Lesson: Customer Discovery Primer with Steve Blank

Step #9 Business Canvas: Identifying the right revenue streams

The next thing is revenue streams. How do you actually make money from your product and service being sold to customer segments? You know revenue streams basically ask the question, what value is the customer paying for? And it actually has you think about what's the strategy of how 'm going to capture that value. Is it I'm going to just have a direct sale and it's a complete transaction based on price? Is it a free me model where I'm going to give away the product for free and hope that some portion convert later? Is it a license or subscription model? That revenue model is different than the pricing tactics. That is what is the dollar or pound amount or euro amount that I'm going to be charging. Again the only way to figure this out is being able to interact with tens or hundreds or thousands of customers so you finally understand what the right revenue stream and revenue model is.

The next piece you want to think about is what in the key resources? What do you need to make the business model work? What assets are important? And what's an example of an asset and a key resource: well finance. Do you need capital? Do you need a line of credit? Some assets and resources are physical. Do you need a physical plant like a manufacturing line? Do you need specialized machines? Do you need vans for delivery? Do you need cars? Is there's something else you need? Is there intellectual property you need? Is there patents you need to acquire or protect? Do you need to acquire customer lists? Or is it just that you need to get great people, great software programmers in a specific area or great hardware designers or great manufacturing people. And then finally again, the interaction between intellectual and human capital is that's another key resource. What specifically do you need to do to keep these people and who are they?

The next piece is who are your key partners and suppliers? Partnerships are kind of interesting is we need to ask ourselves before what's the deal is what exactly are we acquiring from partners, and also what activities are they going to perform and when? And this is where startups sometimes make a mistake of thinking, "well large companies do partnerships, I guess I need those too on day 1." Turns out the types of partnerships you need in year 1 are certainly not the ones you're going to need in year 3 or 5 or 10, and the types of partnerships could be strategic alliances, joint ventures, just regular suppliers and buyers, and so you need to be thinking through who they are and actually getting out of the building and testing them.

Next, are key activities. What's the most important things you need to do for the business to make the business model work. Are you in the production business, are you making something, or are you in the problem-solving business like you're doing consulting or engineering or are you managing supply chains? What are the key activities you need to become an expert at?

Finally all these adds up on the left hand side over here to cost. What are the costs and expenses to operate the business model? One of the interesting things about cost is it's not just the obvious ones like people or buildings or materials. What you are going to be asking is what are the entire costs to operate our business model. You want to think about, what are the most important cost you need to worry about? What are the most expensive resources you're going to need to pay for? And what key activities are the most expensive? And then you want to ask the typical accounting things. What are fixed costs? What are variable costs? Are there economies of scale? And you want to start getting a good handle on what it is that will end up costing you money to run your business.