Published in The Tennessean March 24, 2014
By Ed Rappuhn – SCORE Nashville
Four weeks ago I began to answer the question, “What is a business model and why do I need one?” A business model allows you to visualize your business and its interrelationships on a single canvas. In the center of the canvas is what you are selling, on the right is who will buy your product or service, on the left is how it is produced, and across the bottom is how much revenue can be generated and how much it costs.
Initially, I examined the center of the model, the “what.” This is your value proposition, which describes your products or services in a way that emphasizes the value of your offerings to your customers. My last column described the “who,” and discussed your customer segments, channels used to reach your customers, and the importance of developing strong customer relationships. Finally, the “how much” in terms of revenue streams was inspected. (Find the articles at www.tennessean.com, search: business model.)
The left side of the canvas, the “how,” has 3 parts:
1. Key Resources are the business assets and personnel critical to the production of your value proposition. These include plant, equipment, materials, employees, intellectual property and financial resources.
2. Key Activities are the things you do to get your value proposition to customers. This includes not just production and delivery of your product or service, but also marketing, selling and other activities.
3. Key Partners include vendors, others that help market your value proposition, and alliances with cooperative businesses.
Across the bottom of the canvas is the “How Much?” The left side of this segment is your Cost Structure. Include all costs associated with providing your value proposition to your various customers. Include all the direct and indirect costs associated with your key resources, activities and partnerships.
You now have a completed business model. But you’re not done. A change to any area of the model can result in modifications throughout the model. For example, adding or losing a key partner can require a change to several other segments of the model. Or competitive forces outside the model can make you adjust your value proposition, which can affect any number of other areas. The beauty of the business model is that these changes can be easily seen and made on the single canvas. There is no need to leaf through and modify a multipage business plan.
For more information I suggest the book, Business Model Generation by Alexander Osterwalder and Yves Pigneur. Search on the Internet and YouTube for more discussions about Business Model Generation or check with SCORE about our new Business Modeling workshop.
Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org. Email questions about your business to firstname.lastname@example.org and watch for the answers in future columns.