Customer Relationships, Segments and Distribution Channels

Having covered a third of the Business Model Canvas in previous posts, this entry will focus on the customer and distribution sections.

• Customer relationships – what are the expectations of our customers, how will they integrate into our model and how costly will they be?
• Customer segments – where is the value coming from and who are the most important customer segments?
• Distribution channels – how are we going to distribute to our customers, how do we currently do this and what are the costs involved?

In order to ensure that you have a successful business, companies must identify the type of relationship they want to create with their customers. There are several types of customer relationships which can be built. Employee-customer relationships can be built through personal assistance, such as during and after sales service from a shop assistant. Dedicated personal assistance can provide a more intimate and hands on personal assistance, particularly found in high-end boutique stores which pride themselves on their customer relations.

Costs can be saved through creating automated relationships such as self-service relationships in which the customer is provided with the tools needed to serve themselves. Similarly, many internet companies base themselves on building automated services, which is a more intimate self-service relationship in which customers have the ability to select and identify their preferences (when you buy through Amazon.com for example).

Other companies can help their customers create a relationship, for example eBay use community relationships and offer a platform over which their customers can interact directly.

In order to identify your customers for which relationships are needed to be built in the first place, customer segmentation is required. Customers can be identified and segmented (or grouped) based on their needs and attributes. Once segmented, you can then meet these characteristics through the relationships you build and the product or service you provide.

A few examples of customer segments are: mass market for which there is no specific segment, but rather targeting a wide range of clients. Although on first thoughts this could make your target market limitless, by not adjusting your product for different needs, you may find that you can’t create any loyalty with any customers. A niche market is the opposite and is based on drilling down to specialised needs and characteristics of clients. Within each market, a company can apply additional segmentation within each group based on their characteristics, such as gender, age and income. A company could also serve several different segments with different needs and characteristics by applying diversifying segmentation: tailoring different products to different segments.

Once your customer segments and relationships have been identified, it is important to consider the channels through which you will reach them. Effective channels will distribute the company’s product or service (and essentially their value proposition) in an efficient and cost effective way, which is best suited to the customer. Clients can be reached through a company’s own channels, such as direct selling through shops, or by partner channel through major distributors, or a combination.

As with every aspect of creating a company, there is no right or wrong answer, but the process of customer identification through segmentation and relationships, and then how you will reach these groups, is key in order to ensure that you deliver your value proposition to the customer in the best possible way to meet their needs.

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Key Partners, Activities and Resources

Having covered the ‘Value Proposition’ section of the Business Canvas Model in the last instalment, this time, we’ll cover the sections which identify ‘key’ people and areas. These are:

• Key Partners: the people who are integral to your business succeeding
• Key Activities: activities our value proposition requires
• Key Resources: resources our value proposition require

In order to identify your key partners, you need to ask yourself the following questions in relation to your business: who are your key partners? Who are your suppliers? Which resources are you getting from your partners? And which activity do your partners perform?

Once identified, in order to reduce the risk of a business and heighten operations, creating key partner relationships can be an integral step. A good example could be the building of a good relationship with your customers or local council. By building this brand loyalty and strength with key partners, it is more likely that customers will repeatedly buy from you and that you will be welcomed to the community, giving you a better reputation and increased custom.

When defining key activities, it is important to assess your business in terms of: your distribution channels, customer relationships and revenue streams. The identification of your key activities allows you to see your most important activities in executing your value proposition, which was shown in the last entry as being the value within your product or service which the customer buys. An example of a key activity for The Economist magazine would be creating an efficient supply chain to drive down costs and ensure that deliveries were made on time to meet deadlines and demand.

The questions you need to ask of your business when uncovering your key resources are similar to those for key activities, namely: distribution channels, customer relationships and revenue streams. The resources which you are trying to identify could be anything integral to the business’ value proposition, physical resources (e.g. machinery), intellectual (e.g. patents), human (e.g. workforce) and financial.

But essentially, these resources are the tangible and intangible necessities to create value for the customer. They are needed in order to support the business and would be considered an asset to the company. Amazon, for example, provide value to customers through their huge product range made available through their website which is available from anywhere, therefore saving customers time and money, given their smaller cost centres. The key resource to Amazon would be the company’s IT infrastructure, without that, they have no service to provide.

