Lean Canvas as a Model for Start Up Businesses - Essay Example

? Lean Canvas as a model for start-up businesses Contents Introduction 3 Discussion 3 Segment 3 Value Proposition 4 Channels 4 relationships 4 Revenue Streams 5 Key Resources 5 Key Activities 6 Key Partnership 6 Cost Structure 6 Revenue Stream 7 Conclusion 8 References 9 Introduction Lean canvass business model is a strategic management template with the help of which we can develop a new business models or document an existing business models. It has many elements in it, like a firm’s customers, value proposition, finances, infrastructure etc. It helps the firms to align their activities by showing them to potential trade-offs between the elements. Alexander Osterwalder proposed the business model canvas based on his earlier work the Business Model Ontology. Here the idea is not to make a perfect business plan, because a perfect plan is a myth. Most of the companies’ make an initial business plan which changes as one grows. Perfection is not the goal. The idea is to prepare a business plan and start a business with the available resources at hand. In this study we will take a start-up of a manufacturing company like a car manufacturing company named Drizzler which will cater to Indian market. Drizzler will import most of its part from outside India and assemble in India. Discussion Customer Segment Possible Customer List of this start-up is anyone who wants to buy a car to use it. But being a start-up business will cater to middle income level families. In India the middle Income population is rising and their income level is also rising (Osterwalder and Pigneur, 2013, p. 123). India being a developing country, its GDP is growing at a healthy rate as compared to the western developed economies. Hence the needs of the middle income families are also rising day by day. They demand products which were previously used by Upper level people. Drizzler will cater to such customers (Ramaswamy and Namakumari, 2009, p. 234). Value Proposition For a middle income family those who want to buy a car, they are driven mainly by desire to own a car. Drizzler will create a value for the segment by manufacturing car which will not be priced too high and having features which will meet the expectation of regular people. Hence if it can satisfy the need for safety, and the esteem needs, then it will cater to the need of average household (Nielsen and Lund, 2012, p. 52). The most important customer segment is the middle income households who wants a bike but can afford a car. It should cater to such families who want to drive car and have a feeling to owning a car and make it their first family car. This car will give them durability and safety which they seek (Kaplan, 2012, p. 42). It is another factor considered important to middle income families. Hence they should give a mileage of about 20-25 km/litre. The seating capacity should be for 5 persons with maximum speed of 200 km/hour. Channels The car will be sold through independent sales channel all over India. Such sales channel includes retail dealers present throughout India. Nowadays in India there has been a trend of increasing sales of car in the Tier 2 and Tier 3 cities. It indicates that they must have their presence of distribution channel in those cities. They will sell their products through retail dealers. They must use the advertisement which shows the value proposition it will deliver to the customers (Dent, 2011, p. 141). Through mediums like TV, newspaper, auto magazines and shows on car, it will help them drive their value proposition to the clients. They must also maintain a website which will clearly state the features and the local dealer present. Customer relationships The key to any business is the ability to know what the customers want. Drizzler will maintain a strong and fast customer relationship programs. Drizzler will run a customer loyalty program. Drizzler will use a magnetic card for anyone who buys the product. When a customer buys a car, he gets points. When the magnetic card is swiped, then the representatives of the Drizzler will able to view all the customer’s information and can then speed up the servicing and hence add more points (Osterwalder and Pigneur, 2013, p.56). The customer will be satisfied that company reminds them every time they do transaction with the company. Once they reach a certain points, they will get gifts from the company. This will help them to improve their customer base (Cruz-Cunha, Carvalho and Tavares, 2011, p. 351). Revenue Streams For a start-up it is always difficult to earn a huge amount of revenue. A significant cost will be entailed in opening up the business. Drizzler will first identify the revenue generation points. Drizzler will use Penetrative pricing so that they can reach out to the customer segments (Jansen, Steenbakkers and Jagers, 2007, p. 17). Initially the cars will be sold at a price lower than its peers in the same segment. India being a price sensitive country will help to attract customers who purchased cars of other brands. It will convert the non-customers to customers. Key Resources For any business to succeed it must have key resources to help them operate. The three key are product, scope and infrastructure. The product will create a differentiation based on the mileage it will deliver. It will deliver a mileage of 25km/l highest among other similar cars. For a scope-driven business it creates a synergy between the customer and the company. Drizzler needs to look at the channel of distribution. Drizzler will import most of its parts from outside and assemble in India. Another key resource is the distribution channel, which will help them in reaching out to the customers. They must make sure that the dealers be given proper share so that they their job properly. No customer should wait for the delivery of their car. Also the finance part is very important. Without adequate source of finance, they will not be able to invest in building the distribution channel. Key Activities The key activities will include be assembling and the developing the distribution channel. Drizzler will come out with many variants of their car like petrol, diesel. Building their distribution channel is important to identify key market and act accordingly. Since Drizzler will import most of its products from outside of India, they mainly will concentrate their distribution channel. They need to target Tier 1 and Tier 2 cities where a growing number of middle income people are earning high enough to move from bike to a car. Key Partnership There will be partnerships in Drizzler. It will be run by 3 partners. The first partner will invest in the infrastructure part. The second partner will look after the distribution channel. The third partner will look at the strategy part (Muehlhausen, 2013, p. 321). All the partners are equally important to run the business. Each has a specific role to play in the business. Cost Structure Items Price Unit price $8,899 Expected sale in Year 1 3500 Revenue $31,146,500 Variable Cost Raw Materials & Accessories $2,669.70 $9,343,950.00 Selling and Administration $889.90 $3,114,650.00 Marketing and Advertisement $1,779.80 $6,229,300.00 Manufacturing $889.90 $3,114,650.00 Power and Fuel $444.95 $1,557,325.00 Miscellaneous expenses $266.97 $934,395.00 Total $6,941.22 $24,294,270.00 Fixed Cost Factory Set up Cost $5,139,172.50 Salary $2,569,586.25 Rents $1,541,751.75 Utilities $1,027,834.50 Total $10,278,345.00 Break Even (in years) 1.5 Break Even (in units) 5250.00 Being a car manufacturer company it will cater to middle Income group of families. Based on the research we have estimated that the demand of cars will be around 3,500 units. The initial factory set up cost is the major component of the cost structure for Drizzler. But since Drizzler imports most of its products from outside, hence the business will breakeven in 1.5 years and the breakeven unit is 5250. (Hooff and Wijngaert, 2005, pp.141-167). Revenue Stream Since Drizzler will offer the car to middle income family, it would be seen as the first car. Hence being priced at $8,899 it is low as comparable to other car manufacturers targeting the segment market. The middle income family will look for the value it derives like the prestige it earns from owning a car, and being the highest mileage giving car it will be easily accepted by Indian masses. The customers will be given the option of paying some money down initially and remaining money can be paid in instalment. Conclusion From the above analysis of ten different segments of business model canvas for Drizzler, it can be stated that the company can easily caters to the Indian family car market. Though Drizzler is recognized as car manufacturing company but will import most valuable part which is engine from foreign manufacturers and some other parts from Indian manufacturer. Mainly they will manufacturer low valued equipments of the car and highly focus on design. This is a short term strategy of the company to reduce its initial investment as well as associated risks. Indians from lower middle and middle level income group are very much price sensitive, therefore, this market driven business model of the company will best suitable for first few years in Indian market. Being priced at $8,899, Drizzler is comparatively lower than other family cars available in Indian market that are targeted the same segment i.e. families first car. It has two unique selling points which are mileage and design. Finally the company needs concentrate on high level promotion and also they need to set up a strong distribution channel to reach all the middle and lower middle income families. 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