In a previous post we described fourteen ways to apply the Business Model Canvas. In this post we elaborate on the idea of using the Canvas to better understand external parties (such as customers, competitors, and partners). By better understanding their businesses you'll come to know their motivations for working with you or against you and you'll understand their possibilities and constraints.
People often forget to take into consideration (or do not give enough consideration to) the need to manage relationships with external parties that influence their business. Sure, it's nice to think that when you're (re)designing a new (or existing) business that as long as you find product market fit and business model fit that you're in the clear. But this type of thinking couldn't be any further from the truth. Businesses are not built, and do not operate in a vacuum. The success of your business is more often than not dependent upon external parties that you may have very little control over.
Consider mapping out a Business Model Canvas for each of the following parties in your next venture.
Perhaps the most obvious external party you would want to understand is your competitors. You can definitely use the Business Model Canvas to better understand your competition and we would encourage you to do so. By sketching out the business model of each one of your competitors you gain a better understanding of what their opportunities, capabilities and strengths are as well as their limits and constraints. This increased understanding of the competitive landscape will allow you to act accordingly. You'll be able to design a more competitive business model or possibly even a model that addresses an entirely new market.
A great illustration of this is in the telecom industry. By understanding traditional telecom provider's limitations in the context of building and growing network infrastructure, Skype was able to create a disruptive business model for long distance communication. Skype didn't just create an appealing value proposition with long distance video calls. It substantially lowered the cost structure of the business model by using VOIP technology to place calls on the Internet instead of a physical network. That allowed Skype to completely disrupt the traditional (long-distance call) pricing model, while traditional telecom operators where stuck with high infrastructure costs.
Ask yourself: Do you understand the opportunities and strengths as well as the limits and constraints of your competitors' business models?
It can be very helpful to sketch out your customer's business models, in particular in a Business-to-Business (B2B) environment. By better understanding your customer’s business you'll be able to develop better value propositions for them. Further, you'll be better equipped to explain those solutions to your customers in the context of their business. You might also be able to help your customers improve their own businesses by better understanding their model.
Take for example manufacturers that provide dropshipping services to traditional and online retailers. The economics of performing all of the logistical activities of distribution and delivery of goods to end consumers may not make sense for some retailers. By understanding the limitations of its customer's business model the manufacturer is able to leverage its own logistics capabilities and provide this service to the retailer. This creates more value for the retailer.
Or take SAP, the German software giant. Within the context of its design thinking initiative its sales teams collaborate with clients to map out the customer's business model. This helps SAP's sales team explain their solutions in the context of the customer's world.
Ask yourself: Do you understand your customers' business model well enough to create value for them?
You may find yourself dependent on external parties to reach your customer with your offer and to deliver your products and services to them. This could potentially create limitations in terms of future scalability. If you want to have a better idea of what your upper and lower bounds are in terms of scaling your market reach and delivery of your products and services in the future then work to understand your channel partner's business model. Try to comprehend it's inherent strengths and weaknesses and the limits this puts on your future scalability.
For example a medical device manufacturer may contract with a small third-party sales force to reach primary care physicians with their device. If production surpasses the sales team's ability to develop business opportunities, the manufacturer could get stuck carrying excess inventory.
Ask yourself: Do you understand your channel partners' business model well enough to understand the opportunities and limits to scaling your market access?
Other Key Partners (e.g. suppliers, service providers, and strategic partners)
It's critical to understand the business model of other key partners such as suppliers of key resources and other service providers that perform certain key activities. Suppliers and service providers can be the cause of major problems within your business.
Let's look at a furniture retailer for example. If the manufacturers that are supplying furniture to the retail stores being sourcing low quality lumber and other material inputs then it will have a substantial effect on product quality. Now maybe manufacturers will warranty items and accept returns, but this will result in additional unforeseen costs to the retailer. Those costs might include the time and money for staff and employees to process returned furniture but it could also have the effect of diminishing their brand and losing customers.
Ask yourself: Do you understand the strengths and weaknesses of your partners' business models and what this means for the resources and activities they give you access to?
Financiers (e.g. banks or investors)
One final party whose business model you might consider mapping is financiers. Banks and investors can provide significant resources and capabilities in terms of working capital and/or the financing of product manufacturing, machinery and equipment, real estate, or accounts receivable. These financiers obviously don't just loan or invest capital out of the goodness of their hearts. They have a business model too and it behooves you to understand what it is if you wish to receive their financial support.
Banks and investors for example choose to finance many varying types of businesses and expect different return rates and extend many types of repayment terms or stock/equity requirements. Some financiers are more aggressive and others more forgiving. It's important to understand what your financier's model is to know whether or not there is a good fit but more importantly whether or not your business model is going to be able to perform in a way as to create the expected return for your debtors or investors.
Ask yourself: Do you understand your financiers' business model and the expectations that come with it?
Certain business models inherently create dependencies on external parties. By mapping out the business models of these external parties you will better understand these dependencies and be able to take actions to address them.
Free Business Model Tools
The tools and resources mentioned in this post are available for FREE in our resource library. Get access to 30+ other tools and resources to help you design a business that your customers will love. Simply create an account for access.