MODULE 4
BUILDING BUSINESS MODELS
LEARNING OUTCOMES
The leaners shall be able to:
• Understand the concept of a business model;
• Design a business model canvas for a startup;
• Select the network of key partners;
• Choose key activities essential to the value proposition;
• Formulate a good customer value proposition;
• Recommend the relationship the startup should form with the customer segments;
• Select the customer segment/s to serve;
• Propose for the channels to use to communicates with the customer segments; and
• Prepare a lean canvas for a startup.
"The more you drive positive change, the more enhanced your business model.”
Anand Mahindra
A good product and/or service does not automatically turn into a commercial success. A business
model makes the difference between success in the laboratory and success in the marketplace. Having a
business model will also define the foundation of a business operations. The business model involves the
product or service offering, the targeted customers, and the economic engine that will enable a business
to meet its profitability and growth objectives. Business model assessment is essential for startups, new
and recognized businesses which need to discover, preserve or advance their business models.
What is a Business Model?
Basically, when management is asked about its model, the question only says "how does it plan
to generate money". According to management guru Peter Drucker: "a business model is supposed to
answer who your customer is, what value you can create/add for the customer and how you can do that
at reasonable costs". Simply, a business model defines the foundation of its company's core value
proposition, targeting customers, key resources, and assumed revenue streams. Eventually business
model offers a framework for success and overcoming challenges.
Different Types of Business Models
There are different types of busine are in contemporary times. Here are the business models
meant for different business models that are used traditionally: businesses,
1. Manufacturer - A manufacturer is a person or a registered company which makes finished
products from raw materials in an effort to make a profit. The goods are lated distributed to wholesalers
and retailers who then sell them directly to customers. The retailers exhibit the products via brick-and-
mortar stores or on 3rd party E-commerce platforms. In the manufacturing industry products are made in
big-scale so as to meet the irresistible demand coming from consumers. Examples of manufacturers in
the Philippines are Ajinomoto Philippines, Alaska Milk and Century Pacific Foods among others.
2. Distributor - A distributor is an entity or a company that purchases noncompeting products or
product lines, stores them in warehouses, and resells them te retailers or directly to the customers. Auto
dealers are examples of distributors Unilever spends its major part of revenue in maintaining a proper
distribution
3. Retailer - A retailer is a person or business that purchases goods from the wholesaler or
directly from the manufacturer. Retailers normally do not produce their own items. They purchase goods
to sell those goods in small quantities to end consumers. Online retailer giants include Best Buy, Wal-Mart
and Target.
Course Code & Description: GE112 – THE Prepared by: RACQUEL Z. CARANTO, LPT
ENTREPRENEURIAL MIND Teacher Page 2 of 9
4. Franchise - A franchise can be a manufacturer, distributor or retailer. It is a method
distributing products or services involving a franchisor. A franchiser provides access to his business'
proprietary knowledge, processes, business system and a brand's trademark or trade name in order to let
the franchisee to sell a product or provide a service under his business's name. A franchiser pays a
royalty and often an initial fee for the right to do business under the franchisor's name and system. In
the Philippines, Jollibee McDonald's and Pizza Hut are some examples of retailing businesses.
McDonalds's though is the best example which has 93% of its franchised restaurants worldwide.
5. Brick-and-mortar - It is a model that refers to the old-fashioned street-side business that sells
products and services to its customers face-to-face in an office or store that the business owns or rents.
Grocery stores, dentists, gas stations local grocery and walk-in banks are examples of brick-and-mortar
businesses
6. Bricks-and-clicks - It is a model where a company combines its online and a physical presence.
Customers may place their orders online and then pick up the products from the physical stores. This
model provides the advantage of flexibility because it can show its products to customers who live in
places where brick-and-mortar stores are not present. These day, most businesses selling apparel and
shoes items in Divisoria use this model.
7. Direct Sales - In this model, products are directly sold to the customers. Selling could be in the
form of a face-to-face conversation or small gathering. The former Tupperware used to have house
parties to sell its products. The salesperson gets a commission of every sale. Even in this age of
technology, there are still companies that make use of direst selling such as Avon, Boardwalk, Dakki, Fern
and Forever Living. These companies choose to always be in personal touch with its customers.
