Breaking down the Business Model Canvas

Entrepreneurial success, especially for innovation-driven ventures, is always challenging and depends on much more than an excellent idea and a motivated team. Prior installments of this series have focused on understanding the problem or opportunity through customer discovery. The entrepreneur who effectively engages in customer discovery will gain good insight into customer segments and, most importantly, the compelling value proposition for an initial segment. This is the starting point for a complete business model.

Customer discovery can frustrate the founder whose starting point is an already-designed product, app or web service. This founder (often a technologist) is usually confident that his or her solution is exactly what the customer needs and is anxious to begin selling. But, here is the flaw. The founder’s belief about the customer problem is often inaccurate or incomplete. If the founder’s product fails to gain traction, it could be a great solution to an unimportant problem, or an inadequate solution to the right problem. Customer discovery can prevent the first failure reason.

The best approach is first to understand the problem (or opportunity) and then test how the proposed product or service solves the problem. This process of customer discovery and customer validation can be considered the “search” phase of the lean startup approach. The founders will pivot and iterate until there is a clear match of problem-solution for a well-defined customer segment.

That is when the “execution” phase of customer creation and company building can begin in earnest. This approach of delaying execution activities until the search phase defines problem-solution fit is generally the most cost-effective and efficient pathway to success. For instance, it avoids investment of time and money in reaching the wrong potential customers.

As the founder moves into execution, the Business Model Canvas is an effective tool for understanding the inter-related components of a successful business model. The methods used in customer discovery can be used to test hypotheses and develop each of the nine components of the business model.

Our experience is that value proposition, found appropriately at the canvas center, and customer segments are the starting point for completing the business model. These will lead the founder to understand customer relationships, channels and revenue streams. In parallel, the founder will need to develop the components that enable the venture to serve the customers effectively: key partners, key activities, key resources and cost structure.

Readers who want to understand the business model approach will find excellent resources in published books and online videos. Our next installment will provide additional guidance on the business model and its relationship to the business plan.

We began with the statement that success depends on more than an excellent idea and motivated team. The customer discovery and customer validation process will determine if the founder’s original idea qualifies as excellent or, more likely, needs to be revised or abandoned. The topic of the motivated team deserves attention.

Research shows that innovation-driven ventures are more likely to succeed with a multi-person founding team than with a solo founder. Think of Steve Jobs and Steve Wozniak, for instance. The challenge for any founder is to build the right team for the specific opportunity that you will pursue. The right experiences, skills and perspectives are needed. Of equal or greater importance is the more intangible chemistry of the team and how the founders’ needs and aspirations match the specific venture opportunity.

The human dynamics are critical to success and deserve as much attention as the customer interaction that is the focus of this series of articles. Next time, the series will wrap up with observations about design thinking, business plans and resources to help founders.

Recommended reading: “Business Model Generation” by Alexander Osterwalder & Yves Pigneur.
Tools, videos and other resources at strategyzer.com.

Paul Wetenhall is the former executive director of Ventureprise, UNC Charlotte’s innovation and entrepreneurship center serving the UNC Charlotte campus and Charlotte region.

For more stories like this one, subscribe to StartCharlotte’s free weekly startup newsletter.