Business Model Canvas: What are Customer Segments?

business model canvas

A good business model facilitates description and discussion. You need to start from the same point and talk about the same thing. The challenge is that the concept must be simple, relevant, and intuitively understandable, while not oversimplifying the complexities of how a business functions.

The Business Model Canvas allows you to describe and think through the business model of your small business, your competitors, or any other company. This concept has been applied and tested around the world and used in large organizations, as well as hundreds of thousands of small businesses.

This concept can become a shared language that allows you to easily describe and manipulate business models to create new strategic alternatives. Without such a shared language, it’s difficult to systematically challenge assumptions about your business model and innovate successfully.

At GoForth, we believe a business model can best be described through nine basic building blocks that show the logic of how a company intends to make money. The nine blocks cover the four main areas of a business: i) Customers; ii) Offer; iii) Infrastructure; and iv) Financial Viability. The business model is like a blueprint for a strategy to be implemented through business structures, processes, and systems.

First, let’s review Customer Segments, which define the different groups of people or organizations a business tries to attract and serve.

Why are Customer Segments important?

Customers comprise the heart of any business model. Without (profitable) customers, no company can survive for long.To better satisfy customers, a company may group them into distinct segments with common needs, common behaviours, or other attributes. A business model may define one or several large or small customer segments.

As a small business owner, you must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

Customer groups represent separate segments if:

  • Their needs require and justify a distinct offer
  • They are reached through different distribution channels
  • They require different types of relationships
  • They have substantially different profit capabilities
  • They are willing to pay for different aspects of the offer
  • For whom are we creating value?
  • Who are our most important customers?

Types of Customer Segments

There are different types of customer segments. Here are some examples:

Mass market

Business models focused on mass markets don’t distinguish between different Customer Segments. The Value Propositions, Distribution Channels, and Customer Relationships all focus on one large group of customers with broadly similar needs and problems. This type of business model is often found in the consumer electronics sector.

Niche market

Business models targeting niche markets cater to specific, specialized Customer Segments. The Value Propositions, Distribution Channels, and Customer Relationships are all tailored to the specific requirements of a niche market. Such business models are often found in supplier-buyer relationships. For example, many car part manufacturers depend heavily on purchases from major automobile manufacturers.

Segmented

Some business models distinguish between market segments with slightly different needs and problems. The retail arm of a bank like Credit Suisse, for example, may distinguish between a large group of customers, each possessing assets of up to USD $100,000, and a smaller group of affluent clients, each of whose net worth exceeds USD $500,000. Both segments have similar but varying needs and problems. This has implications for the other building blocks of Credit Suisse’s business model, such as the Value Proposition, Distribution Channels, Customer Relationships, and Revenue streams.

Diversified

An organization with a diversified customer business model serves two unrelated Customer Segments with very different needs and problems. For example, in 2006 Amazon decided to diversify its retail business by selling “cloud computing” services: online storage space and on-demand server usage. Thus it started catering to a totally different Customer Segment — web companies — with a totally different Value Proposition. The strategic rationale behind this diversification can be found in Amazon.com’s powerful IT infrastructure, which can be shared by its retail sales operations and the new cloud computing service unit.

Multi-sided platforms (or multi-sided markets)

Some organizations serve two or more interdependent Customer Segments. A credit card company, for example, needs a large base of credit card holders and a large base of merchants who accept those credit cards. Similarly, an enterprise offering a free newspaper needs a large reader base to attract advertisers. On the other hand, it also needs advertisers to finance production and distribution. Both segments are required to make the business model work.

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best small business location

Top 7 elements of a good business location

In our last post, we talked about how to choose a location for your small business. So how do you know if you’ve picked the best one?

There are many ways to figure out if the location you’ve been eyeing is the best one for your small business, but at GoForth Intstitute we believe there are really seven key elements that can have an impact on the success of your business.

Top 7 elements of a good business location

1) Accessibility

How accessible is each possible location to your customers? How easily can they drive, or get there by public transport? It’s important that your location isn’t difficult to find — customers have only so much patience if they get lost. Include directions on your website and include a map. And make sure the map works on any associated mobile map apps.

Lack of parking is a complete turn off for a lot of customers. Make sure you estimate business parking needs well in advance.

Also, provide step-free access as well as child-friendly features if necessary.

Your staff will also need to get to work easily. Is the location miles away from anywhere? If so, you may have trouble drawing from a prospective pool of employees compared to a location with good transit access.

2) Competition

What businesses are nearby, and how directly do they compete with yours? Often, being near a major competitor can be very beneficial for your business — as long as you’re confident in your abilities to compete. In fact, if a competitor has already set up shop in a particular place, then it’s usually a good sign that customers will come. Being near competition may provide more access to your desired customer base, though you’ll definitely need to work extra hard to attract and retain their interest.

3) Business Environment

Is your business environment a busy downtown location? A popular shopping centre? A remote location? Consider the types of businesses nearby and their potential impacts on your own — customers they may attract, volume of traffic they attract, proximity to your location, etc. Also consider the health of the business environment and the potential for growth in the area. If businesses seem to always be closing down, it might not bode well for you. Spending time monitoring a location’s business environment will help you to find out if your own business has a shot of success there. Don’t be shy, either. Talk to other businesses in the area and ask their opinions on the business environment.

