Everything You Need To Know About Business Model Canvas And Value Proposition Canvas

In this article, we’ll discuss two important tools needed to assess, validate and ideate your business model and the value that it will create if you go ahead and convert the idea into a prototype.

Let’s have a look at Business Model Canvas first and then later at the Value Proposition Canvas.

What is Business Model Canvas (BMC)?

Business Model Canvas is a strategic management tool which helps in quickly defining, structuring and communicating the idea behind your product/service offering.

It is a concise one-page document that helps you in listing down the core elements of your product/service offering in a very systematic manner. As you can see from the template of the BMC attached, it is a box-like structure with two sides. The right side of the template consists of all the elements that focus more on the customers while the left side of the template consists of the elements that focus more on your business. In between lies the element of Value Proposition which justifies the value that your business provides to the customers solving some of their pain points.

Why do we use BMC?

1. To see how well your research is aligned with the market that you are entering with your product/service offering.
2. To get a look at the different types of customers that may use your product/service offering.
3. To see how effective can your idea be converted into a profitable business.
4. Allows everyone involved in the team to get a clear picture of how the business will look if you are successful in converting the idea into a profitable company.

The next question that strikes our mind is how we use this tool so that we can maximize the benefit and clarity of our idea. Let’s go ahead with an example of Business Model Canvas for Lyft.

Lyft is an on-demand American ride-sharing service that allows riders to quickly find a cab to travel from one place to another. Lyft has been successful in capturing approximately 20% of the market share despite facing tough market competition from Uber.

Some facts about funding and founders at Lyft:

1. Founders: John Zimmer, Matt Van Horn, Logan Green and Marcus Cohn.
2. Company Headquarters : San Francisco, California, USA
3. Valuation : USD 26 billion
4. Funding raised : USD 4.91 billion (till April 2017)
5. Revenue : USD 765 million as of 2021
6. Number of rides : 12.5 million as per Q4 2020.
7. Number of drivers : Over 2 million drivers

Now, let’s have a look at the Business Model Canvas of Lyft.

Let’s walk through each of these sections in a detailed manner.

Customer Segments

This is an act of dividing the customer base into groups that are similar in some specific ways. Broadly, there can be two segments Users and Drivers. Users are those who want a cost-efficient ride anywhere they want and do not own a car. Drivers are those who own a car and want to earn an extra income by working at a time convenient to them. Here, we have the following segments

1. Riders/Passengers :
   a. People who do not want to drive by themselves.
   b. Corporate businesses who want their employees to reach safely to the office.
   c. Working professionals who do not own a vehicle.
2. :
   a. People who own cars and want to be full-time drivers and earn some good amount in hand.

Value Proposition

You ask yourself here some questions like: What problem am I solving?, Why would someone want to have this problem solved? What is the underlying motivator for this problem?

Some of the value propositions that Lyft offers for passengers and drivers are:

• It offers you a minimum waiting time since it connects you to the nearest possible cab which is free.
• Discounted rides from time to time on different occasions.
• Monthly riding pass options at concessional rates.
• Pay via the app if you are having a cash crunch.
• Drivers have a transparent pay-out system.
• Lyft takes only 20% of the earnings from you, the rest 80% is yours.

Customer Relationships

This tells you how a business interacts with its customers. Here you can build strong relationships with your customer through some of the techniques that Lyft used:

• Launching loyalty programs.
• Making the customer feel that he/she is on top by providing them with personalized offers.
• Providing quick redressal of customer queries.

Channels

These are the different sources through which the users come in contact with your business and become a part of your sales cycle where they eventually transition from a user to a customer. Some of the channels used by Lyft are:

1. Social media platforms (Facebook, Twitter, LinkedIn, YouTube)
2. Ad Campaigns: Running Email, SMS, and Digital Ad Campaigns to attract customers and let them know about your brand and the value that you provide.
3. Offline Events: Organising events like these give a sense of truth and reliability amongst people who may end up becoming your customer.
4. Newspaper Ads: Majority of the people start their day by reading a newspaper. This can be a good medium to catch their attention on a time when their mind is fresh and active.

Key Activities

This includes the actions that a business takes in order to achieve the value proposed to the customers. In the case of Lyft, it can be as follows:

• Continuously enhancing the product.
• Proper marketing of the product in order to promote it.
• Providing customer support to customers that are quick and efficient in their work.
• Timely payouts to drivers.
• Thorough background check of drivers before onboarding them.