8. High Touch - This model uses a lot of human interaction and involvement in order to the
experience highly personalized. This type of business operates on trust and credibility to earn revenues
for the company. Here the highest involvement of the customer with the business the more pay they give
and the more loyal they become. Hair salons and auto dealers make use of this model.
9. Family - owned This is a family that is owned and operated by a family. The decision making
are controlled by family members. Some examples of this type of model are the National Bookstore,
ShoeMart, Jollibee and Robinsons.
Some of the basic types of modern business models are explained here:
1. Nickel-and-dime - This model makes use of the lowest price strategy in selling basic product or
service to the customers. Since the basic price is low, additional charges for the other perks and services
that are offered are required. Here in the country, Cebu Pacific is the low-cost carrier which offers the
lowest possible price for the flight tickets and charges fee. However, it charges fees over extra services
such as meal/snack, beverage and other services.
2. Freemium -This model is a combination of free and paid services normally used by tech
companies in the Software as a Service (SaaS) or apps business model. Usually, the basic services are
free but for a limited time or with limited features. The basic service comes with app advertisements and
storage restrictions but the premium plans do not have. In order to unlock the upgraded features, the
customer has to choose for paid services. Zoom, Spotify and Dropbox are examples of this model.
3. E-Commerce - This model is an upgradation of the old-style brick-and-mortar business model.
It focuses on buying and and selling of goods or services creating a web-store using the internet. The
transactions of transfer of money and data are executed via the Internet. Online stores like Amazon,
Flipkart, Shopify, Myntra, Ebay, Quikr, Olx and Alibaba are examples of E-commerce businesses.
4. Subscription - This model offers a long-term contract to customers by paying a fixed amount
every month or year. The company needs to provide enough value to its customers for repeat purchases
by visiting the website over and over again. Netflix, LinkedIn, Amazon Prime, Dollar Shave Club, are few
of its examples.
5. Aggregator - This is a network model; the company acts as a middleman between two
individual parties. Under this business model, most companies provide information and sources on a
single industry. The company sells its own brand by creating value for both demand and supply side. It
makes profit by through commissions. Airbnb, Zillow and Oyo for Hotels; Uber for taxi service; and
Yodlee for financial service are the right examples for this model.
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6. Online Marketplace - In the online marketplace, there is a collection of different sellers into
one platform. These sellers compete with each other to deliver similar product/service at competitive
prices. Good brand built from factors and quality son's is vit such as trust, free and/or the online
marketplace earns commission on every sale carried on its platform. Examples of well-known companies
using this model are Amazon and Alibaba.
7. Hidden Revenue - In this model the company offers its services for free. The company earns
revenue streams from advertisements which are paid for by identified sponsors when information is
shared. Users of Google, Facebook, Instagram and Twitter don’t pay for the search engine, but these
companies earn from advertising money spent by businesses.
8. Data Licensing / Data Selling - The Internet has given rise to the importance of data. Data is
the major element in the web technology where re companies need vital information to perform its
operations and gain profit. Twitter sells real-time data to third users for analysis, advertising, party and
other uses. Customer insight and other uses.
9. Agency-Based - This is a partner company that has specialization in doing non-core business
activities such as advertising, digital marketing, PR, even janitorial and security. Usually, businesses that
has no internal know-how hire agencies to acquire a customizable solution for their needs. Leo Burnett
Company is an agency that services United Airlines, McDonald's, Kellogg's and some of their notable
clients.
10. Affiliate Marketing - This is a commission-based model where companies make profit by
promoting a partner's product and convince its followers and users to buy the same. In return, the
affiliate gains a commission for every sales opportunity it referred to their vendor companies. The affiliate
website oftentimes provides product review. NerdWallet, Capterra, MoneySaving [Link] and the
Wirecutter are examples of businesses that are into affiliate marketing.
11. Dropshipping - In a drop-shipping business, the owner has no ownership of the product or
hold any inventory but he has an E-store. He has many different suppliers/ wholesalers to sell their
product on the website. When an order is placed on a business owner's website, the partner sellers then
deliver the products directly to the customer. Few examples of this nature include Doba Oberlo, Dropship
Direct, and Wholesale 2B.
