Video: Social Business Model Canvas: Customers
The business model canvas is a powerful tool to get a quick sense of how a business works. It can also be used to show how businesses can create social good.
Without customers, you don't have a business. Finding the right customers can be the difference between a successful business and one that struggles.
In this episode of Strategy Made Simple, we go through a few tools you can use to describe your ideal customers, from demographics and psychographics and branding matrices to innovation adoption curves and minimum viable audiences.
Matthew also describes how social value can be created by focusing in on certain customer segments, specifically those who are on the bottom of the income pyramid.
00:00 - Intro
00:15 - Demographics and Psychographics
02:30 - Crossing the Chasm - Using the technology adoption curve
03:39 - Minimum Viable Audience
05:34 - Social impact through target markets (Bottom of Pyramid)
07:37 - Case Study: Grayston Bakery
10:43 - Outro
Sign up for the Social Business Modelling Workshop: https://strategymadesimple.ca/social-...
You can continue the conversation by joining SocialEconomyConnect.com. Social Economy Connect is a free mutual support platform for practitioners, social entrepreneurs, co-op members and developers and third sector supporters to discuss issues and solutions with a focus on social outcomes in the economy.
Resources:
Business Model Generation: https://www.strategyzer.com/books/bus...
HBR article on using branding matrices: https://hbr.org/2015/06/a-better-way-...
Geoffrey Moore's Crossing the Chasm: https://www.amazon.ca/Crossing-Chasm-...
Seth Godin on Minimum Viable Audience: https://seths.blog/2017/07/in-search-...
Bottom of Pyramid: https://en.wikipedia.org/wiki/Bottom_...
Grayston Bakery: https://www.greyston.org/
Get the Strategy Made Simple social business model canvas: https://strategymadesimple.ca/social-...
Transcript available on the Strategy Made Simple blog: https://strategymadesimple.ca/blog/vi...
For more information visit strategymadesimple.ca
Contact Matthew:
Twitter: @MatthewRempel
Email: matthew@strategymadesimple.ca
Scripted, recorded and edited by: Matthew Rempel
Music provided by: epidemicsound.com
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Transcript:
Hello, and welcome to strategy Made Simple. My name is Matthew Rempel. And today we are going to better define our customers, and then use a tool called the Social Business Model Canvas to explain how it fits within the rest of our business.
In marketing, there are four typical elements that are a part of figuring out your target market. There are demographics, geography, psychographics, and buying habits. These are elements that you use to figure out who your target market is and what elements you're trying to appeal to in a potential customer.
When we're thinking about demographics, usually we think about age, gender, income level, the kinds of things you'd find out in a census. Geography, clearly, is the location where your customers are and where you can sell to them. And psychographics is where it gets a little more interesting. psychographics involve the psychology of a customer, the things they care about the things they think about, if they consider themselves an environmentalist or if they're concerned about safety, or maybe they're family oriented, and then looking at buying habits can help you define your target market more clearly thinking about people who buy once a week, once a month, people who buy large purchases and save up for them, or people who like to spend little bits of money, but frequently. buying habits can also change between people who prefer subscription services versus one time purchases to have access to a tool, entertainment, whatever it is you're selling.
When we're trying to define these psychographics or demographics often it helps to use a matrix. in marketing, we usually use a branding matrix or a branding framework where there are two axes. The vertical axis typically is inexpensive to expensive. And then the horizontal axis tends to be some kind of psychographic element, whether it is status, environmental impact, or some other elements that a brand might focus on in the automobile industry. Some common axes are environmental impact, fuel economy, or luxury status. When you're building up these branding matrices, you can also shift around what the axes are. While the vertical axis is most commonly the price or the cost, you can use any element. And then typically, you'll try to find a space that is underserved. And if there is a space in your market that is underserved, where there aren't any companies that are focusing on that particular area, that might be a space for your company to stand out.
Another example of how you can find your target market comes from Geoffrey Moore's Crossing the Chasm. He uses the technology adoption curve where you have the innovators and early adopters, then you have early majority, late majority and laggards. This technology adoption curve usually describes how people adopt new technologies or whether they wait until they're more developed. But it can also be used to describe how markets build up or brand support builds up. Often either you're going to be entering a new market or developing a new product. And so you need to have some of those early adopters, some of those innovators who are willing to take a risk for something new. And then once you can build up a beachhead, or a base of support within those early innovators, they can provide the social proof or the testing ground for you to improve your product enough that the early majority is interested in it. There's often a shift there. And if you'd like more detail, please check out the book. I've left a link down in the description. But in essence, you need to figure out what it is that's appealing to different parts of your target market. And that goes back to some of those psychographic elements.