Identifying these key areas in the business canvas model will help you to define the most important areas to focus on, as without many of these, you have no business, so it is essential to not lose sight of these.

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Value proposition

The ‘value proposition’ forms one piece of the ‘business model canvas’ puzzle. The canvas itself is a simple way of mapping out your business idea by detailing the operations of your company. It is a much more simple and visual way of laying out your business, something which is traditionally done in a business plan.

The business model canvas covers every area of your business and is a terrific way of identifying missing pieces in your business idea. If I were to go through every section of the model (of which there are 9), my post would be far longer than those I have done in the past. So I have decided to group and break down sections.

Although all aspect of the canvas are key in order to fully form your idea, the value proposition is a major part, and describes why people would buy your product. Simply speaking, it helps you answer the questions:

• What value does your product deliver to the customer?
• What is the problem which you are solving for the customer?
• Which product are you offering to which group of customers?
• Which customer needs are you satisfying?

The value proposition is based on three categories: need, feature and benefit. The need is what the market needs, the feature identifies which features of your product matches this need, and the benefit section shows the benefits which result from these features.

A great way to find your value proposition is to draw a table with these headings, then simply write how your product fits in. A very important thing to bear in mind during all of this is that benefits sell, features don’t, and so identifying and being able to annunciate these benefits is key.

An example of a value proposition when referring to a buying a new hatchback car would be as follows. The feature of this car is the extra space at the back of the car; the benefits are that this makes it easier to load shopping and to travel with your dog whilst keeping your backseats seats clean.

Unsurprisingly, the best benefits your product can bring save the customer time and money. Once you’ve identified the value proposition, you are one step closer to justifying your added value in pricing terms, something which will be covered in another post.

This is an essential part of any sort of idea development, as it makes it easier to describe why people should buy your product and ultimately how it will sell, so do not forget to think this through.

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Pitching

I’ve now been involved in six pitches, five of which were successful. The one which I didn’t get the result I had hoped was my first. I’ve noticed the improvements in myself, and this was certainly helped by a pitching workshop which I was involved in early on.

There are 3 main types of pitch:

• Elevator pitch: The idea behind this type of pitch is if you were in a lift with someone who could influence your business, how would you sell this to them before they got out of the lift. This tends to last for 1 minute and typically contains no figures.
• Standard pitch: Most pitches last 5 minutes, and may involve a small number of financial figures. In this instance, visual aids, such as slides are good, but should be limited to 5 slides, with a maximum of 5 bullets per slide.
• Investor/large scale pitch: In some instances, you may be asked to present a longer pitch. These tend to last for 15 minutes. It is probably best not to talk about specific detailed finances during this time, but wait for the questions which follow so that you don’t confuse yourself. The rule of thumb would be to limit this to 7 or 8 slides.

In all of these pitches, rigorous questioning will probably follow, and my best advice is to try to anticipate the types of questions and prepare responses in advance. An obvious example of this would be with financial figures. Unsurprisingly, no matter how good your concept may be, everything boils down to money, so be prepared to talk in detail about your realistic projections, costs and margins.

You could break a pitch down into several parts:

1. The hook: a good opening statement to gain interest and make the panel look up and take note.
2. Problem: What problem is it you’re trying to solve, the size of the problem and potential market?
3. Proposition: What is your service/product, where is the USP, business model and how will it make money?
4. People: Investors don’t just invest in the product, they invest in the person selling too, so get across who you are and sell yourself.
5. Proof: If this product already exists, who uses it now? Do you have any press releases showing exposure, and do you have any intellectual property which you are protecting?
6. Passion: You need to get your passion across for the product. If you aren’t passionate about your product/service, what hope is there that an investor will be?
7. Request: Remember to state what you want from this pitch. It is great detailing your business, but why are you pitching? In most cases, this would be requesting a certain level of investment.

