March 25, 2017

This is the canvas your office walls are missing...

... just in case you read my previous post on the Dutch excellence in IT Architecture; No this is not a post about Rembrandt or Van Gogh. If anything, it's close to Mondriaan. The canvas I'm talking about is the Business Model Canvas, a Swiss invention in case you were wondering, made by Alexander Osterwalder. Both the Business Model Canvas and Alexander Osterwalder are featured on Wikipedia. Okay, here's a little trivia. Alexander Osterwalder was born in 1974 in the Swiss city Sankt Gallen. Fact is that I lived in St. Gallen 20 years later, when I did my internship at a Swiss company while studying Computer Science at a Dutch polytechnic. Coincidence? Maybe, but maybe it was ... well don't let me get there.

The importance of the BMC is that it allows people to make the right decision when they need to prioritise their pending activities. This is why you need to print it out poster-size and make sure that everybody in the organisation can at all times take a look at it from their desk. The BMC should be ingrained into your organisation!

So, the BMC. I think it's probably the most important model you as an architect can work on with your team and than print it out and give it a triple A location on a wall in your office. Printed such that everybody can see what's on it from any angle. And just in case your office has more than one room, make sure you print one for every room.
Just so your organisation's mission doesn't get lost, print it on the same poster above the BMC. Oh, by the way, you can also ask your management, your CEO, your board of directors, to give you the canvas so you don't have to create it yourself.

The reason for the importance of the BMC is that it very clearly documents why you're doing all that you're doing. And if you can't explain why you're doing what you're doing by means of the BMC, stop doing it.
The magic of the Business Model Canvas is that it helps you, initially, to write down what you think your business is. Business here is meant in the broadest sense of the word, so even when you're in an NGO, a not-for-profit, some form of governmental organisation or a commercial business, the BMC is crucial, especially the activity of filling the BMC. It should be your primary source of focus.
What is the BMC? Without trying to go too deep into the topic, here's a little extremely short primer. Do a quick Google or Bing search to find out more about the BMC.

The BMC has 9 fields that are desperate to be filled with your input. They're divided horizontally as well as vertically. Horizontally you see on the bottom the money flows, what's coming in, Revenue Streams, and what's going out, Costs. On the top you'll find 7 fields that correspond to your organisation, they explain all about the 'why' of the money flows. Who's your customer, who are your partners, what's your product, etc.
The vertically there's a split right in the middle. In the middle you find your product, what ever that may be, it even may be a service. On the left you find everything need to create that product or to deliver that service. Notice that this is on top of your costs, since input for product creation or service delivery requires payments, i.e. costs.
On the right you find everything that is needed to create a revenue stream through your product or service. Customers, channels through which to sell and of course customer relations to keep customers happy and invite them to purchase more.

As you can now see, every aspect of your organisation and it's (business) value is captured in one model. You should read about my view on models, which you can find here. The reason to read my view, is to understand why I'm a bit hesitant when talking about models. But also to understand that the BMC, which is a visualisation of your business model, is one of the best models out there because it so clearly defines what single aspect of a business or organisation it visualises.
Anyway, having a BMC allows you to ensure that your activities are related to what your organisation attempts to achieve, being creating value that is sustainable and in line with your organisation's mission and vision and is according to it's strategy to realise this vision. Say what? I need to formulate a mission and a vision as well and come up with a strategy? Well, uhm, uh, duh! I would be worried if you hadn't done so already. So I'm assuming that you have, giving you the benefit of the doubt.

One very practical way of filling in the BMC is to gather everybody from the management team in a single room and do a 3rd third workshop.
The complete management team should be in the workshop because they need to not only understand what the business model is, but also why it is the way it is. And understand everybody's input. Furthermore, all areas are related to each other.
When you're in a startup, this workshop can be with just the founders, or maybe when you're really at the early stages, it's just you. In a larger or more established organisation or if you're catching up with the BMC, you should involve all of the MT team, or maybe the members of the board. Just get all the executives in the room to do the workshop.
With respect to the BMC, limit yourself to the upper 5 fields and address them one by one. Take a full day, limit the total time for each field to 60 minutes. And make sure that you have a healthy refreshing lunch and a nice diner afterwards.

