Business Model Canvas – The System
Beyond the framework for guiding the execution, the Business Model Canvas also proves to be a very helpful tool for starting to address key strategic growth issues, and understand how some short-term business model decision may have a long term decisive impact on the long term trajectory of the venture.
In the introduction we took the example of a software company that may decide to sell directly its product, which may seem like a good decision as it allows to generate more control over customers and more revenue on the short term. But it will likely turn the venture into a service based business, which will hardly grow beyond close customers range (local or regional). On the contrary if they choose to outsource to integrators, on the short term it will lower the revenue and growth, but the venture has the potential to turn into a global player.
From this strategic perspective, the Business Model Canvas can be viewed as a system comprised of 3 subsystems:
The value subsystem consists in either identifying assets (know how, technology, etc.) or value engines that can be turned into a sustainable competitive advantage. It basically consists in analyzing the value proposition (job, pain, gain) from the largest possible perspective (purchase and usage cycle, time, usage ecosystem) and identifying lever to bring new value to customers through the various building blocks of the value subsystem.
The organization consists in rethinking the organization of operation to, here again, gain a competitive advantage that can be shorten or lower the cost of development (investment), or gain a cost advantage.
And the 3rd subsystem is the economics that counter intuitively also opens up some large space for overcoming adoption hurdles and boosting growth.
And these 3 subsystems all together define the overall system dynamic, which has an impact on 3 strategic dimensions:
Business growth (overcoming adoption hurdles)
Barriers for competition (making it very hard for competitors to copy what the venture is doing)
Financial dynamic: by optimizing the cash flow dynamic and the required initial investment
This perspective on the business model is tricky for the entrepreneur as it may seem far from the short term pressure: building the product, getting the first paying customers, but it is key, because it is about thinking how the venture is going to move from 1st sales, to a market leader.
This strategic questioning should start from the very early days, because the initial short term design of the business model often carries a strong impact on this longer term perspective.