From the Business Model Canvas to the Business Plan – Part 3

BMP-Part3

Going from the Canvas to the Plan

Key Resources

The key resources cover a lot of ground on the business plan. Your resources are all of the inputs that go into producing, marketing and delivering your offering. Anything that requires resources should have been listed here, and that should in turn translate to the business plan. The sections that correspond to the key resources canvas block are listed in Table 1 of Part 1, but for the sake of redundancy you will need to detail the resources required to execute your:

  • Description of Venture: In the description of venture you need to outline the resources in your canvas block are currently at your disposal.
  • Productions plan: The production plan will need to contain all your production related resources. This means land, labor, and capital
  • Operations plan: The operations plan details all the resources that are required to execute smooth operations.
  • Marketing Plan: Your marketing plan will require resources to execute. These resources might be the broadly stated human and infrastructural resources on your business model canvas.
  • Organizational plan: Here you will detail your human resources, what role they play in the organization, the requirements that you have for filling these roles, if you have filled these roles, and if you haven’t how you plan to fill those roles.
  • Financial Plan:  Key resources come with costs, and these costs need to be detailed in your financial plan.

Your key resources don’t necessarily come from within your walls; some of these resources can be acquired through partnerships with other people who have access to these resources.

Key Activities

This canvas block lists out the core activities that are conducted by your company to deliver your value proposition to your customers. The activities listed in this block will feed into the following sections of your business plan:

  • Description of Venture: In this section you will put the list that you have in the key activities canvas block in sentence format. Bottom line, you summarize the key activities that your organization is engaged in.
  • Productions plan: The key activities that are related to your production processes will be detailed out in this section of the business plan.
  • Operations plan: The key activities that are related to the operations portion of your business will be detailed in this section.
  • Marketing Plan: The key activities that are primarily marketing functions will be described in more detail in your marketing plan.

Key Partners

The key partners also cover a lot of ground on the business plan.

  • Production plan: Partners that are identified as influencers and their roles in your production process need to be identified here. Your production plan requires inputs. It requires raw materials, equipment, and people. The people might need to be part of your organization (key resources), but you don’t necessarily need to own the rights to the raw materials or the equipment. Equipment can be leased if you have access to such loan mechanism and the raw materials need to be bought of someone upstream of your location of the value chain.
  • Operations Plan: Partners that are identified as influencers and their roles in your operations need to be identified here The activities that go into your operations plan can fall into a similar pattern as that of your productions plan i.e. what do you need to keep in house and what can you outsource?
  • Marketing Plan: The partners that help you execute your marketing plan should be listed here.
  • Assessment of Risk: Every business involves an element of risk, and a business plan needs to list out how you mitigate those risks. Risk mitigation involves resources, activities, and in some cases partners. The partners who play a role in your risk mitigation strategy need to be included in this section. One thing to note is that your partnerships might also be a source of this risk. An example of one such scenario is if you intend to start productions using raw materials from one supplier; this partnership is risky because you will be adversely affected if they cannot fulfill their supply obligations to your company.

Cost Structure

Anything that costs you money need to be acknowledged in your cost structure; you can identify the components in the canvas blocks that cost you money and then look in the corresponding business plan sections that would have been written by the time you get to this point to get details on what these numbers need to be.

From the Business Model Canvas to the Business Plan – Part 2

 

Going from the Canvas to the Plan

Going from the Canvas to the Plan

Customer Segments

Having the right customer listed in the customer segment canvas block requires having an understanding of the problem that you are trying to solve. The customer segment you choose is closely related to the industry analysis section of your business plan. The industry analysis helps you understand if your product (solution) is a good fit with the problem of the customer segment you have picked i.e. if you have chosen the right customer segment.

This is also where you determine if your solution will fall into the need or want category. Information that can help determine this includes income information on your target customer segment and what they currently spend their money on (if that information is available). This information helps determine if the solution is something that your customer segment is able and willing to pay for. 

Your industry includes several players. First there are your potential customers (as discussed above) and your competitors. Your competitors are the people/organizations that provide solutions that are currently being used to alleviate the problem you are solving, so these will be substitute products. Note that the substitute products don’t always have to come from the same industry; to use a simplistic example a pen and paper can be substituted for a word processing program if the problem is a writing related issue. This section of the plan shall include an analysis of how your solution (offering) stacks up when weighed against the other solutions out there (the competition). The prevailing way of conducting this analysis is the use of a SWOT analysis.

This section also involves analyzing the macro environment. The macro environment has other players that include, but are not limited to, suppliers and government regulators that interact with the market in which your offering competes. To determine whether you can profitably serve the customer segment, you need to have an understanding of this environment. You need to know what the emerging trends are with respect to the population in the area you are planning to serve, the regulatory environment, personal preferences, technology et al.

With the business model canvas you defined a group of people that you believe you would be best able to serve, the industry analysis takes it a step further as this is where you do the research to determine the environment that you will be working in to ensure that you can serve these people. An easy way to look at what this section does for you is this, it answers the question:

What is the market and competitive environment and is it worth my while to dive in?

Value Proposition

The value proposition canvas block is a benefit summary of your offering. And your offering is described in more detail under the description of venture and marketing plan: product sections of your business plan. These sections of your business plan essentially define the physical form (either good or service) that your value proposition will take.

Your value proposition should be expanded in the description of venture section by:

  • Describing the physical characteristics/features that allow you to deliver value with your offering
  • Describe how these characteristics translate into the benefits that you are promoting to the customer in the form of your value proposition.

Another section that is influenced by the value proposition is the product section of your marketing plan. Under the marketing plan you clarify what actually goes into making the product. When writing the marketing plan you want to ensure that all the product related marketing plan activities are directly related to communicating your value proposition to your customer segment. You want to discuss “the quality of components or materials, style, features, options, brand name, packaging, sizes, service availability, and warranties.”1.