12. Network Marketing - Often called multi-level marketing, this model works on direct marketing
and direct selling philosophy. There are no retail shops here but the offerings are sold to the target
market directly by the participants The more people that become part of the pyramid structure, more
mone are gained by selling more goods and getting more people on board. This is a commission-based
model where participants earn income through selling and recruitment of members. Avon, network
marketing. H and Mary Kay are good examples of
13. Crowdsourcing - is a model that solicits intellectual information of users of what value-added
concepts be inputted in the product and or service offering Here there is an open call for contributions to
help solve the problem. In some instances, the contributor of the solution is given monetary or
recognition as rewards. Wikipedia, YouTube, Kickstarter, LEGO ideas, Unilever, Coca Cola (new flavor of
beverage) make use of crowdsourcing.
14. Blockchain - This is a digital ledger that is irreversible and decentralized. No one owns and
monitors this digital database but anyone can contribute to it. This model works on peer-to-peer
interactions and document all on a digital decentralized ledger. Many crypto-currencies such as Bitcoin,
Ethereum, and Litecoin use Blockchain technology-based business model in their operations.
15. Low Touch - In this model there is minimum human assistance or intervention in selling a
product or service. There is no need to keep a big salesforce although companies may focus on
improving technology to further lessen human involvement and make the customer experience better.
Ikea and SurveyMonkey are good examples.
16. Razor and Blade - It is a business model in which one item is sold at a low price or even
given for free in order to intensify the sales of a complementary good, such as consumable supplies. A
good example is the Razor that is sold at a low price and its partner, the blade is sold at a premium price.
The same situation holds in a printer and cartridge. This model is advisable if the business has a loyal
customer base and has the ability to create some sort of lock-in situation with customers.
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17. Consulting - The consulting business is composed of experienced and qualified professionals
that offers services based on their line of expertise. Most consulting firms charge their clients by the
number of hours they have rendered service or a percentage of share once a project is completed. Mostly
accountants, lawyers, educators and businessmen form their own consulting companies. The most
popular consulting firms are Mckinsey, Deloitte and Boston Consulting Group, software or website
development firms
18. Social Enterprise - This model aims to put up a business more for creating a positive change
but with profit. The profit though is intended to be used for humanitarian works to improve human living
conditions. Some of the social enterprises in the Philippines are Bayani Brew, Coffee for Peace, First
Harvest and Liter of Light.
The Business Model Canvas
In his earlier book "Business Model Ontology" Alexander Osterwalder, the Business Model Canvas
consisting of nine segments for its building blocks. This business model can be written in a one-page
canvas. Later he wrote, a come comprehensive description of this business model in his bestselling book
"Business Model Generation".
An entrepreneur may focus on every segment or blocks of the business model systematically until
he is able to close the gaps. Every block describes the factor that a startup business needs to study. The
thoughts and ideas of the entrepreneur are kept intact and focused although he may modify each block
as the need arises. Each block is very much interconnected. As one block is change, the other blocks are
required to be revised because they may need to changed.
Here is a sample business canvas model for a small bakery that intends to sell organically baked
breads:
Table 5. Business Model Canvas of Bakery
Key Partners Key Activities Key Propositions Customer Relationships Customer Segments
1. Vendors of 1. Introduce 1. Freshly baked 1. Hotline 1. Neighborhood
organic raw organically breads Number communities
materials produced 2. Specialized in 2. E-mail for 2. Healthy life
2. Packaging bread organic bread questions stylist
suppliers 2. Marketing 3. Breads of 3. Facebook 3. Neighborhood
3. Retail and sales constant page supermarkets
partners 3. Branding quality 4. Loyalty 4. Neighborhood
4. Consumer 4. Breads are discounts bakeries
education served
quickly
Key Resources 5. Competitive Channels
1. Team priced breads 1. Social media
cooperation 6. Halal certified 2. Rider delivery
2. Raw materials 7. The “Finsbury 3. On call
3. Social media bread” of delivery
4. Retail Manila 4. Direct selling
network using own
website
5. Physical store
6. Events
planner
Cost Structure Revenue Streams
1. Equipment and facilities 1. Volume sales from supermarkets
2. Staff salaries 2. Sales to customers
3. Product ingredients 3. Sales to events such as weddings, birthdays,
anniversaries, etc.
Basically, there are four major parts of the Business Canvass model which are the infrastructure,
offering, customers and finances. Infrastructure includes key partners, key activities and key resources.
Offering consists of the value proposition. The part of the customer comprises customer segments,
channels and customer relationships. Finance takes into account cost structure and revenue streams.
