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The book "Business Model Generation" should ring a bell for freelancers and many entrepreneurs. It explores the possibilities of using a 'Business Model Canvas.' This is a model that you use to define the components of your business. It offers an interactive way to look at your current business model and improve your results. It's a way to keep moving forward with an iterative business plan.
In today's article, we'll explore what the "Business Model Canvas" is, then learn how you can use it to create a new business or improve your current one.
Either you work digitally or physically. To complete the tutorial you will need the following assets:
- PDF of "The Business Model Canvas".
- Software to edit the canvas, Photoshop for example.
- Sticky notes.
Tip: If you collaborate with other people in your business, it's suggested to print The Business Model Canvas and work together on your model.
1. Introducing The Canvas
Step 1 - Basics
The "Business Model Canvas" has 9 components (or building blocks). Each block defines a very specific part of your business. You can use the canvas to define how each component of your business functions. This way, you can easily spot potential weaknesses and strengths of your business, then use that information to anticipate and act on them.
Step 2 - Print and Fiddle
The concept is simple. Print the model and use sticky notes to fill the canvas (or edit the canvas digitally). It's encouraged that you interact with the canvas in any way you prefer. Draw on it, mix the different building blocks and try enough alternatives to see what works best. Your first finished business model will never be the best one.
Step 3 - Get Started
In our tutorial today, we'll fill in "The Business Model Canvas" for a fictional freelance web design business. We'll learn to spot potential strengths and weaknesses of this business.
Remember, if you're working on a "Business Model Canvas" it's recommended to get input from other people. After all, creativity and innovation go hand in hand with collaboration!
2. Customer Segments
Step 1 - Understand Your Customers
Customers are the heart of any business model. Without any form of customers, your business won't survive long. This is why it's important for any freelancer to ask themselves, who are my customers now and what customers do I want to have in the future?
A successful way to define your customers is to group common needs or behaviors and find the customer segments your business is actively involved with. For example, I clearly have a distinction between the wants and needs of small companies and large companies, thus that influences how I interact with them to suit their needs.
Step 2 - List Your Customers
Understanding what kind of customers you have makes it easier to define the rest of your business model. Some business models for example, are purely focused on a certain customer segment or are very customer driven. As a freelancer, I list my clients to see which are most valuable for my freelance business. Additionally, I keep a list of potential clients that could help me further develop my business.
So, let's start easy! List your current customers (perhaps rate them?) and write down some customers you would like to have in the future!
Step 3 - Assess Your Customer Segments
Our fictional freelancer mainly works as designer for other types of freelancers, such as web developers. Recently he started sharing his knowledge through a bit of freelance writing and offering graphic design services on Microlancer for some extra work! Though, his goal is to get involved in design work for local companies to be less dependent on online work.
So, have you figured your current type of clients you have? Are these your preferred clients? Or are there others you'd like to attract to your business.
What are the strengths of these kind of clients, or their weaknesses? List them! For example, in this fictional business, our freelancer really enjoys the different projects he collaborates on with other freelancers, though the payment rates differ quite much. Perhaps it's more interesting to expand his business and reach other customers that offer a more stable and higher rate of income, such as local clients? It's important to identify these potential opportunities and build a picture of who your ideal client is.
3. Value Propositions
Step 1 - What Problem do You Solve?
Naturally, you offer a certain value to your clients or you solve a problem of them. This is what we consider your value proposition. Though, this doesn't only include your concrete product or service, but also the benefits that your business offers.
Step 2 - Improving Your Solutions
Of course, this is linked with your customer segment in a very obvious way. After all, what customer needs are you satisfying? How can you improve that experience? How are your products or services specifically creating added value for your customer segment?
Naturally, this explores every aspect of what your business offers and how it interacts with clients. This is what we consider your core business. Defining and analyzing this is incredible crucial. After all, how can you improve your current products or reach more (or better) customers with your current line of products? Improving your core business can mean a serious change in your freelance activities.
Step 3 - Define Your Core Business Value
Your turn! Define your core business on the canvas. What is your value? If you have problems defining your value, ask yourself this: what do you want your clients to remember after doing business with you?
Our fictional business tries to emphasize availability and flexibility. How does your core business link with your customer segment? What value do you deliver? Could there be more interesting services you can offer your clients? What do clients expect from you after all? Does your business live up to those expectations? Brainstorm answers to these questions before moving on.