It’s a great idea to give the panel a sample of what your product is, as it is always better to see, touch or taste something rather than imagine it. Although having visual aids and presentations are great, you want the focus to be on you, rather than people reading your slides, so keep slides and text on slides to a minimum. There are also a few obvious tips such as ensuring you’re dressed for the panel you’re talking to. For example if that is a high profile investor, chances are you should wear a suit, whereas if you’re speaking with web developers, then it is probably wise to dress more casually. Ensure that you tell the truth in your pitch, apart from anything else you don’t want to come unstuck in the future, and take your time before responding to questions.

A pitch can be quite a nerve-racking experience, but try to relax and enjoy it. It’s a great excuse for you to take centre stage and talk to a captive audience about your business and your passion.

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The Launch

Considering that we registered Access Regional in late December 2011, the fact that we didn’t launch until March 2013 shows just how many difficulties we encountered. Firstly we went from 3 Directors to 2, then we found that there was a disagreement in direction and struggled to find our USP, which resulted in the other Director leaving (….and then there was 1) and a completely new strategic direction. Considering that I had to teach myself a raft of new skills, getting the site up and running and live within 3 months was not too bad.

I had set my heart on a pre-Easter launch and quickly identified Wednesday 20^th March as the ideal date. As soon as I announced that on the Twitter, Facebook and LinkedIn accounts, it dawned on me quite how near that date actually was. But, undeterred, I worked tirelessly, starting most days at 8am and finishing at 11pm, to finish the site. Of course on the 20^th itself, there were some technical issues; my laptop deciding it would be the best time to be uncooperative.  However, at 3pm the site went live. I didn’t check the site analytics until Sunday evening for various reasons, and was delighted to see how many hits we’d had!

Although the site and the first edition is now out, there is still lots to be done before working on the next issue. We’re finishing off the Access Regional blog, increasing marketing, targeting advertisers, getting new venues on board to review and getting the SmApp cards, on which the magazine can be found, printed and displayed appropriately to match the brand ambition, in several locations.

We’re still on the lookout for new venues, writers, and advertisers who want to get involved in this exciting new project and match our target market (18-25 year olds).

If you fall into any of those categories, or if you just want to find out more about our strategy, any possible alliances or anything else, please get in touch at ben.smith@accessregional.com

Please remember to view our site www.accessregional.com and share with your friends and family.

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So, what do you do?

Since concentrating on Access Regional and other projects full time, I’ve become accustomed to this dreaded question, and nervously waited for their reaction to my response. When you tell people that you don’t have the security of a contracted job, working for someone else, they go one of two ways. They either light up, and gush about how brave a decision it is, and congratulate you on exploring that opportunity, or they give you a very confused look and question you, their judgement written all over their face. I don’t blame these people for their negative reaction, I think many can’t comprehend why you would try something new for yourself and not rely on someone else’s money and the security which comes with that.

Particularly initially, this reaction was a little disheartening and made me question myself and my objectives. However, there are then those on the polar opposite side of the spectrum. The more networking events I’ve attended and more young professional groups I’ve found out about and joined, the more common this positive reaction has become. Of course this makes sense; these groups are set up to attract likeminded individuals, who all share similar goals and beliefs. I recently attended a two hour networking event which flew by, and left, buoyed by all the productive discussions and enthusiasm shown by fellow networkees.

I’ve also come to use this question I used to dread, positively. The ‘elevator pitch’ is common in the business and investment world. The concept being that if you were in a lift with an influential business personality, how could you sell your idea to them before they get out. So I now use the opportunity given by this question to try and sell my concept and practice my elevator pitch. I’ve also found that it is a great way of carrying out market research. Even if you speak to someone who doesn’t understand your career path, they may still give you some insight into their thoughts through their reaction.

However you respond to this question, I implore any budding entrepreneurs not to get disheartened by people who don’t respond positively and who only offer unconstructive criticism. There are several thousand people around who will be hugely enthusiastic and willing to offer constructive thoughts, and networking organisations and events are a great place to unearth them.

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Idea Generation

I recently attended a Workshop in which I came across theories on idea generation. I’m not a huge fan of theories, as I believe a lot of them are just common sense. However some, when used correctly in real life situations, can be very useful.

The two theories which I found particularly interesting revolve around idea generation and relate to how you decide which business idea to undertake. The theory states that there are two ways of generating and implementing new business venture ideas: through effectual and causal reasoning.

