Looking in from a backstage out into the crowd at a concert is a spectacular site. It can feel as good as it looks when applying this mindset to your Business Model Canvas (BMC). It can all be possible if you follow the process, have a solid team, and achieving many goals while learning by doing.
Putting it all together is all we need to do now that we have made it to the last blog post on this series describing the business model generation. Once finished outlining the last two Business Model Canvas (BMC), I will provide you with some basic tips and tricks that have worked while developing your business model on a canvas.
Developing Key Partnerships will allow your company to build meaningful relationships, lower risk significantly, and any other form of alliance that will make your company’s business model stronger.
Walmart is a great example of having strong Key Partnerships with their suppliers and credited with starting the practice of digitally sharing sales data with their major suppliers, allowing the company to support their Value Proposition of supplying a large selection of products at the lowest cost and delivery time. Fiat is also a great example of developing Key Partnerships in 2008 with BMW and Chrysler.
Your company will have 4 different types of partnerships:
- Strategic alliances between non-competitors
- Cooperation is building strategic partnerships between competitors
- Joint ventures to develop new businesses.
- Buyer-supplier relationships to assure reliable supplies
*These 4 types listed were published in Business Model Generation, 2010.
2 Questions you want to think about when building new Key Partnerships:
- What Key Activities will the new partnership perform?
- What are the Key Resources will your business acquire from the new partnership?
Think outside the industry you are operating in when considering new Key Partnerships. Key Partnerships to think about for any business can be a Web Developer, or a business attorney, or other companies in non-competing industries.
Every business will have costs and the goal of the business is to hopefully have higher revenue than cost. We call that profit, which is every company’s goal to be profitable. You will encounter two general costs, fixed cost and variable cost. The total cost is the sum of your fixed and variable costs (FC + VC = Total Cost).
Fixed Costs are expenses that are consistently the same over a period of time and are independent from the quality of services or goods being produced. Sometimes fixed costs are referred as overhead costs, and are typically dependent upon a unit of time. They are usually short-term and do not change over time. Fixed costs are lease agreements for building, monthly payments on loans or credit cards, or employee salaries.
Variable Costs are expenses that change in proportion to the activity of your business. Examples of variable costs are direct material costs, labor costs, production supplies, and credit card or loan fees. Your companies cost will vary according to the amount of production.
Economies of scale are any cost advantages a company receives as its output increases. There are two types of economies of scale, Internal (any activity within the company) and External (any activity from extraneous factors, like industry size). An example when you place an order for t-shirts. There will be some initial setup costs, that are fixed, and you labor cost that will vary depending on the amount of time it takes to print the t-shirts. If you place an order of 200 you will pay a higher cost than if you order 500 shirts.
The final ask is to determine if your business model is cost-driven or value-driven.
Cost-driven business models aim to have the leanest cost structure. The goal is to minimize costs anywhere possible. Majority of the time your value propositions are low.
Value-driven business models are typically not too concerned with costs and aim to create value and have premium value propositions.
My final take-away is to take a step back and look at your costs from a different perspective. It’s not just the obvious costs that impact your profit. It is all the hidden costs. Eliminating unnecessary costs to become leaner might be a great place to start.
TIPS and TRICKS
- KEEP IT SIMPLE
- Treat the BMC as a process without any expectations on the results. The BMC is a series of hypothesis to support your Value Proposition.
- Sketch out the BMC on a white board, poster board, or sturdy paper.
- Place your new sketch on a wall, or any other location that you can have easy access to touching the BMC.
- Begin sketching your BMC using sticky note pads. You will be adding, moving, and subtracting ideas from the various boxes and placing them in another box, or throwing the sticky not in the trash.
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