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Here is the template of the business model canvas of Osterwalder.
Table 6. Business Model Canvas
Key Partners Key Activities Key Propositions Customer Relationships Customer Segments
Identify your company's What specific key Identify the core value What type of Identify who is your
key partners. This can activities are necessary of the company provides relationships do you value proposition
consist of important to deliver your value to customers. have with your targets?
suppliers in your supply proposition? customers?
chain. What exactly is the Who are you creating
What activities set your company trying to give How do you interact value for?
What key resources company apart from to customers? with customers and how
does the company others? Consider how does this differ amongst What are they like?
receive from these your company’s unique What problem is your customer segments?
partners? differences in its company trying to solve What do they need?
revenue channels, or and what needs are your Do you communicate
What key activities are customer relationship. company satisfying? with your customers? What do they enjoy?
performed by these
partners? Think about Do you need to procure How do you offer How much support does What is the customers
why your company specific niche resources? something different that you company provide? market like?
works with these key Do you need to keep satisfies the demands of
partners and the costs and prices low? your customer segments Are you targeting a
motivations behind (like price, quality, small niche community
them. Key Resources design, status)? Channels or a small market?
What specific key How do you deliver your
resources or assets are value proposition?
necessary to deliver you
value propositions? How do you reach your
customer segments?
Consider what resources
your distribution What channels are
channels and revenue used?
streams may require to
function. Consider your supply,
distribution, marketing
Additionally, think about and communication
what resources are channels.
needed to maintain
customer relationships. Are they well-integrated
and cost efficient?
Does your company
require a lot of capital or Are they being utilized
human resources? effectively?
Cost Structure Revenue Streams
Identify the key costs in your company’s business model. Identify the ways your value proposition generates money for
your business.
What are the major drivers of cost?
Does your company have multiple methods of generating
How do your key activities and key resources contribute to the cost revenue?
structure?
What is the pricing strategy fro the products offered by your
How do your costs relate to your revenue streams? Are you properly company?
utilizing economies of scale?
Through what channels do your customer pay?
What proportion of costs are fixed and variable?
Does your company offer multiple forms of payment?
Is you company focused on cost optimization or value?
Source: [Link]
Key Partners
Key partners are the network of suppliers and partners that may provide the business model
more effective. The entrepreneur could partner with other business, governmental, or non-consumer
entities that can help the business model works. Strong partnerships could be a tool to a business
success. There are a lot of reasons in partnering with various companies particularly for startups.
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Partnering can be for optimizing the use of resources, forming new resource streams or lessening risks on
important business decisions.
As the business lifecycle changes, so are the types of partnership that the business may be needing.
Simply, partners of a startup business would differ from those partners when the business is already five
years in operation. Here are the four different types of partnerships:
1. Strategic alliances - This partnership is an arrangement between non- competitors to help each other
do an equally advantageous task but retaining their independence. For instance, a new cafeteria business
could with several suppliers of coffee beans.
2. Coopetition - This partnership is an agreement between competitors to help share the risk that these
companies may take. Companies could be partners in forming awareness for their shared industry, to
gain new users.
3. Joint-ventures - This is when two businesses because of their mutual interest agreed to for a
completely different company. A new market or a new geographic area could be the reasons for
combining their resources in a joint venture. For example, a cheese company may opt to form a joint
venture with a milk manufacturer for a cheese manufacturing in another place.
4. Buyer-supplier relationships - These are the most usual type of partnerships in businesses. Such
relationships make certain that there will be a dependable spring of supplies coming in. On the part of
the supplier this means a stable established customer for their product.
Key Activities
Key activities are the most essential activities in achieving a company's value proposition and to
operate successfully. The key activities are mostly a bridge between the value proposition and the
customer segment, certainly, the entrepreneur has to consider his channels and customer relationships
when coming up with the key activities for the business model. This portion is reliant on business model
type. Here are the categories of key activities:
1. Marketing - Adding value by promoting products and/or services such as advertising a product to
create awareness and hence demand
2. Sales - This concerns selling a product and/or service. For instance, personal selling includes creating
customer relationships, discovering solutions to the customer's problem and closing sales.
3. Design-This is about forming designs of various items. For example, an apparel company creates
design of its lines of clothing for presentation to the outsourced manufacturers
4. Development- This is adding value through developing products and services. In the case of software
company, it develops a software product which could probably be customized based on the need of the
customer.
