A Primer to Live Free or DIY

As you’re thinking through your business’s value proposition, you should be asking yourself: What specific pain points am I alleviating for my customer? Or, alternatively, what specific pleasure am I helping them to experience?

For example, humans are social animals, and we have a basic need for community and to feel connected to others. These are pleasures that Facebook, for instance, provides as its core value proposition. But along our life’s path, we also hit an untold number pain points: There’s the frustration of commuting home from work and the drudgery of doing laundry, among many others.

While there are exceptions to every rule, it’s worth noting that the market for alleviating pain tends to be significantly larger than the market for providing pleasure. Put another way, people are much quicker to invest in aspirin than in vitamins.

Or, if you’re a lawyer, maybe there’s a desperate need for more customs and international trade attorneys, but no demand for another general practitioner who does a little bit of everything.

So you may be tempted to fill in the Value Proposition section of your canvas with a sticky note that says the thing your company makes, or the service it provides: “Legal Services,” you might want to write; or, simply, “Pizza.” But your product is not the core of your business. The core of your business is the value your company brings into this world. Examples that are relevant to a law firm or a pizza shop might include “peace of mind,” “convenience,” “quality,” or even “social connection.”

Whatever your value proposition, you’ve got to know for certain that it is indeed creating value for your customers; it can’t be a guess. Guessing about value proposition is, as we just learned, the most common reason businesses fail: a poor product market fit. They guessed wrong and learned the hard way that no one wanted their product.

Customer Segments

Of course, the concept of “value” is subjective; that is, one person’s trash is another person’s treasure. So you can’t establish your company’s core value proposition unless you know who, exactly, will be judging that value. That’s why you should now turn to the Customer Segments area of your Business Model Canvas.

The more precise you can be in knowing who your customers are, the better. Ideally, you should be able to draw a picture of your customer archetype: their age, gender, where they live, and so on.

Or perhaps your customers are businesses. If so, you’ve still got to go through the same line of questioning, since businesses are just made of people. Precisely whom are you trying to serve within these target businesses? Does that person also have the power to write your company a check? If not, maybe you need to bifurcate your business model —the way Facebook does—to address your two customer segments. In Facebook’s case, the users who connect with friends and find entertainment on the site do so for free.

The customers who actually pay Facebook are the businesses trying to reach those users through advertisements.

Regardless of how many customer segments you may have, the goal is to get as specific as possible. And, as was true with the value proposition, the information in this area of the canvas is too important to leave to guesswork. When your value proposition fits perfectly with your specific customer segment, you’ve nailed product-market fit. That means you’ve got a product that actually satisfies a need or a want in your target market, and that the target market can support your business. That’s the foundation upon which successful companies are built.

Channels

Logistically speaking, how do you actually deliver your value proposition to your customers? A physical storefront? A truck? A website or mobile app? This is the next section of the Business Model Canvas: your Channels of distribution.

Your answer will have all sorts of implications for the type of business you’re building, including for your Cost Structure on the left side of your canvas, and your Customer Relationships on the right.

Customer Relationships

How do you plan to attract customers, keep them, and then grow your customer base?

The Customer Relationships part of the Business Model Canvas is all about sales and marketing: How will customers find out about you? What will get them out of their routine and convince them they should part with their precious money in order to try your unfamiliar product?

Then there’s the question of keeping customers once you’ve attracted them. For this question, most small-business owners think customer service. That may be one of your sticky notes for this section of the canvas, and that’s great. Other strategies for retaining customers include things like “habit” or “high switching costs.” For example, have you ever gotten frustrated with your bank, but then started thinking about all the time and energy it would take to switch to a different one? Switching is a painful process, and the banks love it that way! Those high switching costs are at least as central to their model for keeping customers as customer service is, if not more so.

Then there’s the question of growth: Once you’ve got an initial group of customers, how will you grow that base in order to expand your business? Will you upsell more features, products, and services in order to extract more money from your existing customers? Or can you get customers to refer you to their friends? There are lots of possible answers. What’s right for your business?

Revenue Streams

That brings us to the last item on the right side—the value side—of your Business Model Canvas: Revenue Streams. This is where you make money. And, hopefully, with your Value Proposition and Customer Segments already on your canvas, this part is fairly clear.

Of course, it may not be the case that all of your customer segments are going to hand over money. We just talked about Facebook’s bifurcated model, in which users play on the site for free while businesses fork over tons of money to place ads. Similarly, a nonprofit organization may bifurcate its customer segments into the group it plans on helping, and its prospective donors. Or perhaps you can convince the federal government that your business provides a social good, and thus land a government contract or grant. All of these represent different, and perfectly viable, types of revenue streams.

Any way you slice it, though, at least one of your customer segments needs to hand you money. How much, and how they get it to you, goes on sticky notes in this area of the canvas.

And now that you’ve completed Revenue Streams, you’ve drafted all the components of the right side of your Business Model Canvas. In other words, you’ve established the core value that your business exists to provide. That’s the answer to the first of those two key questions: How can I create the maximum value possible for my clients?

Now for the left side of the canvas, and the question of how to build a business that doesn’t just create value, but does so efficiently.