Step 1 - Identify Your Customer Channels
How does your value reach customers? Channels are touch points with your business for customers. For example, do you use mainly e-mail to reach potential customers? Do you contact clients face-to-face? The methods you use to communicate with clients are an interesting playground to experiment with new possibilities. For example, try a new method to reach customers and see how successful you are. Other important aspects are how your channel is integrated in your strategy or how cost-efficient your communication is.
Step 2 - Assess the Strength of Your Customer Channels
As freelancers we often spend a huge amount of time connecting to clients. Thinking careful about our communication is necessity to succeed. Complete the channel component of your canvas and analyze the strengths and the weaknesses of these different ways of communicating.
In this case, the communication mainly happens through e-mail. Though, in general it doesn't seem to be a very successful method to approach all our customer segments. Besides e-mail, the combination of portfolio and a personal blog is a way to get in touch with your customer segments (and others). Perhaps face-to-face could be a better method to approach the local companies customer segment? Different customer segments often have different preferred channels for communication.
Step 3 - Plan New Customer Channels
Perhaps LinkedIn could be a possible cost-efficient way to reach more customers, or could some freebies increase the reputation of my freelance business? Interesting scenarios to consider and to think about!
Remember though, communication always costs either time or money. This is why cost-efficiency is important to think about. For example, is designing a freebie really worth your time? It really depends on your situation. Sometimes it might gain valuable traffic, in other cases it's effort you could have used to contact new clients directly. Even in your communication, think as an entrepreneur and consider how you can systematically bring in more target customers to your freelance business.
5. Customer Relationships
Step 1 - Analyzing Your Customer Relationships
Besides analyzing how you reach your customers, it's also important to understand what kind of relationship you have with your client. Often this component of the canvas is used to define customer acquisition, customer retention and how you can boost your sales.
As a freelancer, it's quite possible you spend a lot of time on customer acquisition and perhaps there are ways to improve customer retention, so that you spend less time on finding new clients. Your relationship with your clients has a major influence on the rest of your business model.
It's easier for freelancers to provide dedicated personal assistance, which naturally can be used as a value proposition in your canvas. Ask yourself what your strengths and weaknesses are as a freelancer.
Step 2 - Identify Customers Value
In our fictional business, there's a great emphasis on participatory design. Making clients (and other stakeholders) important assets and partners during the design process. Though, it can be questioned if participatory design is always the best choice (requires more time? more expensive?). In your business, ask yourself how strong (or weak?) you want your relationships with your clients to be.
A great question to ask yourself is how much you believe that the client you've just worked with can provide added value for your company in the long run. If that's looking good, then be sure to keep in touch with that client. Sometimes you have bad experiences with certain clients. For example, if someone has paid late a couple of times, it's better to not keep them as a client.
So, when you look at your customer segments and your channels to communicate with them, how do you relate with your customers? What relationship are you building with them? Again, update your canvas!
6. Revenue Streams
Step 1 - Trial and Error
As a freelancer you need to get paid for what you do. There are many different pricing models and it's not always easy to define the correct price for what you offer. It requires some trial and error.
Step 2 - List Your Prices
Our fictional business lists their standard prices in the revenue stream building block. What do you charge? Write it down! How do clients feel about that? How much would they prefer to pay? What products and services contribute the most to your overall revenue? As a freelancer you need to look at what contributes the most revenue to your business and identify the reason.
Tip: Keep the sticky notes on your canvas short and concrete, but use a piece of paper to make a more detailed analysis of your revenue stream.
Step 3 - Break for Reflection
Time for a first break and moment of reflection.
Playing around with a business model canvas also means scrapping unnecessary components. For example, if you spend a lot of time on a specific client segment without getting much revenue there might be something wrong. Is it your strategy? Is it the price setting? Is it your channel you chose to communicate with?
Make a quick scheme on paper and analyze your revenue from your freelancing activities over the last two or three months for example and see how you're doing. Integrate this with the rest of the canvas and see what positive changes you can make. What's looking good on your canvas at the moment? What's looking bad? What interesting changes can you make?
Tip: None of this is set in stone, feel free to play around.
7. Key Resources
Step 1 - List Your Key Resources
This part of the canvas describes the most important assets which you use to make your business model work. For example, the tools you use to create your value or maintain relationships with your customer segments. An resource we use is our software and our workspace. Your key resources are often a component you invest money in as freelancer, such as purchasing new hardware.
