A business model describes the rationale of how an organization creates, delivers and captures value – Alexander Osterwalder.
Business Model Canvas (BMC) is a simple tool that has found many applications by entrepreneurs managing companies of various sizes In our flagship program BLincubator, our trainer Sanam Chitrakar, Partner at Biruwa Advisor introduced BMC and deeply explored two key components of the canvas.
Below we highlight some key points that may be useful to you as an early stage startup.
There are nine different elements in the Business Model Canvas. The right part of the canvas focuses on customers whereas the left part is dedicated to the solution (product/services) that is to being offered.
Defining Customer segment: Customers are core to every business. Not everyone will buy the services/products offered and hence the product/service has to be targeted at the right segment of people who are both willing and able to pay for it.
The customer segment can be identified and described in terms of behavior, demographics, attitude and habits. Although there are huge numbers of variables that can be used to identify the right market segment, some examples of variables are listed below
- Age and gender
- Family size
- Educational level
- Location and weather
- Spending habits and income level
- Watering hole – where they usually hang out
- Recreational activities that they are involved in
- Social circle
- Use of digital media (posts and pages)
- Attitude towards brand and product
- Lifestyle and opinions
Using the combination of these variables, target customer segment can be narrowed down to the best possible scenario. Larger the number of variable better would be the understanding of the market segment. These information can be used to create a value proposition and promotion of the product.
Value proposition: To put it simply, value is the difference between the cost of the product and the benefit that the consumer gets. If the consumer perceives they are paying more than the benefits they are availing from the product, they won’t find the product appealing.
The company’s value proposition should mainly answer the question “Why should the customer use your product when there are other competitors in the market?”This question should further be implored with these two key points
- Point of parity (POP): It is the element that is essential for the product/services to become a market player. For example all colleges must have qualified teachers, a good location, different specialization, etc.
- Point of difference (POD): It is the element that serves as the point of differentiation from a competitor. The availability of incubation center in the college, collaboration with other parties, and focus on entrepreneurship can be the point of differentiation. The POD that the product/service has to
- Be better than what’s currently available to the customers (or completely new offering)
- Should Matter to the customer (something that the customer deems as important)
In order to create a solid value proposition, the startup has to research about the market segments, their needs and use to maintain the point of parity while creating a point of differentiation that is both valuable to the customer and better than that of the competitor.
This article is part of the BLincubator series that will be published each week. It summarizes key learning from the training sessions of the program.