1.3 Defining the terms of a business model

While some of the terms used in the three models of business – the traditional product-oriented system, McKinsey’s value delivery system and the business model canvas – may be familiar or obvious to you, it may be useful to check on your understanding in Activity 1 before continuing.

Activity 1 Describing the business model canvas

Allow about 15 minutes

First watch the short video which defines a number of terms and brings the business model canvas to life. Then match the definitions to the terms, which follow.

Video 1 The business model canvas

Value proposition

The bundles of products and services that are designed to appeal to and provide value to different customer segments

Customer segments

The groups of people with a distinct need or use for your products or services

Key resources

What assets (e.g. people, equipment, premises) are absolutely necessary to deliver value

Key partners

People or organisations with expertise or the ability to do essential things you rely upon but cannot do for yourself, cost effectively

Customer relationships

Defines how you will relate to your customers (e.g. loyalty schemes or discounts, rewards, recognition of greatest need etc.)

Key activities

What things you absolutely need to do very well

Cost structure

Where costs arise in the business

Channels

The touchpoints – places or means of distributing your product or service

Revenue streams

How and through which activities you will capture value in your business

Using the following two lists, match each numbered item with the correct letter.

  1. Value proposition

  2. Customer segments

  3. Key resources

  4. Key partners

  5. Customer relationships

  6. Key activities

  7. Cost structure

  8. Channels

  9. Revenue streams

  1. The bundles of products and services that are designed to appeal to and provide value to different customer segments

  2. The groups of people with a distinct need or use for your products or services

  3. What assets (e.g. people, equipment, premises) are absolutely necessary to deliver value

  4. People or organisations with expertise or the ability to do essential things you rely upon but cannot do for yourself, cost effectively

  5. Defines how you will relate to your customers (e.g. loyalty schemes or discounts, rewards, recognition of greatest need etc.)

  6. What things you absolutely need to do very well

  7. Where costs arise in the business

  8. The touchpoints – places or means of distributing your product or service

  9. How and through which activities you will capture value in your business

The correct answers are:
  • 1 =
  • 2 =
  • 3 =
  • 4 =
  • 5 =
  • 6 =
  • 7 =
  • 8 =
  • 9 =

Hopefully you have found the models useful to prompt your thinking about some of the things you will need to plan and set up for your enterprise.

Next you will look at how your business model can help you to differentiate yourself from others to gain an advantage.

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