Having the value proposition defined before you start writing the product section of your venture description and marketing plan is crucial because it helps you focus on the things that you need to do to communicate that value proposition with the product and not just your communication message. Information from this section will feed into your production/operations plan as all these aspects will determine the production processes as well as your operations.

Channels

As defined earlier, channels canvas block includes how you get your value proposition to your customer. This canvas block will help you define your distribution systems (marketing plan: distribution) and how you promote your products (marketing plan: promotion) to the customer for them to buy them.

The distribution section of the marketing plan details out the finer points of how you are going to get your product to your customer. Distribution systems can either be direct or indirect; they can also be owned by you or by somebody else. The question to consider is:

Do you sell it to a wholesaler who then sells it to a retailer who then sells it to the customer; or do you sell directly to the customer yourself?

Then there is promotion. How do your customers know about your great new offering that can solve the problem that they have been struggling with? Promotion channels can include direct mail campaigns, advertising campaigns, or the more accessible social media campaigns.

Customer Relationships

The customer relationships canvas block defines part of your operations plan and marketing plan: promotion. Both these sections of the business plan detail out what actions need to be taken to ensure that you can start and maintain the desired customer relationships that you outlined in your canvas.

In the operations plan, your customer relationships help define what kind of customer service programs that you need to implement from customer acquisition to retention.

With promotions, understandably the purpose of your customer service isn’t to push particular products onto the customer, but it could have that residual effect. How? Well what does a customer do when they have had an expectation-exceeding interaction with a company? The expectation is that they would pass this news on to their friends. You can either hope for this outcome or you can design your customer relationship systems specifically to motivate satisfied customers to talk to their friend’s about your offering. Also you need to determine what structure such systems will take i.e. automated vs personal relationship.

Revenue Streams

The revenue stream canvas block define the parts of your business model that earn you money. This is tied into the description of venture, the pricing portion of your marketing plan (marketing plan pricing), and the financial plan.

In the description of venture, you can give a high level description revenue streams listed on your business model canvas. A note on identifying revenue streams: obviously you should make money from your offering (value proposition: product/service), but you can also make money from your channels and customer relationships. For instance if you have an owned distribution system, you can choose to offer access – for a price of course – to people who would derive value from that offering. If you do decide to do something along these lines, you need to ensure that doing so does not compromise your core business. An example of this is Amazon – they used their expertise in developing web infrastructure to launch a cloud service to business. You could also make money from your customer relationships: one way you could do this is offer basic customer support for free and then a more advanced customer support basis for people who are willing to pay for it.

The pricing portion of the marketing plan details how much you will charge for these revenue generating blocks and also give a breakdown of how these prices. You will also need to give an economic basis for the prices and the expected demand i.e. the total revenue projections that you are making based on these prices.

Finally the financial plan will have to include your revenue streams and help show that these revenues can cover costs and the business can be profitable after a given period of time.

  1. Robert D. Hirish, Michael P. Peters, and Dean A Shepherd, the Eight Edition.

From the Business Model Canvas to the Business Plan

Crafting a business model canvas is a good precursor for writing a full blown business plan. But what is the relationship between the business model and the business plan?

Well a business model helps you tell the story of how your business will make money. It is a high level document that can be seen as the blueprint for every business document that comes next from the business plan to an investor pitch. The business plan on the other hand goes into much more detail on how your business will run. It discusses areas that are not touched upon in the business model like the form of your organization.

Table 1 shows the relationship between the business model and the business plan.

Business-Model-Plan-Update

Table 1: Correlations between the Business Model and the Business Plan

This post assumes that you have a business model canvas drafted and want to use it to craft your business plan. To start this series I’m going to describe how the business model canvas can help you write and manage your business plan.

Writing:

The idea of the business model canvas is to map out your business in a short period of time. During that period, the goal is not to edit out ideas because they seem impossible; the goal is just to write down what you want your business to do based on the information that you have right now. The advantage of this is that you are not bogged down with the details and you are able to stay creative and engaged in the process. Another advantage to this is that you can quickly prototype your business idea and critique later; it’s similar to brainstorming for, but for an entire business entity.

A business plan on the other hand cannot be written in one sitting. The process requires research and critical thinking. The business model canvas can make the plan writing process easier because it helps you divide up the writing process for each section of the business plan. Looking at the table you know where to go for the top level ideas for your industry analysis: your customer segments. It’s not that cut and dried for other sections – for example the Marketing Plan, which obtains information from just about all the canvas blocks – but it’s a good place to start

Managing:

A business plan is a living document i.e. it needs to grow and change with your business. Majority of the changes that are made to a business are easier to articulate on the canvas than on a plan. Apart from being easier to articulate, the plan helps you determine quickly if the change will be in line with the rest of your business model e.g. ensure that the change you are looking to make will not impede on your ability to deliver on your value proposition or another canvas block.

Here is a hypothetical situation: Consider that you are a retailer with a focus on selling apparel to a demographic that traditionally buys high end products at bargain prices and are approached by Fendi to carry their products. While this might be exciting on the outset, a quick consult with our business model might tell you that selling $1000 purses at full price will not appeal to your customer segment i.e. it might not be the best choice for you. If Fendi is offering prices that will allow you to sell at closeout prices that are similar to the other products that you carry, you might want to consider the proposal. Further analysis will be done before the final decision is made, but having a way to quickly look over the proposal can help you determine if you want to look into it on a deeper level. Also mapping the change on your canvas will help you know what sections of the business plan will be affected.

This week was all about explaining how it works, check back next week for Part 2 on how to actually apply it.