Another valuable concept that you can use as you're trying to figure out who your target market is, is Seth Godin's Minimum Viable Audience. Think for a moment how many customers do you need for your business to be successful? Is it a million customers? maybe 100,000? 10,000? 100? maybe just 10. Depending on the industry, this is going to be drastically different. It'll also change based on whether you're selling to individuals or other companies or institutions. When you're choosing a target market, you need to be specific. Find that 0.1% of people that would be interested in what you're doing. The people who specifically wants to support you. Your brand needs to be specific, if you're going to be finding a target market. You can't sell to everyone, so choose who you're standing for. And then the formula for figuring out the minimum number of customers that you need to break even. We're going to get into that in more detail in future episodes when we're going into the financials. But in essence, your fixed costs are the things that you have that don't cost more when you have more customers, usually buildings, machinery, things like that, divided by a combination of the average amount of revenue you make per unit, or per thing you sell minus the cost it takes to produce each unit. With that, you will figure out how many sales you need to make. Or if you're assuming one sale per customer, the number of customers you need to have. And that provides a baseline for how many customers you should be expecting to be appealing to. And of course, it always gets more complicated as you get into the details. But that's a baseline that you can work from. So think about that. And think about how you can appeal to that small, specific amount of people.
Another way to classify your potential customers is by class and income. There's a concept that I've been reading more about recently called the bottom of pyramid. This is a group of customers that are in the lower income levels. And it's bottom of pyramid because there's typically more of them in that category. And the bottom of pyramid group is where it's easiest to see social value being made. If you're going to be creating social value based on who your customers are, the bottom of pyramid is the place to look. It's where there are lots of customers available, but often they have very low cash flow, and they aren't able to save up for big purchases, if you can find a way to reduce their average monthly spending on a common product that they use all the time, and that can improve their quality of life, then you are well on your way to creating social value. And if you can loop in some other external social or environmental value at the same time, that's all the better. And there's a lot of potential in this kind of target market. For example, Burn Stoves, they sell charcoal burning stoves in Sub Saharan Africa. Because of the way the stoves are engineered, they use less charcoal to cook the same amount of food, which means it's cheaper to operate for the end customer. And it reduces the environmental impact because there's less charcoal being produced, which means less trees being cut down, and less charcoal being burned, which means less co2 being released back into the air. Burn stoves are a win for the customer and for the environment because it reduces their average monthly expenses, and it's a positive for the environment.
Now we're about to get into our social fitness example. But there's one concept you need to know in advance of that. When we're thinking about social value made through the customer choice, there can sometimes be two distinct customer bases. You can have the customer base that funds the business where you earn your profit. And there can be a customer base where you create your social value. And sometimes they are paying for drastically different things that are happening over the course of running your business.
Grayston Bakery is an excellent example of this. There are a bakery located in New York State, and it's 100% owned by the Grayston Foundation, Inc, a charity. The foundation provides direct community services, as well as supervision, oversight, human resources, accounting and finance, information technology, and administrative support for all of the related entities under the Grayston umbrella. So when we're looking at how does this company operate, we're gonna start with their customers. They have customers for the brownies that they bake. These include big businesses like Ben and Jerry's and Whole Foods, but they also sell to individual consumers through their website. And in addition to selling the brownies, they're also trying to sell the concept of open hiring. Open hiring is the process that greyston Bakery uses to hire their employees, they hire first come first serve, no interview, no requirements. This means that people who are typically outside of the workforce are able to get in, they're able to get that entry level job, and they might use that ability to go somewhere else later. And greyston Bakery recognizes this, but more importantly, it's a space for people who otherwise can't get jobs to get back into the workforce, or to get into the workforce for the first time. In their value proposition they provide tasty and consistent brownies, and they also provide open training programs through the Grayston center for open hiring. The channels are typically web sales and business supply contracts. The relationships involve impersonal relationships with individual consumers and long term relationships with other businesses. The revenue is primarily from sales of goods and supply contracts for other businesses. And their costs are mostly around real estate, machinery, training, salaries, and the cost of producing the goods, their partners are their suppliers, purchasers, their Grayson Foundation and the Grayston Center for Open Hiring as well as the government and the grants that the government provides. The activities that they do involve baking the brownies, shipping them for delivery and training employees as the centerpiece of this and the resources that Grayston Bakery has include the brownie recipes, their industrial baking machinery, the HR processes, trainers and employees, and the buildings within which they work.
Another item to note is that the Grayston Bakery website has a prominent button, allowing visitors to donate to the foundation. And in 2018, they received almost $4 million in donations in 2019, almost $2.5 million. in running a social enterprise, it might be worthwhile to leave the door open to donations towards the social costs of providing social impact. Also, we're able to see the way this fits into their business because of their open and transparent way of revealing their finances. All of their audited statements are freely available on their website. You can go download them yourself if you'd like to take a look. And this is a great way to have more transparency in a social business.
Thank you for joining us. If you found this episode valuable, please share it with somebody else. There are 10 spots available for a strategy Made Simple Social Business modeling workshop happening on August 27 from 10am until noon Central Standard Time. If you'd like to sign up there's a link in the description. I hope to see you there. A printable version of the strategy Made Simple Social Business Model Canvas is also available for free through a link below. Strategy make simple content is available through videos, podcasts and transcripts on our website. Do you have questions, comments or concerns? Do you have ideas for future topics? Please email me. Matthew@StrategyMadeSimple.ca or tweet at me @MatthewRempel. Now as you go to define who your ideal customers are, keep it simple.