On Monday we began a week-long series on how to plan through this current pandemic. We identified four steps that every organization should be taking within the context of three planning horizons. Today we are looking at Business Modeling. This is a big topic, so today’s article is longer than normal.
The Business Model Canvas was developed by Alex Osterwalder starting in 2005. It effectively summarizes an entire business into nine elements. The Business Model Canvas has become an essential element for entrepreneurs following the Lean Startup methodology.
When you look at the canvas, there’s an obvious break between the top section (business decisions) and the bottom section (the financial impact). Less obviously, the canvas can be broken in half left and right. At the center is the “Value Proposition” and this truly is the core of the business model. We like to call the right half, the “Front End” of the business model, and it represents the decisions made in order to bring that value proposition to market. The left half, or the “Back End” of the business model, represents all the decisions that enable the business to successfully deliver that value proposition to the target customers. Successful execution of the Front End results in the Revenue Streams. Successful execution of the Back End requires investment represented here by the Cost Structure.
While your business model has likely already been well established, it is important to understand how it might change, or where there may be stresses on the business model during each of the three planning horizons under different scenarios.
The most important elements to deeply understand first in building out a business model are the Value Propositions and the Customer Segments. Osterwalder and his team at Strategyzer have developed an additional tool for understanding these elements, which they call the Value Proposition Canvas.
On the right side of the Value Proposition Canvas is the Customer Profile which provides a structured approach to understanding the targeted customer segment and their thought process in purchasing a certain type of product or service. This profile is developed entirely from the customer’s perspective using their language and based on their values and perspectives. The Customer Profile begins with the Customer Jobs section which describes what customers are trying to get done in their work and/or non-work lives. The Gains section describes the specific benefits they hope to receive and the outcomes they hope to achieve through those Jobs. The Pains section captures the risks, obstacles, and bad outcomes that make it hard to achieve the Gains when doing the Jobs.
The left side (the Value Map) corresponds to the Customer Profile, but starts with the list of Products and Services being offered to help customers do their Jobs. The Pain Relievers section describes how the Products and Services (and how they are delivered) specifically work to reduce the Pains, and the Gain Creators section similarly describes how they specifically work to deliver the hoped for Gains for the customer.
For many businesses, customers’ Jobs, hoped for Gains, and anticipated Pains will vary significantly across the scenarios and different planning horizons. Similarly, what you and your partners can do, and how best to reach and serve customers are likely to change over the coming months and under different scenarios. Therefore, it’s important that you create versions of your business model for each of the twelve combinations of scenarios and planning periods. You need to understand what changes between scenarios so that you can be ready for whatever happens. It’s also important to think through what will change when you move from the “right now” to the “restart” and finally to the “new reality”.
Proverbs 19:2 warns us “Desire without knowledge is not good, and whoever makes haste with his feet misses his way.” Take time to understand your customers and your own operations through these transitions. Your employees and customers depend on it.
Top Photo Credit: JESHOOTS.COM