Business Model Canves Archives - Page 2 of 2 - Muir & Associates Muir & Associates

-Business Model Canvas-

When pitching to an investor, the last thing you want to pitch is your business plan. Yes, you heard me right: the last thing you want to pitch is your business plan! Allow me to illustrate why.

I received 400 business plans in 2012, called in 40 for interviews and pitches, and only four got funded. This seems to be the normal rate of return on funding. The question I was asked was, “why?” Why can’t it be higher? Obviously, there are some plans that just don’t fit into the categories the Angel, VC, or PE groups like to fund. Other reasons could be the product or service just does not jive with the investors, there is a lack of information being presented, or too much of the wrong information is being presented.

The business plan should come after the Business Model Canvas (BMC) is completed. The BMC is the plan before the plan, so to speak. As an investor, and now a professor, I’ve learned that business plans (and I’ve written many) never make it past the second week of opening. They are too static for this fast-moving, dynamic world. The BMC is what my article is about this week, and will be a 37,000 feet view of how it works as a whole. The rest of my articles will be about each of the nine boxes within the Business Model Canvas and how to use them in a presentation to investors.

It is important to understand the art and science of how to create a business model for your company. I compare the BMC to when I was an airline pilot. Imagine you’re leaving the gate and things are moving fast; you’re cleared for takeoff and things are rapidly changing. You can change your angle of attack and power setting at 10,000 feet, and then you hit cruising altitude. This is when you sit back, relax, and enjoy the flight. This analogy can be used to describe a start-up company. In the flight deck, we have a checklist to keep us safe; in the business world, we have the Business Model Canvas to de-risk our chances of failure.

Business Model Canvas is a way to experiment and test your hypothesis for creating and capturing the value of a start-up company. This process is also used with my clients who are developing a new product or service. When done well, it is a way to experiment and reduce risk. When owners of a new start-up consciously operate with a deep understanding of how the entire business system works, they can make better decisions and gain critical customer feedback on whether or not the intended approach is working, wanted, or even needed. The Business Model Canvas is designed to teach you the key essentials for how to utilize the tools to effectively model and shape existing and future products and companies.

Only one out of every 50 pitches I hear has a clear understanding of its customer development and business model. These are start-ups that have used the BMC as their checklist to success.

The Business Model Canvas has nine sections. We will eventually discuss each in detail, but for right now, let’s look at the 37,000 feet view:

Value Proposition: What value does your product or service deliver to the customer?

Customer Segment: For whom are you creating value?

Channel: How are you getting your value proposition to your customer segment?

Customer Relations: How are you going to GET-KEEP-GROW your client base?

Revenue Stream: What are your revenue model and pricing tactics?

Key Activities: What activities does your company need to do to move forward?

Key Resources: What resources do you need to start your company?

Key Partners: Who can you join forces with to increase your distribution faster?

Cost: What are the costs of getting the company up and going in year one?

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net.

dmuir_New_article_customer_dev_process_061115

I have been studying entrepreneurs’ pitches for over 10 years in the private equity world and for three and a half years in academia. As a professor at the University of Virginia teaching Presentation Strategies for Entrepreneurs, I thought I was qualified to write a series of articles about the information I have found missing from entrepreneurs’ pitches. This is the first of 10 articles I will be writing on the subject.

Customer Development. It all starts here. This is a four-stage process that allows the entrepreneur to find out what their potential client is actually looking for in their product or service.

Customer Discovery. This is where the entrepreneur interviews 100 or 1,000 potential clients, and asks the question, “If there were three things you could correct in your business, what would they be?” The entrepreneur will surely find a pattern they can work with.
Customer Validation. This is where the entrepreneur goes back to the potential customer (after discovery of the problem) with a Minimum Viable Product (MVP), and says, “I heard your pains and this is what I created to correct those pains. Is this something you would be interested in if created?” When the customer’s eyes light up, you know you have something.
Customer Creation. This is where you start building the awareness, or the GET-KEEP-GROW methodology, as you work through the Business Model Canvas (BMC). Once completed, the nine boxes in the BMC will give you a clear and concise business model in which to operate and grow your company.
Company Building. You now are no longer a start-up, but a full-fledged company ready to expand and iterate as needed to grow. You have a sales department, marketing department, and business development department all working together in order to build and expand the company.

Now, these steps may seem obvious and even academic at best, but it would blow your mind to know how many panels I’ve sat on in my 15-year career, asking these simple questions to the pitching entrepreneur, only to be faced with blank stares and the infamous, “I don’t know.” How does one build a company without talking to at least 500 or even a 1,000 potential clients?

Example of Customer Development. Several years ago, I started a new chain of Italian restaurants. I brought my mother-in-law over from Rome, Italy to do the cooking. I love my mother-in-law’s cooking, but I had to go through the customer discovery and validation process outlined above before opening. I found a broken-down restaurant that had gone out of business. I placed a picnic table in the center of the restaurant, and invited 15 people every night for dinner over a six-week period of time. At the end of dinner, I would have them rate the food. The data I collected was amazing. For the first three weeks, almost all the potential clients said the food was too strong; my mother-in-law was not cooking to the American pallet. As we iterated the recipes, the votes started getting better and better. When we hit a 90% approval rating on week six, then, and only then, did I create and design the menu. We opened the doors 10 weeks later to great fanfare. It would have been a disaster if we hadn’t fed and tested almost 500 people before opening the doors.

For more information about starting a company or new product development, please feel free to contact me at dmuir@muirandassociates.net

Category Archives: Business Model Canves

Information Missing from Entrepreneurs’ Pitches (2)

Information Missing from Entrepreneurs’ Pitches (1)