By Sophia Perl (Producer, PicPredict)
I have a friend who’s writing a book on online film distribution. Every once in awhile we chat about startup topics. As a thank you to me for giving her awesome advice, she sent me a surprise book in the mail, ”Business Model Generation” by Alexander Osterwalder and Yes Pigneur. I didn’t think too much of it, but I felt obligated to read the book in its entirety because it was a gift after all. Within the first few pages, I was hooked.

This book is like a bible for evaluating or coming up with a business model. If you do a quick google search on “business model generation canvas”, you will find many websites citing this very book. It’s that good. So let’s pretend for a second that you don’t want to buy or read the book, I think that I can help.

For those who don’t want to buy, but want to read some of it, go to the Business Model Generation website to read the first 79 pages of the book for FREE!!! This will teach you the basics of the business model generation canvas.

For those of you who are thirsty for some quick startup knowledge without doing all the reading, I can do a brief 101. The business model generation canvas is the basis of what you need to know. There are 9 building blocks of the business model canvas –- value proposition, customer relationships, channels, customer segments, revenue, costs, key partners, key activities, and key resources. All of these are interrelated.

When you are thinking about the building blocks for your business model, think about these questions:

  • Value proposition:What value do we deliver to the customer?
  • Customer segment:Who are the most important customers?
  • Customer relationship:What type of relationship does each customer segment expect us to maintain with them?
  • Channels:Through which channels do our customer segments want to be reached?
  • Cost:What are the most important costs that is key to our business model?
  • Revenue:What are customers willing to pay?
  • Key Partners:Who are our key partners/suppliers?
  • Key Activities:What key activities does our value proposition require?
  • Key Resources: What key resources does our value proposition require?

There are many techniques to design a business model. My favorite design techniques in the book are doing customer insights and prototyping exercises.

For customer insight, there is something called an Empathy Map where you identify a customer segment and do a profiling exercise. Ask the following questions to get a better understanding of your customer’s point of view:

What does she think and feel?

    What really counts, major preoccupations, worries & aspirations

  • What does she see?Environment, friends, what market offers
  • What does she hear?What friends say, what boss says, what influencers say
  • What does she say and do?Attitude in public, appearance, behavior, towards others
  • What are her pains?Fears, frustrations, obstacles
  • What are her gains? Wants/needs, measures of success

For prototyping, as the word entails, you come up with as many business models as possible no matter how ridiculous it sounds. A tip is to start with a different building block for different ideas. Then you discuss all the possible business models to get to the one that you like. Lastly, the book touches upon business model strategy where you should consider outside forces that could impact your business model -– key trends, market forces, industry forces, and macro-economic forces.

You should read Steve Blank’s blog about teaching Lean LaunchPad to Stanford students. He uses the “Business Model Generation” book for the 8-week class. It’s fun to read the students pivoting their business model along the way, much like a real startup!

If you have an itch to learn more about the book, do a Google search and you will find many articles written about it. Happy readings!

This post was originally posted at Sophia Perl’s blog.

Editor’s note: Got a question for our guest blogger? Leave a message in the comments below.
About the guest blogger: Sophia Perl is a product manager for a database server and client administration tool at IBM. She has over 10 years of combined software development, product management, and research experience. Sophia is the iOS developer for iPhone apps PicPredict and Eventabulous. She is an avid blogger on topics of Silicon Valley startups and technology at Sophia holds a B.S. in Computer Science from University of Southern California and an MBA from University of California at Davis. Follow her on Twitter at @sounalath.