A great framework for defining online business models and marketing plans

Summarising a business model for online startups using  a single sheet of A4 with the lean Business Model Canvas Diagram

Defining a clear online business model is essential for a new startup online business to help create a sustainable business and communicate the features of their new business to partners and within the company.

Reviewing business models is also important for existing businesses thinking about options to refine their business model or add new services to their offerings in the light of new opportunities made possible by the Internet.

We’re big fans of simple frameworks to help communicate strategy at SmartInsights.com and we love the Business Model Canvas which is a valuable framework for summarizing strategy for online businesses. It was published as part of a co-creation creative commons project involving 470 practitioners from 45 countries. We feature it as part of our digital toolkit where we give an example in our online startup business model template. It’s also available as an app and downloadable templates on the Business Model Generation site. Of course, it can be used for all business models, but it is particularly suitable for online startups.

Business model template - Source: BusinessModelGeneration.com

Business model template – Source: BusinessModelGeneration.com

The business model canvas is also a valuable framework for summarizing strategy for online businesses for students, so it now features in my Digital business and Ecommerce Management and Digital Marketing books – to help spread the word!  The main sections of the canvas in a logical order to consider them are:

  • 1. Value proposition. This is at the heart of what the business offers to its audiences and is arguably most to important success.
  • 2. Customer segments. Different target audiences the value propositions will appeal to. In the business model canvas, the alternatives recommended are mass market, niche market, segmented (broken down further) or a range of diverse segments.
  • 3. Customer relationships. The types of relationships that will be formed, for example, self-service, automated services, communities or more personal assistance. Co-creation of content may be part of this.
  • 4. Channels. The methods by which the organization’s services will be delivered and the audiences reached.
  • 5. Key partners. To exploit online and offline value networks, forming partnerships gives an opportunity of expanding reach and taking advantage of existing organizations and online influencers that have built an audience.
  • 6. Activities. Which are the main activities that need to be performed to deliver the value proposition to develop revenue?
  • 7. Resources.  Different types of process and people to complete the activities to create and deliver the value proposition.
  • 8. Cost structure. Different cost-elements, these should be checked against activities and resources. Costs are classically broken down into Fixed and Variable costs and economies of scale.
  • 9. Revenue stream. This is the method by which a business derives income. Common online options are: ad revenue, subscription fees, sales of physical or virtual goods or affiliate based commission arrangements. Licensing and leasing are other alternatives.

As Guy Redmond pointed out in the comments, the day I published this, the Harvard Business review published A Better Way to Think About Your Business Model by Alexander Osterwalder, one of the lead authors.

It’s a great framework, but I always like to think what the missing elements of frameworks are since the summary can be misleading otherwise. The Business Model canvas is arguably missing a method of specifying Key Performance Indicators for evaluating the performance of the business model. I recommend adding these to the relevant sections, in particular for Revenue stream, cost structure, and key activities. It also doesn’t directly consider the impact of different forms of competitors. To help here, it’s also useful to think through how the canvas would look for successful companies already active in this market.

Applying the lean canvas approach to SOSTAC® for creating marketing and digital marketing plans

At Smart Insights, we’re big fans of one-page plan summaries for rapid discussion and explanation of strategies. We’re also big fans of PR Smiths SOSTAC® Planning framework defining a process for creating a marketing plan (See PR Smith’s site for more details (www.prsmith.org) or read my summary guide to using SOSTAC(R) for marketing plans.

Smart Insights Premium members can use our blank Word template and B2C example of a one page summary in this template. This simply takes each part of SOSTAC® and then you overlay specific digital marketing opportunities and challenges across each part of the Smart Insights RACE planning framework – by marketing them up with RACE (plus B, G, R, D for Branding, Governance, Resourcing, Data issues).

[Article and template originally created May 2013]

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