Find Out How Feasibility and Profitability Interact
With its compelling value proposition and defined target audience, your fledgling business must complete a chain of tasks to make it a reality and grow and flourish.
First, you must be certain that you can deliver all the great value you believe you can provide. You can make many claims about your value proposition, but you must also deliver on those promises. Your value proposition will be challenging or expensive to deliver if an element of your product development has never been done before (and is unproven). This is also the case if there aren’t enough skilled people to complete an aspect of your service. This is about the feasibility of the business - is it possible to do what you say you can do?
Second, in the last section, we talked about the value the business can achieve in return for providing value to the customer. More often than not, that value is money! You will charge a certain amount for your product or service, and the cost of producing/delivering it needs to be lower than you charge - otherwise, you will soon run out of money. This is about the business’s profitability - after you have added up all the financial costs of creating or delivering your product or solution, how much money (profit) will remain?
Let’s say that while considering your business’s feasibility, you discover that it’s challenging to manufacture a physical element of your product with the exact flexible strength you need. It’s difficult but not impossible. If you invest in building the manufacturing capability to solve this problem, it will cost you money - potentially reducing your profitability. So, in a way, spending money has helped solve the feasibility problem, but at the expense of profit. The same thing could work in reverse. Uncovering a new partner who can manufacture the element to your specification may save you money on building the capability, reducing costs, and increasing profit.
So what questions are worth asking that might help assess the feasibility?
In the operation of our business, what activities, tasks, resources, components, and access are a critical part of our offering?
How easy are the tasks and activities to complete?
How available and accessible are the resources and components we need?
What knowledge and capabilities do we need?
How much of the process is within our own control, and how much requires third parties?
How will we deliver our product or service to our customers?
How easy is our audience to reach and communicate with?
Where will we make our product or service available for people to access it?
And what questions would help us assess our profitability?
What price can we reasonably charge our customers (or are they willing to pay)?
What are the resource and production costs directly related to the creation or delivery of our product or service?
Is there any physical infrastructure we need to house our employees and create or sell the product?
What are the costs of running the business that are less obviously connected to the product or service?
How much will we need to pay partners who help us?
What are the distribution costs or the cost of sales?
As you can see, there is a lot to consider here, and that is another area where the BMC comes into its own. Beyond the fields we have already worked on, remember that there are seven more to complete to flesh out our business model. Those are (in no particular order):
Key Partners
Key Activities
Key Resources
Customer Relationships
Channels
Cost Structures
Revenue Sources
Completing the following seven blocks can help you assess your new venture’s feasibility and profitability. If you step back a moment and consider each of them, you might spot that, to some extent, each of the remaining blocks leans towards either internal or external factors, and that’s just what we’re going to explore.
Explore the Internally-Facing and the Externally-Facing Blocks
What does internally-facing mean? Well, internally-facing blocks of the BMC are primarily focused on factors that are more in your control. You must do things to set your business up for success and run it daily. To a certain extent, you can decide how to approach each of these, meaning you can make choices.
We’ll look at each of these in some detail in the next chapter, but first, let’s consider which blocks focus most on external factors.
How you reach, communicate, and engage with your customers, and potential customers is an externally-facing activity that might include marketing, distribution, partnerships, and how you make your product or service available to your customer base. You may have people working internally to make it happen, but it is an externally-focused practice. Another vital factor that we talked about earlier is how you make money. You will likely charge a fee for your products or services. However, the various ways you generate revenue can be complex.
You could sell directly to your customer (by mail, in a store, or online).
You could sell through channels (i.e., to supermarkets, through a distributor, or bundled into a package sold by someone else).
You could leverage a different type of partner - for example, Spotify has record labels as partners, but they might also (at one point) have realized artists were potential partners.
We will go into more detail on these sorts of options shortly. Due to the nature of these more externally-facing factors, you may have less influence on their elements. For example, customer attitudes and expectations may change, partners may change their business model or favor other suppliers, and a new entrant may come into the market at a lower price, putting pressure on your revenue streams.
Before we move on, it’s probably worth mentioning that we shouldn’t be too rigid about the externally-facing and internally-facing definitions. For example, key partners are typically external - but you might use a partner that helps solve an internal problem. It’s just a helpful shorthand to recognize the characteristics of the BMC fields.
Join me now as we unpack these internal and external factors further.
Learn How to Tackle These Blocks
So, where are these blocks on the BMC?
Let’s start with the internally-facing blocks.
Key Resources and Key Activities tell you what you need to do and how to do it. Cost Structures help to understand what it will cost to do so. You can see them here on the BMC:
You can see they are grouped together since there is likely to be a relationship between them, as there will often be with different parts of our BMC.
What about the externally-facing blocks?
Channels and Customer Relationships tell you how to reach your audience and maintain and grow your relationships with them. Key Partnerships outline who you might need to partner with to be effective, and Revenue Streams tell you how you make money. Here they are on the BMC:
In what order should I complete the rest of the BMC?
There isn’t a definite order. The boxes aren’t nine independent checklists that you work through one after the other. They are all somewhat interconnected.
If you make claims about satisfied customers, you would expect your revenue streams to represent that impact.
If you expect to keep personal relationships with each customer, that will become a part of your key activities and cost structure.
This has two benefits:
It identifies the potentially overlooked activities and resources that are crucial for success.
It makes you reconsider the expenses that don’t directly contribute to the value proposition.
To cut a long story short, you stop making big, sweeping assumptions and waste less money.
You want the canvas to be as clear as possible for your benefit and to explain the idea to others. So, you can approach it in whatever order makes sense to you while keeping this idea in mind.
In the following chapters, we will explore each of the remaining blocks in more detail to guide you on what to include in each one.
Let’s Recap!
The feasibility of your business relates to how realistic it is that you can complete all of the factors required to deliver for your customers.
Your business’s profitability is based on the underlying cost of delivering your product or service, running the business, and how much is left after those costs.
Internal and external factors will affect your business model, which you can also find on the BMC.
There are relationships between many of the factors in the BMC.
In the following chapter, we will explore the key activities you must complete and the key resources you will need to deliver your value proposition.