It's always a good idea to list the key resources you use. It makes it easy for you to define your costs later in the canvas. This will open up possibilities to save money by downgrading or scrapping certain key resources.
Step 2 - Resource Investment
In our example, some of the key resources our fictional business uses are the combination of hardware and software. Besides, we also need hosting to put websites online and most obviously, a space to work which in this case the freelancer's home.
That could be an interesting opportunity to invest. Perhaps by working in a co-working space you could meet new people to collaborate with (or find new clients?). Naturally, it's difficult to write a complete list of all the resources you need to make your business model function. Just write down your most important assets and add them to your canvas.
8. Key Activities
Step 1 - Identify Your Key Activities
Your activities in general are the most important things a company must do to make its business model work. Every business has a certain key activities they do to operate successfully. For example, the key activities of most freelancer web designers consists of strategy, design or development (or a combination of those things). In general, the key activities you do to create the value you deliver to customers. So, what are the key activities in your business? Write them down!
This building block is crucial for business development. You can chose to offer more products and services (be the jack of trades) or focus solely on being an expert. What key activities you do and what value they create are, of course, crucial for your core business.
Step 2 - Key Activity Excercise
As you notice, your key activities line up pretty well with your revenue streams (of couse, you earn money through your activities).
Okay, let's do a little exercise now. Look at your business model and it's key activities. How would your business model change if you increase or decrease the amount of key activities? Have some business development in mind. How can you make your business better or more profitable?
By now, you should understand how everything is tied together. Changes in your key activities will effect changes elsewhere in your business model canvas, This is why we use sticky notes (or digital software) to edit the canvas easily.
Tip: Remember that the goal of using this tool is to make it possible to question your business in a simple way.
9. Key Partnerships
Step 1 - Identify Your Key Partnerships
As freelancers we often work alone with our clients, though, bigger projects require the collaboration of others. In the key partnership component you describe your network of suppliers and partners that contribute to your business model.
Let's look at an example. Certain strategic alliances between freelancers can create amazing opportunities (such as, the alliance between an talented designer and developer). Certain partnerships seem less obvious, such as selling your services on Microlancer. The platform Microlancer can be considered a key partner for your business if they help push clients into your sales funnel and help make your business model work.
When you attempt to develop your business it's a strategic move to find suitable partners to help you (or you help them). A successful business rarely stands alone, even a freelancer business.
Step 2 - List Your Key Partnerships and Plan
Write your current partners down and your potential future partners. Consider, what kind of partnerships would improve your business? How could you achieve these partnerships? How much influence would this have on your current business model? Write down 2-3 scenarios of how a partnership could work.
10. Cost Structure
Step 1 - Identify Your Costs
Naturally, besides earning money, you also spend money. This can be as obvious as your wage, but also certain investments in your business. A good business model also tries to get a realistic understanding of what costs there are.
You can analyze what key resources are the most expensive for you, but also think of which kind of investments can improve your business. Certain businesses are completely built around decreasing their costs as much as possible, to have a low price as value proposition for their customer segments (cheap airlines for example) whereas others offer high quality value to their cusomters.
Step 2 - List Your Costs and Plan
Try to be as precise as possible in listing your costs. Although that usually isn't simple (it's basically managing your finances). This is a task you need to do for accounting purposes anyway, but here you should also look for opportunities. Don't be afraid to invest some of the money you earn into your business. Perhaps pushing a new communication channel can get you better clients for example.
Remember, it's Your Business
This concludes a basic introduction to the "Business Model Canvas." The great strength about this tool is that it really offers the possibility for you to analyze every single key component of your business. This way you can review strengths and weaknesses and improve your business.
Although we've looked at each building block specifically, once complete you should look at your canvas in its whole. Understand how everything is tied together as a working business plan. Changes you make in your business influence the rest of your business model so always move to the macro view after making any micro adjustments.
With this tool, you'll identify what you feel is most important in your business model. For example, certain businesses try to keep a low cost structure, others focus purely on delivering an exceptional value and others find their customer relationships extremely important.
As a freelancer you're it's often easy to change the way you work and attempt to improve your business. For large companies, it's naturally far more difficult to tweak their current business model.
So, go ahead. List your current business model and see what possible tweaks you can make. Keep an eye on how those changes work out and then jump back into the "Business Model Canvas" again. Only by testing new things, one step at a time, you can keep improving your business model.