• Effectual reasoning revolves around your set of means and how this can be applied to business: what resources do you have, what are your interests, who you know? Essentially, what can you achieve with the resources you have. The goal is not present, and is allowed to emerge over time, based on opportunities and threats which arise.
• Causal reasoning is based on trying to achieve a certain goal, using the best possible means to get there. These may be the most effective, cheapest or fastest, but doesn’t necessarily take into account the means which you already have access to.

A good comparative example would be by applying it to travel. Someone acting under causal reasoning would be a general, setting out to conquer land, whereas someone operating under effectual reasoning would be an explorer looking to discover unknown waters.

Obviously this theory applies principally to entrepreneurship. An entrepreneur developing an idea may think about what field they have knowledge and interest in, which area their friends and family work in, and then implement an idea based on this, learning and adapting their business along the way. This would be an example of effectual reasoning.

A business example of causal reasoning could be an entrepreneur developing an idea based on a desire or goal. For example to create a business which will be sold for £1m within 5 years, and not dramatically altering their business model, despite the existing contacts they may have and the people they come into contact with, or opportunities and threats which arise.

There is no right or wrong way to undertake entrepreneurship and idea generation. Statistics seem to suggest that entrepreneurs who create businesses under the effectual reasoning concept are more successful, however, what works for some, doesn’t always work for all.

I very quickly learnt that creating contacts and networking is possibly the most important part of running your own start-up, so whichever approach you take, being open to new approaches and support from people outside your company, and adapting to them, is crucial.

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Corporation Tax

Since running my own businesses, I have definitely worked harder than I ever have done before, and learnt more than I ever have in the past. Learning theories in A Level and at Undergraduate level is great, as was having work experience in large multinational companies. But I found that my passion for small enterprise, which subsequently led to entrepreneurship, has provided me with the most learning opportunities. Indeed, I very rarely go a week without learning something new in the field of business.

My most recent discovery was how to file Corporation Tax. I received a letter to the registered address of Access Regional. I followed the instructions and logged onto the website. I then had to wait a week whilst paperwork containing my newly created online filing account came through, which included my activation code (so ensure that you leave yourself time before the deadline, so you don’t risk being fined!).

Corporation Tax is the company equivalent to Income Tax. Considering that although Access Regional had been registered since December 2011, it had remained largely dormant for a year whilst we sorted out our strategy and had shareholder and directional issues. However, at the time, we had not foreseen this big delay, so had not registered the company as dormant, meaning that we were now at a point where our first year’s Corporation Tax was due. Your company needs to pay Corporation Tax on taxable profits for each Corporation Tax accounting period. Your accounting period is normally 12 months and tends to match your company’s financial year.

The amount of Corporation Tax you pay depends upon the profits your business makes, and the rate depends on how much profit your company generates. If you’re a newly formed company, the rate which most likely will apply is the small profits rate of 20%. This applies to companies with profits of £300,000 or less. If your profits are over £1.5m, this is the main rate, and stands at 24% – although this is set to change to 23% in 2013. If your profits fall between these, you’ll have to pay the main rate, however you can apply for marginal relief, which means that your bill is reduced by an amount depends on your profit figure.

You can forgo this whole ‘exciting’ filing process if you have an accountant; however, chances are if you’re small, you won’t be able to afford one. And besides, I always feel that it’s best to do these things at least once so that you know the process in case it is useful in the future. The HMRC offer a number of useful tools for helping with this. They have an online demonstration of what will be required but the most useful resource which I have since discovered is a free online webinar for small businesses.

You’ll be asked to provide financial statements such as profit and loss, and a balance sheet covering the accounting period, so worth brushing up on those and taking your time (I was very grateful for my Management Accounting modules at this point!). But the good thing is that you can submit these to Companies House at the same time, so that you’re essentially killing two birds with one stone, as your financial statements need to be submitted to Companies House at the end of your company’s accounting period too.

It took me a morning to do, but once it’s done, it’s done. And it was a very useful thing to learn. There are a lot of resources around to help you, so you need not feel overwhelmed.