5. Operations -The manufacturing of products and delivery of services. Designing manufacturing, and
delivering a product in big quantities and certainly of highest quality are some of the activities under this.
Most companies are under this activity, particularly because a lot of business models are in
manufacturing
6. Distribution - This is about reaching out to the customers to sell to them and delivering the items to
them. To illustrate, a repair shop provides warranty services of an item bought by a customer.
7. Customer experience - Customer service, consulting and customer support are some of the activities
involve here.
Key Resources
Key resources describe the most important assets required to make a business model work.
These are the resources that allow an enterprise to create and offer a value proposition, reach target
markets, maintain good relationships with customer segments, and gain revenues. These four blocks
must be considered when developing the key resources segment. Here the four categories of resources,
namely;
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1. Physical - These are physical assets which are considered tangible resources that a company make use
of to form its value proposition. These could include equipment, machines, inventory, buildings, vehicles,
manufacturing plants and distribution networks that allow the business to function.
2. Intellectual - These are non-physical, intangible resources such as brand, patents, proprietary
knowledge, copyrights, and even partnerships. Customer lists, customer knowledge, and even the
company's own people, are also form of intellectual resources.
3. Human - Employees are the biggest and most vital resources of any company but are often
overlooked. In service-oriented companies which require great deal of creativity and extensive
knowledge, human resource is very vital. Customer service representatives, software engineers or
scientists are good examples.
4. Financial - All businesses have key resources in finance, however some will have stronger financial
resources compared to others. Cash, lines of credit and the ability to have stock option plans for
employees are some examples of financial resources.
Customer Value Proposition
Customer value proposition (CVP) is a business's way of generating value in their product or
service when targeting potential customers. A value proposition is a statement consisting of the reason/s
someone should do business with the company. This is computed through adding all the benefits that the
product could provide to the customers. CVP is a description of the user's experiences that he will come
to realize upon buying and using of a product. Without customer value propositions, companies are
walking blindly in the market. Basically, there are factors considered in the development of the customer
value proposition which are:
1. Functional value - The product and or service offers the solution to a particular problem. Said solution
is convenient, better version, easier to use and more complete compared to others. Examples of
functional benefits consist of the phone competence offered by an iPhone, the thirst-quenching benefit by
a bottle of water and the warmness given by a wool sweater.
2. Emotional value - The product and or service is pleasant to look at or attractive. Here the customer is
fond of this offering because of sentimental reasons, based from tradition or the advice of people
attached to the customer. Nowadays, purchasing locally produced or organic brands carries emotional
benefits especially for those enthusiasts.
3. Economic value - The product and or service offers a financial advantage, promotes energy
conservation, saves time or is innovative.
4. Symbolic value - For the customer the product and or service is valuable because of a certain type of
status given to the customer. This status can be a social responsibility orientation or based from the
brand. It may include the sophistication and the feeling of being casual coming from Apple products, the
manliness projected by the Italian Ducati motorcycle brand or the extravagance exhibited when carrying
a cup of Starbucks coffee.
Different Types of CVPS
By matching the customer to the value proposition, a company can gain more profit. ng the
customer segment the company to know exactly the trade. Therefore, it is basic for the company to know
exactly the trade-off amongst different customer segments and then choose which one to target and
serve. Then, the company should form its customer value proposition and adopt the best business model
that could best serve the needs of the selected segment.
There are various CVP's for every customer segment for all busine of its the reason for this is
because each segment has its own way of meeting the needs of its customers Types of CVP's include all-
benefits, points of difference, and resonating focus.
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Table 7. Types of CVPs
Value Proposition All Benefits Favorable point of Resonating focus
difference
Consists of All benefits customers All favorable points of The key point of
receive from a market difference a market difference whose
offering offering has relative to improvement will
the next best deliver the greatest
alternative value to the customer
for the foreseeable
future
Answers the customer "why should our firm "why should our form "What is the most
question purchase your purchase your offering worthwhile for our firm
offering?" instead of your to keep in mind about
competitors?" your offering?'
