry such as air travel, key activities would be the reservation and ticketing process, flying the aircraft, and transporting cargo.
Key partners are the people or entities whose cooperation is vital to the startup. A physician opening up a new clinic needs a partnership with the local hospitals, and a community college needs strategic partnerships with area universities.
It's appropriate to consider the cost structure as the final element of a business model canvas because it's ill advised to address cost before understanding a customer's needs and expectations. Choosing a cost structure should be based on market conditions and internal considerations. It is perfectly okay not to be the lowest cost option, but higher costs must contain additional value as well.
Let's review. A business model is a plan that determines how a startup company will be successful and achieve the desired outcomes. To establish this, entrepreneurs use a business model canvas as a tool to help them answer the most important questions as they build their businesses.
The first two sections of the business model canvas include defining the customer segments and the value propositions. The customer segment is a concise description of the organization or individual who will find the most value in the start-up's product or service. The value proposition is a description of the customer's pain and the way that the start-up will resolve or improve the customer's situation.
Next are the channels, which describe the ways to deliver a product or service. Then customer relationships help the startup consider how an organization will communicate with its customers through the entire process. There's also the revenue streams, which are considerations about how and where the company will obtain the money it needs to operate.
Then there are the three key components in a business model: activities, resources, and partnerships, which address the specific things that a business must do, the things it must have, and the relationships it must maintain to be successful. Finally, the cost structure is a determination about what a business must charge its customers to maintain all the previously identified information.
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Back To CourseBusiness Writing: Help & Review
10 chapters | 87 lessons