4) Resources

Your location must also provide the resources that you need to run your business. And we don’t just mean office supplies. Research the municipal services provided in the area like police and fire protection, public transit and sewer and water supplies. Also consider how close suppliers, raw materials and customers are. It’s a good idea to check out other resources you may need like postal service, telephone and internet service, banking, and security services.

5) Site Availability and Regulations

There are municipal regulations involved with almost any small business location. Firstly, and this may be a no-brainer, but you need to make sure that the site you want is unoccupied. It must also be available in the terms you would like to operate — renting, leasing or buying. (More about that here.)  Zoning regulations, municipal licences and taxes must be considered too. Information on local zoning bylaws can often be found at your city or town’s website or band office. Licences and taxes may be required in certain areas.

6) Costs

There are lots of costs that’ll vary depending on location. Rent in a downtown office is almost guaranteed to be higher than a similar-sized office just outside the downtown core. Sales royalties paid to the landlord, landscaping, water, power, fuel, security and storage fees are other costs to take into account. What needs to happen inside your space to make it ready for business? This construction is known as leasehold improvements — sometimes paid by the landlord (or owner) of the building, sometimes paid by you and sometimes shared. Make sure you consider the cost of getting “ready for business.”

7) Physical Layout

The layout of your location, both inside and out, need to work for your business. You may have some equipment or machinery that has to fit inside the location, or maybe a pile of inventory that you need to store there. Check out our tips for assessing the physical layout of your potential location.

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How to choose a location for your business

For many small businesses, especially retailers, your location really matters. For those companies that rely on window shoppers and attracting customers from street level, choosing the right location is especially important.

How to choose a location for your business

Start by narrowing your focus using census data. This’ll help you evaluate how well you could potentially profit and attract your target market in the area.

Census data is collected every five years by Statistics Canada and gives statistics on families and households, income and earnings, population and dwelling counts, age and gender. Community profiles are also available all over Canada, which break down the population into age categories and gender; common-law and marital status characteristics; family and household characteristics including income; languages and mobility status; as well as education statistics (as detailed as the major field of study); labour force activity; occupations; industries and modes of transportation. This information can be incredibly valuable! Start your search at the Statistics Canada Website.

Aside from these demographic factors, assess the level of competition in your potential community, as well as the neighbourhood traffic generators that may also draw traffic into the area. These include things like big box stores, gas stations, schools, colleges or grocery stores. Depending on the type of storefront you’ll be opening, also consider the amount of vehicle and foot traffic. Consider the location’s renting, leasing or buying options and figure out the right one for you. Compare your community research to your primary market research and secondary market research so you can match customer characteristics to the communities you’re considering. It seems like a lot to take in, but it’s very important.

How do you know if you’ve chosen the right business location?

Although there are many ways to access the suitability of potential locations for your business, at GoForth Intstitute we believe there are really seven vital deciding location factors to consider. Check back next week when we break down the top seven elements of a good business location!

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What types of equity are available for your small business?

In our last post, we examined the factors that go into small business financing. Now that you have an idea of how much small business financing you need, how do you get it?

Generally, a new small business can be funded in one of two ways: equity (ownership) or debt (loan).

Equity financing for small business

With equity financing, you exchange a piece of ownership of your business for the investment capital – you’re giving up part of your company to receive money to start or grow. The amount of your company you give up is negotiable, but it’s related to the size of the investment and the value of your company. If you fail, investors lose their money – you’re under no obligation to repay the investment.

Debt financing for small business

With debt financing, you borrow money and repay it over time to the lender. If you fail, you’re still obligated to repay the loan in full. with the right preparation and planning you might qualify for debt financing, depending on your personal equity and that of your business. There are four common lending methods that small business owners can pursue through chartered and commercial banks and credit unions.

  1. Line of credit: A convenient type of loan used by you only when you need it, and usually secured by an asset.
  2. Term loans: Loans repayable over several different time periods. Demand Loans are payable upon demand; Instalment Loans are payable in equal monthly instalments; and Time Loans are payable at some time to be determined in the future, or at maturity.
  3. Mortgages: Loans given with your personal property or real estate as collateral until repayment.
  4. Corporate credit cards

To help your chances when pursuing a loan, it’s important to understand the lender’s perspective. Generally, loans are given based on a review of your five Cs of credit:

  1. Your character
  2. Your capacity to repay the loan
  3. The capital being invested by you in your business
  4. The amount of collateral available to secure your loan
  5. The conditions of the industry and economy

Obviously with a new small business owner, the first two — character and capacity — become the most important evaluation elements. This is because your new business’ financial estimates are based on forecasts, so the lender will likely consider your personal financial history very closely.

Money is just one factor of a successful small business

Most new entrepreneurs believe that if they have enough money, they can make any business model into a successful business. Sadly, there is nothing further from the truth. A bad idea is a bad idea is a bad idea, no matter how much money you throw at it.

At GoForth Institute, we know that the reality is sufficient start-up capital is only one element of a successful new business. Research shows that the small business owner’s reputation and depth of their social network are important to securing financial help. Not all businesses need start-up capital – but for most, the need for money comes at some point in their business’ life. So, develop a solid financial strategy, but remember that money is but one pillar of a strong small business.

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