Requires Knowledge of own Knowledge of our own Knowledge of how own
market offering market offering and market offering delivers
next best alternative superior value to
customers compared
with next bet
alternative
Has the potential pitfall Benefit assertion Value presumption Requires customer
value research
Source: [Link]
1. All Benefits - The company in this type of CVP just list all the benefits or solutions that a product
and/or service offering can deliver and serve to target customers. The more benefits that can be
listed down, the better. This approach needs only small knowledge about customers and
competitors from the company but it is disadvantageous. This may lead to managers claiming
entitlement to advantages for solution features that in reality offer little actual benefits to target
customers.
2. Favorable Points of Difference - The company using this CVP tries to differentiate their solution
by conveying its point of difference compared to the customer's next-best alternative. Here, there
must be a customer's requirements and preferences, and what it is worth to fulfill them.
complete understanding of Sometimes, the points of difference that has bees emphasized could
be of little importance to the target customer.
3. Resonating Focus - The company making use of this CVP identifies the one or two points of
difference between the its solution and its competitors that provide the best value to the target
customers. Companies that use resonating focus value propositions are able to create tailored-fit
value propositions for different customer segments. The elements of value that are important
may vary from customer to customer, hence tailor-fitting is necessary.
Customer Relationships
Customer relationships are the types of relationship a company forms with its particular customer
segments. These relationships are essential in order to gain customers, keep them and grow sales with
them. Here are some types of customer relationships:
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1. Personal assistance - Founded on human collaboration, the customer can communicate with a real
salesperson to provide help during and after the sales process. Ways of communication may include
onsite at the point of sale, using call centers and even emails, among others.
2. Dedicated personal assistance - This is the deepest and most intimate type of relationship that
involves assigning a salesperson to an individual customer. This kind of relationship usually develops
over an extended period of time. For instance, in the banking industry, each big account is provided
an individual banker.
3. Self-service - Basically there is no direct relationship that exists here, although all the essential
things to assist customers help themselves are given.
4. Automated services - This is a combination of customer self-service and automated processes. For
instance, automated services are able to identify individual customers and their characteristics, hence
they can be given information about their orders. Said relationship can even kindle a personal
relationship such that a customer could be proposed of a book or movie.
5. Communities - User communities can be used by companies to be closer and more connected with
their current and potential customers. It is a trend now to keep online communities to exchange
information and help solve each other's problems. [Link] is the leading automotive website and
community in the Philippines. It offers auto classifieds, forums, reviews, galleries and a lot more. It
has Pa user-friendly interface, location-based search with map and mobile responsiveness.
[Link] is the most popular car user’s community in the country. Winegrowers partner with
wholesalers in various countries to sell their wines. Quick to reach the market and less investment in
infrastructure are some of the advantages of an indirect channel. However, it is expected that there
will be lower margin on the product.
Value Proposition Canvas
It was Alexander Osterwalder who developed this value proposition canvas His aim is to
guarantee proper fit of the product and the market. Simply, the value proposition canvas makes certain
that a product and/or service takes into consideration the values and needs of the customers. The canvas
appears to be a detailed relationship of the customer segments and value propositions. This canvas can
be a tool also to upgrade a product and/or service offering or to develop an entirely new offering. The
value proposition canvas consists of two building blocks namely the customer's profile and a company's
value proposition.
Customer Profile
The customer profile points to the customer segment that the company shall serve its product
and/or service offering. A customer profile should be created for each customer segment, as each
segment has distinct gains, pains and jobs. The company needs to understand the customer's jobs and
make an assessment as to their pains and gains. Before making a customer profile, the various
archetypes customers typically fall into must be evaluated. Customer archetypes also known as personas
are those dry demographic portrayals of customers transformed into living, breathing people which the
audience can comprehend. Customer archetype is an idea of Steve Blank which he popularized in his
Lean Lau Launchpad. More of customer archetypes/ personas are discussed in Chapter 5.
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Figure 4. Value Proposition Canvas
Source: [Link]
Customer Gains
Customer gains include all the expectations and needs of customers, things that may delight
them and other stuffs that may intensify the possibility of these customers embracing a value proposition.
Upon buying a product or being provided by a service, some gains are given less attention by the
customer. Although, there are cases that customers are delighted by some surprises for which they are
fully satisfied. Here are some types customer gains:
1. Required gains - When buying a product or being provided by a service, these are the very basic
expectations by the customers. An individual buying a Smartphone has the least expectation that his new
bought phone can allow him to make and receive phone calls.