Key Resources

We listed down the Key Activities required to perform to deliver the proposed value to the customers. But, in order to deliver value, we will also need some key resources who will carry out or who will perform these key activities of the business efficiently. Some of the key resources in the case of Lyft can be:

• Technology platform
• Skilled Drivers
• Experienced design, development and product teams.

Key Partners

The need for these partners arises to achieve your key activities and deliver the value promised to the customers. Key partners in the case of Lyft are as follows:

• People who work as drivers and their cars
• Investors
• Insurance Companies
• Software Developers, Solution Architects, Testers.
• Marketing and Sales team
• Payment processing companies
• API providers for Maps

Cost Structures

These are some of the mandatory costs that are involved if you are running a business. Some of the mandatory costs involved in Lyft are:

• Cost of maintaining and upgrading the technology infrastructure.
• Salaries of employees.
• Expenses involved in marketing and sales of the product.
• Expenses involved in insurance coverage, premium, etc.
• Pay-outs to drivers.

Revenue Streams

These are the different streams through which your business converts the value proposition into a solution that solves some pain points of the customer which in turn gives you financial gain. Different revenue streams for Lyft are:

• Commissions are charged by Lyft per ride, per km or per mile basis.
• Charges levied by Lyft on peak times (i.e., Surge Pricing).
• Premium offerings like Lyft Plus, Premier, Line, etc.

This was all about the BMC of Lyft. You can go in-depth about the details of each section if you want to draft out a BMC and look at whether you can turn your business/idea into a profitable company. Let’s move on to the next part of Value Proposition Canvas (VPC).

What is Value Proposition Canvas (VPC)?

Value Proposition Canvas is a tool which can help you ensure that your product or service is well positioned around the customer’s needs and values. It can be used whenever there is a need to refine an existing product or service offering or if you’re developing a new product or service offering from scratch.

Benefits of developing a VPC

• BMC lacks the focus required on the customer end and it was mainly created for validating business ideas and disclosing flaws in idea/business, if any. VPC provides that missing customer focus by giving a detailed look at the two parts of the BMC i.e., Customer Segments and Value Propositions.
• It ensures that there is a fit between the product and the market.
• You are able to get a clear picture of what you have and what you don’t have in order to achieve the desired outcome.

Now, you must be having a good idea about what is VPC exactly. Let’s deep dive into this with an example of VPC of Lyft.

As we can see from the VPC shown above, it is separated into two distinct parts or categories. We will approach each of these two categories in detail.

Customer Profile

• Customer Jobs: This is the actual customer persona that helps us in understanding the customers’ backgrounds and behaviours. Target customers can be people in the age bracket of 24–60 who do not own cars and want to travel hassle-free anywhere in the city/inter-city.
• Gains: Kind of benefits that the customer expects and needs to be associated with your product or service offering. Customers here can book a cab from anywhere, anytime, Cost of these rides is low as compared to taxi rides, the process is fast and stable for booking a cab, the company often offers discounts on some rides.
• Pains: Helps us in identifying the pain points and negative experiences of the customers associated with your product or service offering. Here some pain points can be the surge pricing factor during the time of peak hours, Safety concerns for women travelling late night, Cleanliness of cabs, Waiting time and sometimes behaviour of cab drivers change and they become more rude.

Value Proposition

• Products and Services: List of product and service offering(s) provided by your company to the customer. The company provides an on-demand cab booking feature to the customer available anytime anywhere. Upfront transparent pricing while booking a ride. You can schedule a future upcoming ride well in advance through the platform. You have the feature to give drivers the proper feedback after he/she completes their ride.
• Gain Creators: This helps you provide ideas in fulfilling the needs and expectations of the customers. You can save a decent amount of money using this platform to book cab rides as compared to traditional cab rides. No need to worry about the background of the drivers, since their background check is done while inducting them onboard. The company often provides loyalty programmes for its long-time customers.
• Pain Relievers: Helps you in providing ideas and solutions to relieve the pain points of the customers. Booking a cab has become hassle-free without having to call anyone to book a ride, save the number of the driver and his taxi, etc. Instead, here you can directly book a cab from the platform itself. Cost remains constant at the time when you place a booking. In case of any emergency, you have an emergency SOS option available on the platform. You have a record number of past feedback from the riders who have travelled in that particular cab in the past.

The content in this article is purely related to the analysis that I’ve done to develop the Business Model Canvas and Value Proposition Canvas of Lyft. That’s the reason I don’t have any official source to be mentioned. Thank you for reading the article. Attribution for the feature image: Freepik