That's the recipe for a BMC, but what of it? What you'll notice is that when you work on the BMC, even without the 3rd third approach, some of the fields are easy to give some content, and some seem almost impossible. Now forget about the first category. I'm sure you'll manage. Heck, you'll be probably in need of restraints to keep you from talking about it. Focus on the hard ones, that's where you'll be able to gain the most from the BMC.
Typically the easiest is the Value Proposition, especially when you're a startup. When you're an established organisation you might find that one harder to do because you've diversified your business, and possibly too much.
I would say that you need to focus on your customers first. And make sure you've got some names of people you can contact. A good way to address this is to come up with a sample group of 5% - 10% of your customer segment that you can contact directly. When your market is smaller than 500 customers, consider the lower end of the 5-10%, when your market is larger... you get the drift.
These are the customers that you'll use to validate the rest of your BMC.
Now first validate your value proposition with your customers, use your sample to do so. Chances are your customers don't think your product or service will help them (optimally) or are not willing to pay for it or something else. There's a ton of ways to do this. Interview them, have them sign-up for a pre-order, start a Kickstarter campaign, etc. The point is that you need to make sure that your value proposition is feasible to pursue. And now keep on listening to your customers and keep them informed. And after reading this, you also know without me telling, that you need to make sure that your contacts will provide reliable feedback. You're building your BMC and therefore your business on their feedback. And before I forget, make sure that your vision and strategy are also taking this feedback into account.
Once you've got your customers and your value proposition filled, it's time to do that workshop and fill in the other fields. Make sure that they're in line with your customers and your product. But also make sure that they're in line with your mission and your vision. And strategy of course.

Which takes me to the lower half of the BMC, the money flows and how to address them. You'll need to make sure that you know how to make money from your product, or rather what determines your income. And you need to know where your costs are coming from as well.

The importance of the BMC is that it allows people to make the right decision when they need to prioritise their pending activities. This is why you need to print it out poster-size and make sure that everybody in the organisation can at all times take a look at it from their desk. The BMC should be ingrained into your organisation! It also means that the BMC has to be communicated to everybody. There shouldn't be anything secret about the BMC. When it is, you're screwed because you need to take a very dictatorial management approach with micro management. And if you take that approach you won't have time to generate your revenue streams to cover your costs. Think about it, it's one sheet of paper, what secrets can you fit on one sheet of paper anyway?
So you want everybody in your company to know what your business is, and how you think it can be sustainable. It will allow everybody to evaluate whether their actions are helping the business, create business value, or not.
And it goes beyond this, think about new product development or new features to existing products? Just one look and discussions about wether or not to do it can be rendered irrelevant. Marketing campaigns? Whether or not to do them is written on the BMC. Deciding about whether or not to partner with somebody? It's in the BMC.

This leaves me with my final comment about the Business Model Canvas; It is a model that needs to be revised, once every so often you need to reconsider its contents. Do it periodically, once every 6 or 12 months, but also do it when you've come to a pivot-point and realise you need to adjust your strategy, your vision or maybe even your mission. So make sure that you will maintain your BMC to keep its relevance.

I think all the above make sense, if not drop a comment and tell me what's not making sense to you. But if it makes sense, why do I hardly see a BMC print-out on the walls of offices? Why is it that so often there's no business model canvas even made? Probably there're three explanations.

  • The existence or validity of the Business Model Canvas is unknown.
  • It is considered too hard or too confrontational.
  • It is considered a management only thing.

Whatever the reason is, you've come this far, now understand what it is and that it is beneficiary for the complete organisation. And it isn't that hard to create this most important canvas for your office walls. In addition, the canvas helps you to create a sustainable business.

Thanks once again for reading my blog. Please don't be reluctant to Tweet about it, put a link on Facebook or recommend this blog to your network on LinkedIn. Heck, send the link of my blog to all your Whatsapp friends and everybody in your contactlist. But if you really want to show your appreciation, drop a comment with your opinion on the topic, your experiences or anything else that is relevant.


PS: Here's an interesting link to a more elaborate BMC picture.

[Special thanks to my amazing wife, who took the time to not only read the post but to also send me a Whatsapp with a whole list of corrections the post needed. Thanks dear.]

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