New entrepreneurs are always looking for a shortcut in getting their venture story and plan across to investors, and closing on the funding they need. An effective tool I see used more and more, as a prelude to a more detailed business plan, is the Business Model Canvas, first introduced by Alexander Osterwalder back in 2008. It forces you to bridge the gap between idea and execution.
The canvas is a visual chart with elements describing your value proposition, structure, finances, and customers, to help companies identify and align business activities. Now I see in an excellent book, Business Models for Teams, by Tim Clark and Bruce Hazen, an extension of this process to down inside the venture, for teams and individuals. It shows you how everyone works in synergy.
In my experience as a new business advisor, a business is nothing until people are aligned and work in sync. As an active angel investor, I look for this level of alignment and understanding in every funding presentation I hear. I look for evidence of the nine major elements of the model canvas, as paraphrased here from the author’s key points and how they apply to teams:
- Customer segments. A business without well-defined customers is never fundable. Valid customer segments must be quantified for every opportunity. Many businesses these days serve both paying and non-paying customers, such as Google and Facebook, who count on millions of non-paying users to attract advertisers, who really pay the bill.
- Value propositions. Think of value propositions as bundles of services or products that create benefits (value) for customers. The ability to deliver better value is the main reason why customers select one competitor over another. Value should always include not only functions, but also social, environmental, and emotional benefits as well.
- Revenue. Every business needs revenue to provide investor returns and offset costs. “Free” is not an attractive revenue model to investors. Popular revenue models today include recurring subscription charges, licensing, as well the traditional sale or lease model. Every team needs to understand how their activities relate to customer revenue.
- Costs. Every entrepreneur needs to know and communicate the total costs associated with their solution or product, including cost of goods sold, customer acquisition costs, capital costs, operational expenses, and partner costs. Every team and every individual should know their own cost contributions required to complete their activities.
- Key resources. Investors are looking for the sum of all assets that are truly essential for creating, communicating, selling, and delivering your value proposition. These normally include people, tangible property, intellectual property, and cash flow requirements. Secondary assets, such as desks and computers, can be ignored at the funding stage.
- Channels. Channels have to be identified through which a startup creates awareness, induces evaluation, enables purchase, and executes the delivery of the value proposition. Every team and every individual needs to know how they relate to, or are responsible for, specific customer relationships. Investors will demand clear channel definitions.
- Customer relationships. Today, businesses are all about customer relationships, not just transactions. Thus investors expect to hear about strategies and technologies that your company plans to use to manage all customer interactions, with the goals of attracting new customers, improving customer retention, and driving sales growth.
- Key activities. These are the important things the business must do to make a specific business model work, specifically creating, communicating, selling, and delivering value propositions. Then there is the follow-up to provide customer support and satisfaction. Entrepreneurs who can’t communicate specific activities are not ready for funding.
- Key partners. No startup or entrepreneur is an island. It takes partners to make a business work, normally including suppliers, marketing, channel, and distribution partners, as well as funding partners. Every partner has their own set of activities and required resources. Every startup looking for investment needs a solid partner story.
Beyond the investment, a major challenge that every entrepreneur faces is getting teams and every individual on the team aligned and committed to the overall strategy and plan. That step, commonly called the we-to-me translation, is another value of the business model canvas and its extensions. There are no shortcuts to funding, but it pays to use the tools that work. Try this one.