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Intellectual Property

Since developing Access Regional into a magazine and finding a unique way of distributing, I have been furiously trying to find out about intellectual property. After all, if you have an idea which people have told you is good, you want to try and protect it as much as possible. Despite having found experts willing to spend time speaking to me about it, I still find the topic very complex. But I shall try to give you the basic concept behind the different forms of intellectual property:

• Patent: this gives an inventor the exclusive rights to their invention for a specific period of time. This means that only they can make, use and sell this product. An invention can be defined as a product or process which solves a technological problem, i.e. a solution, not simply an idea. A good example is ‘Dyson’, who own around 430 patents which define how they make their vacuum cleaners (you cannot simply patent a full product).
• Copyright: this gives the creator of an original piece of work, the right to use it. Copyrights are used for a range of ‘works’, so something creative, such as a book. Again, a copyright does not cover an idea, but instead the manner in which it is expressed. So it basically gives you the right to copy your work, whilst stopping others from doing so.
• Trademarks: this recognises a design or sign which identifies the company’s product or service. For example, ‘Nike’ have their name and logo registered as trademarks so that no one could imitate them.

These are the main 3 types of protection which you are likely to come into contact with, however ‘trade dress’ (protecting the appearance of a product or packaging) and ‘trade secrets’ (laws protecting a process or company information) are also other forms of intellectual property.

Particularly when starting out, it is well worth looking into intellectual property, and how much an application would cost, and indeed ensuring that you’re not treading on anyone else’s IP toes. Sometimes it’s not possible to protect your product, so when entering a market place, simply being the first in and then building a strong brand is essential. ‘Innocent’ are a very good example of this, given that they couldn’t protect the idea of offering smoothies, yet they were first to market and have since built a strong brand. This has meant that despite people imitating the concept, they maintain their market share and customer loyalty.

This is also the path I’ve gone down. A great place to start is checking the UK Intellectual Property website to see if something exists. Ensure it is different enough from what you have in mind, so simply adding a ‘-‘ or ‘,’ to an existing trademark, could mean you are taken to court, which even if you win, will cost you money! The process itself can take a few months, and cost £170 if you do it online, but any sort of protection you can get for your product or service is well worth investigating.

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Design and conquer

A lot of my time recently has been spent getting to grips with various image editing programmes and attempting to build a webpage. This has all been for my first venture (which started at the turn of the 2012 year), called Access Regional. This initially began life as a social enterprise which would be similar to the Big Issue in that it would be a magazine, and proceeds would be going to a good cause. However, my idea was around helping out students with disabilities. The main issue I encountered would have been the cost of publishing, particularly as establishing and circulating a new magazine would be tricky.

The idea then developed into an online advertising portal, advertising both student venues and employment opportunities. We spent a long time going over the concept and creating a portal, however, I had a doubt in my mind over how unique this would be and where the revenue would be developed; this was only reaffirmed when speaking to like-minded people. There had been huge delays in launching this, and eventually it was decided that the best way to proceed was for the other Company Director and I to part company.

So the company is now on its third evolution, and it’s been keeping me very busy! The idea now is a combination of the two original thoughts: advertising and reviewing local entertainment venues, but doing so in a magazine. This would also mean that I could get a team of writers together covering the Birmingham area, which would help with distribution. The idea of a physical copy of the magazine being published was abandoned a long time ago, and now the focus is on an e-magazine. The business model adapted by the ‘Shortlist’ magazine is one which I admire, and it must be working, given the number of awards they have received. So this is the model which I am adapting, but with a twist in the method of delivery and circulation, and therein lies the USP. I can’t reveal what that will be just yet, as I’m looking into the intellectual property behind this, and whether or not I can protect it. Needless to say, this will be the world’s first magazine distributed in this way.

As the other Company Director used to handle the web development and graphics side of the business, this has given me a steep learning curve, but one I am enjoying and learning a lot from. I’ve found www.moonfruit.com a great place to start, and would recommend that to anyone. There are several courses you can go on in order to learn how to use Adobe PhotoShop, but so far, I’ve found finding free fonts, and then altering the images using basic features of PhotoShop produce good results.

The landing page for Access Regional is now up (www.accessregional.com), so do have a look and subscribe to pre-launch page, to ensure that you are one of the first to hear about the launch and receive a copy.

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