2. Expected gains - These gains are beyond the basic ones, but even these are not present in the product
and/or service, said offering can still provide its basic purpose. Hence, for a Smartphone, it is expected
that it should be visually attractive and fashionable.
3. Desired gains - These gains are the customer's preference when it comes to product and/or service.
These are the most sought-after and cherished gains by the customer. Obtaining these gains can result
to the complete satisfaction of the customers. In the case of Smartphone, having no trouble in the
synching the phone with other gadgets is a desired gain of any user.
4. Unexpected gains - These gains are the potential benefits of the product and/or service for which the
customer is unaware until these are introduced to him. Although these ideas and innovations are not
articulated by the customer, they are able to transform the customer's experience with a product and/or
service. A touch screen capability of a Smartphone is a type of an unexpected gain for customers.
In order to be successful, an entrepreneur should be able to clearly identify his customer's gains
and how important are these gains to the latter. Tailor-fitting the customer gains to a product and/or
service offering is the key the product's and/ or service success. The better the value proposition will
appeal to the customer segment depends on the bulk of customer gains information the company has.
Customer Pains
Customer pains are situations which either avoid the customer from getting a job done or the
negative experiences, emotions and risks that the customer experiences before, during or after a job.
Said pains include the following:
1. Productivity pains - These pains include the inefficiency of the businesses that a customer experiences.
Majority of customers practice time management that they felt annoyed when additional steps would
occur in the buying process.
2. Support pains - These are pains felt by a customer when he is not assisted during the buying process.
3. Financial pains - These are pains that involve money in particular that often a customer spends too
much for a product and/or service when his intention really is to spend less.
4. Process pains - These pains those that create friction to buyers because of the substandard processes
of the business.
It is vital to dig deeper into the causes of customers' pain/s in order to know the importance and
urgency of these pains for the them. A long waiting que is an example of a customer's pain that an
entrepreneur should resolve. Making this pain unbearable for the customers is the obligation of the
entrepreneur.
Customer Jobs/Jobs-to-be-done
Customer jobs describe the functional, social and emotional tasks customers are trying to do,
challenges they are attempting to resolve and needs they desire to satisfy in their personal and
professional lives. Known also as jobs-to-be-done (JTBD) shifts the focus from a hypothetical or
aggregate user to what actual users want to accomplish by using the product. Here, the perspective must
be taken from the angle of the customer to understand him fully. The following are the types of these
jobs:
Course Code & Description: GE112 – THE Prepared by: RACQUEL Z. CARANTO, LPT
ENTREPRENEURIAL MIND Teacher Page 2 of 9
1. Functional jobs -These are the regular and particular jobs that a customer is trying to do and is
working towards. These are easy and simple things like cooking a menu, finishing an essay for the
English assignment, eating balance diet and other similar ones.
2. Social jobs - These consist of the manners a customer desires to reflect his image in a social
environment. Some examples include fitting in with a group of friends or praising a co-employee in his
sales presentation.
3. Personal/ emotional jobs - These include how a customer works towards feeling a certain way.
Some people feel they can rush from a tough task and then do another task after like having a gym
practice before dinner time.
4. Supporting jobs - Often customers also purchase value, hence doing a supporting task. Here
are the three roles of customers that may assist in supporting jobs.
a. Buyer of value - This task is any purchase of value that may cover from evaluating choices at
hand up to paying for the product that had been chosen.
b. Co-creator of value - These are jobs for which a customer has a direct hand in the
manufacture of the product with the company. Such jobs include providing ideas for product design,
product testing and giving product and/or service reviews online.
c. Transferor of value - These are jobs at the end of the product use such as disposal of product
trash or giving the ownership of the product to another person because it has no value anymore to the
original owner.
As the entrepreneur makes assessment of the customer jobs, he needs also to assess the job
context in which the job was done. Said job context is equally important because it has the power to
influence the job type. For instance, there is a big difference when a customer dines in a restaurant with
his friends and that when he is with his friends.
In the same way that it is vital for the entrepreneur to understand which jobs are vital to the
customers and those that the customer can simply abandon or replaced. Certainly, not all jobs are of the
same significance for the customer based on a job's impact and the priorities of the customer.
Value Proposition
After really understand the customers, including their gains, pains and jobs, then it is time to
reflect on the gain creators, pain relievers and the products and/or services to offer them.
