Business Model Development

Developing a solid business model is crucial for the success of any business – and so also when bringing PAVITR solutions for water and sanitation challenges to the Indian market. Here are some of the reasons why:

• Provides clarity and direction: A business model provides a clear understanding of how a business or business partnership will operate, who its customers are, what products or services it will offer, and how it will generate revenue. This clarity helps businesses make informed decisions and stay focused on their goals.
• Enables effective resource allocation: By understanding their revenue streams and cost structures, businesses can allocate their resources more effectively, ensuring they invest in areas that will yield the greatest return on investment.
• Facilitates innovation: Developing a business model requires businesses to think creatively about how they can differentiate themselves from competitors (see also Competitors Analysis and Competitive Advantage through Innovation) and meet customers' needs (see also Human Centred Design) in new and innovative ways.
• Helps secure funding: Investors and lenders want to see a clear and compelling business model before they invest in or lend money to a business (see also Innovating Business Models and Financing Water Impact). A well-developed business model demonstrates a company's potential for growth and profitability.
• Supports long-term sustainability: A solid business model helps businesses plan for the future, identify potential risks and opportunities, and adapt to changes in the market or industry over time.

This factsheet describes the main components of impact-driven business models that aim to address societal or environmental challenges by developing innovative and sustainable solutions while also generating sustainable financial returns.

The (Social) Business Model Canvas

There are many ways to design a business model. We recommend using the Social Business Model Canvas, which adds two building blocks on social and environmental costs and benefits to the canvas originally developed by OSTERWALDER and PIGNEUR (2010). It is a practical and dynamic tool that makes it possible to outline a business model on one page by describing a total of 11 building blocks, as indicated in Fig.1 below.

Fig. 1: The 11 building blocks that cover the four main areas of a business: desirability, viability, feasibility and sustainability. Source: adapted from OSTERWALDER and PIGNEUR (2010)

Whether the goal is to maximize profits, to break-even, or recover or save costs, or simply do good for people and planet, a business needs to gain competitive advantage - so perform better than existing solutions or products - to attain and defend market share. To increase revenues, you want to get customers to switch onto or stay with your product, so you need to offer them more added value than the competition. To reduce costs, you want to make sure that you operate efficiently while maintaining the right level of quality for the product or service.

Desirability

Customer Segments (CS): Customers are at the heart of your business model. Without paying customers you are out of business. To be successful in the market of nature-based and advanced solutions for water reclamation and purification of drinking water, rainwater and wastewater and associated monitoring options, you need to design a bundle of products and services that actually fit your customers’ needs. The Customer Segments Building Block defines the different groups of people or organisations an enterprise aims to reach and serve. The Customer Segments can be broken down into sub-segments if their needs require and justify a distinct offer (e.g. they are reached through different channels, they require different types of relationships, they have substantially different profitabilities, or they are willing to pay for different aspects of the offer).

The Value Proposition (VP) Building Block describes:

• Your product or service: What is your product or service and how can it contribute to covering customer activities? When describing the actual product also mention the need and any add-on services. The Value Propositions may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience). For example, a range of proven and effective anaerobic treatment technologies and associated operation and maintenance services for domestic and organic industrial wastewater treatment and management (see “Anaerobic System for Domestic Wastewater Treatment”).
• Your pain alleviators: How does your product or service alleviate your customers’ pains? To make the value proposition unique and easily differentiate it from the competition, mention any special features or aspects and the added value that your customer gets from using your products. This added value is described through a number of attributes that respond to the customers’ needs; such as customization, higher performance (“getting the job done”), better brand and reputation, different design, newness, lower price, cost and risk reduction, better accessibility, as well as more convenience. For example, wastewater treatment technologies especially suitable in areas with limited resources and infrastructure that are characterised by their simple and robust design, small footprint, low capital and operating costs, require no chemicals or electricity, and can be operated and maintained by trained personnel.

