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Business Model Canvas: Definition & Examples

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  • 0:04 Business Model & Model Canvas
  • 0:42 Building Blocks of the…
  • 5:55 Lesson Summary
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Lesson Transcript
Instructor: Scott Tuning

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.

Entrepreneurs and startups need a solid business model in order to be successful. This lesson discusses the use of a business model canvas as a way to gather and analyze data that can be used in the business model.

Business Model & Model Canvas

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.

Building Blocks of the Business Canvas

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:

  • Who is going to find value in my product?
  • What are the characteristics of my most important customer?

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:

  • Why do our customers want us to do this?
  • What is the problem we are trying to help them solve?

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.

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