Gain Creators
Gain creators explicitly outline how the products and services may create customer gains and
offer customer added value. An entrepreneur may form benefits that a customer supposes, desires, or
may came as a surprise. Gain creators may include functional utility, social gains, positive emotions, and
cost savings
Pain Relievers
Pain relievers explicitly outline how the products and/or services lighten, avoid or solve the
particular customer pains. An entrepreneur must provide details on how his offering of product and/or
service could lessen or completely eradicate the annoyance of his customers before, while, and after they
are trying to get a job done.
Products and Services
These are the products and/or services which create gain and relieve pain and built around the
value proposition. These offerings may help customers obtain a functional, social, or emotional job done
or just satisfy the basic needs. In addition, these products and/or services could be in the form of
tangible, digital/virtual, intangible or financial which are essential to the customers.
Achieving fit between the value proposition and customer profile is the intention of creating the
value proposition canvas. Both the value proposition side elements and the customer profile elements
should fit in. A fit is realized once the products and services offered as part of the value proposition
address the most significant pains and gains from the customer profile.
Course Code & Description: GE112 – THE Prepared by: RACQUEL Z. CARANTO, LPT
ENTREPRENEURIAL MIND Teacher Page 2 of 9
Figure 5. the Value Proposition Canvas of the Bakery
The Lean Canvas: A Business Model Canvas Alternative
The Lean Canvas as proposed by Ash Maurya is a developed version of the Business Model
Generation. It outlines a more problem-focused approach and appropriate to use by small entrepreneurs
especially those creating startup businesses. The focus is more on customers' needs, on actionable
metrics and offer a fast idea-to-product transformation. The Lean Canvas is also primarily meant for
entrepreneurs and not the customers, consultants, investors or advisors.
Figure 6. The Lean Canvas
Source: [Link]
Here are the elements of the Lean Canvas Model:
1. Problem - It is important to understand the problem first that the business will address. Every
customer segment that an entrepreneur wants to serve has a set of problems that require solving. In this
box, the entrepreneur shall list the three high priority problems that the customer segment is
experiencing. This is to ensure that the right product and/or service shall be met based on the existing
need of the customer segment being served.
2. Solution - Once a problem has been identified, the next step to look for the effective solution.
However, this is not easy task to do. According to Steve Blanks, the Godfather of Lean Startup, the
entrepreneur needs to "get out of the building". The phrase was coined by Blanks to mean going out in
the streets and interview the customer segment. The customer should be asked questions in order to
learn from them regarding their problems. The solution here must be be concisely written and specific.
Course Code & Description: GE112 – THE Prepared by: RACQUEL Z. CARANTO, LPT
ENTREPRENEURIAL MIND Teacher Page 2 of 9
3. Value Proposition - This block contains a marketable promise to the target user that the business will
solve their problem. This is similar with the business canvas model.
4. Unfair Advantage - A startup should recognize if it has the competitive advantage that cannot be
copied and cannot be bought or it has an unfair advantage over others. Basically, this block is hard to
answer, but essential especially when looking for partners and investors. The entrepreneur needs to think
about what the business has that no one else can buy such as dream team, expert endorsements and
existing customers.
5. Customer segments - This is similar with the business canvas model. The problem and the customer
segments must be connected.
6. Channels - These are the ways to reach the customer segments. Channels, which are free as well as
paid, can be used to reach your customer directly. They can be email, social, CPC ads, blogs, articles,
trade shows, radio and TV plus webinars which are also the same with the business model canvas.
7. Revenue streams - This is the money matter of the business just like in business model canvas. It is
common for startups to lower their cost or even offer it for free in the beginning to gain attraction.
Getting people to sign up for something for free is not the same than asking them to pay as they are
more interested in free products.
8. Cost structure - These are the operational costs that the business needs to pay in bringing the product
to the market such as salaries, cost of the materials, cost of maintenance. The complete variable costs
and fixed costs are to be listed here.
9. Key Metrics - All businesses, whether big or small have some metrics with which to monitor their
performance. The metrics consist of the assortment of products and/or services the business wants to
deliver. For a startup business though one metric is good enough and then just build on it. It is important
that the correct metric is recognized.
Course Code & Description: GE112 – THE Prepared by: RACQUEL Z. CARANTO, LPT
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