A traditional business plan is an outdated form for today’s small businesses. Throw it away. Otherwise, it will tangle you in the do-it-yourself trap and prevent the kind of explosive growth you’ve dreamed about.
What every start-up needs isn’t an omniscient CEO. It needs a liberated CEO. The Business Model Canvas is a critical part of that freedom—and it only takes 15 minutes to create one.
Developed by theorist and author Alexander Osterwalder, with the help of 470 co-creators, the power of the BMC lies in its simplicity and flexibility. It boils down a formal business plan—one that used to require dozens, if not hundreds, of pages of text—into a malleable single-page document (plus sticky notes) that allows all key stakeholders to see and visualize the business model at a glance.
Take out a piece of paper. Quickly divide it into boxes like the BMC above, and grab a pad of sticky notes. That’s all you need to start making your business smarter and more efficient than it’s ever been.
Begin your BMC with the section that sits right in the middle: Value Proposition. It’s in the middle because it’s the reason your business exists. The core of your business is the value your company brings into the world not your product or service. Think of things like “peace of mind,” “convenience,” “quality,” or even “social connection.”
You should be able to draw a clear picture of your customer archetype: age, gender, where they live, and so on. And if your customers are businesses, you’ve still got to go through the same line of questioning—businesses are made of people.
How do you deliver your value proposition to your customer? A physical storefront? A truck? A website or mobile app? Your answer has many implications for the type of business you’re building.
How do you plan to attract customers, keep them, and grow your customer base? And once you’ve established an initial group of customers, how will you expand that base? Will you upsell more features, products, and services in order to extract more money from your existing customers? Can you persuade customers to refer you to their friends?
This is where you make money. It may not be the case that all of your Customer Segments are going to hand you money but at least one of them must. How much, and how they get it to you, goes on sticky notes in this area of the canvas.
List the most important activities your team must expertly perform to create the value your company exists to provide.
Did you catch that? These are the activities your team needs to excel at—not you. This part of the canvas is what tends to trap small-business owners in the DIY mindset. You don’t have to know everything or do everything. In fact, you shouldn’t. The BMC is the small-business owner’s road map out of that trap.
Small-business owners fall into the DIY trap because they don’t enlist the expertise of others to build a viable business. You need partners. Who can help propel your business beyond the constraints of your limited cash flow?
What are the essential resources that your business model relies upon in order to deliver its core product? What key assets (equipment, buildings, technology) do you need? How much capital do you need? Do you need a line of credit? What Key Resources will give you a competitive advantage that will make it difficult for anyone to overtake you in the future?
Add up all costs associated with your activities, partnerships, and resources on the left side of the canvas, and what you’ve got is the Cost Structure for operating your business. For now, only include costs that are critical to your business model.
Once you’ve got your sticky notes in place to indicate your central costs, step back and look at your BMC. To the extent that your Cost Structure on the left is less than Revenue Streams on the right, you have yourself a business. To the extent that it’s not, you don’t.
As you move forward, view the BMC holistically, and find new and creative ways to grow your Revenue Streams while also shrinking the Cost Structure. You’ll refine your BMC with scientific experimentation, iterative learning, and measured progress driven by customer feedback. It’s a process that helps small-business owners realize the maximum potential for their business and liberates them from the DIY trap.
Looking for more details on this great tool? Read our long-form Business Model Canvas article here. And to start building out your own Business Model Canvas for your company today, grab a copy of our Digital Business Model Canvas Template.