The Channels (CH) determine how you interact with your customers. Keep in mind though that you are not only interacting with your customer for the actual sale of the product. Consider all the phases where the customer experiences your business:

• Awareness: Where do you raise awareness about your product or service?
• Sale: Where do customers purchase your product or service?
• Delivery: Where do you deliver the product or service to your customers?
• After sales: Where do you provide after-sales support to your customers?
• Evaluation: Where can customers evaluate your business?

Customer Relationships (CR) define how closely you interact with your customers and how much you respond to their individual needs by coming up with customized solutions. The relationships you establish with your customers will deeply impact the customer experience and will have an influence on their trust and willingness to switch to your product and become a loyal customer to your business.

Viability

The Revenue Streams (RS) Building Block describes how a company will generate cash from each Customer Segment. The Revenue Streams have to take into account how much customers will be willing to pay for the value the company delivers. There are two basic types of revenue stream: revenues from one-time customer payments, and recurring revenues from on-going payments.

Cost Structure (CS) describes all costs incurred to operate a business model and their percentages of total costs. It is essential to get a realistic understanding of these costs and which components of the business model drive your costs up the most. For example, research and development (R&D) costs, salaries and wages, raw material costs, property rent, utility costs, equipment repair costs, sales and marketing costs, insurance and taxes, financing costs, etc.

Feasibility

The Key Activities (KA) Building Block describes the most important things a company must do to make its business model work. They can be activities to create and offer Value Propositions, reach markets, maintain Customer Relationships, and earn revenues. These are the activities that you need to perform well because they are essential to operating your business. The more resource-intensive the production of the value proposition, the more comprehensive the channels, the more personal the customer relationships, the longer the list of activities will be. For example, product and service design and development, procurement and supply chain management, production and assembly, inventory management, quality assurance and control, maintenance and equipment upkeep, distribution and logistics, sales and marketing, customer service, etc.

Key Resources (KR) describes the most important assets within a company that make a business model work. These generally include physical resources (e.g. buildings, vehicles, etc.), intellectual resources (e.g. brands, partnerships, proprietary knowledge, etc.), human resources (e.g. employees), and financial resources (e.g. cash, lines of credit, etc.). Decide which resources you absolutely need to own (in-house resources) and which ones can be rented or used by building strategic partnerships. The less in-house resources are needed, the lower the investment costs will be.

The Key Partnerships (KP) Building Block describes the network of suppliers and partners that make a business model work. These are institutions or individuals that have resources that you don’t have or that perform activities better, faster or cheaper than you. Partnerships can generally be categorised into: strategic alliances between non-competitors, strategic partnership between competitors, joint ventures to develop new businesses, and buyer-supplier relationships. The importance of forming partnerships is evident, but partnership management also requires time, so only create partnerships that clearly add value to your business model.

Sustainability

Social and Environmental Benefits (SEB) are the external benefits that the business produces for society and the environment. Careful consideration of these benefits is important to position yourself as a business with a positive social and environmental impact can create an avenue for justifying financial support from governments, donors or impact investors. Examples of the social benefits generated by water and sanitation business include providing affordable access to safe drinking water, improving access to adequate sanitation services, improving gender equality, contributing to job creation, economic empowerment and poverty reduction, etc. Examples of environmental benefits are, conservation of water resources, pollution prevention, ecosystem protection and biodiversity preservation.

Social and Environmental Costs (SEC) differ from your business’ operating costs. These are external costs resulting from your activities that impact the environment and society. You have to take these potential costs into account when designing your business model and mitigate them as these have monetary and legal implications for the overall sustainability of your business. Examples of SEC include occupational health and safety risks, pollution generation and emissions, increased pressure on natural resources, contributing to resource depletion and environmental degradation, etc.

1. Draw the business model canvas on a large sheet of paper. Use different coloured post-its to fill in the building blocks of the canvas.
2. Start with the different Customer Segments and the Value Propositions your company offers to them. The colour you use for the Value Propositions should correspond to their respective Customer Segments.
3. Once Customer Segments and Value Propositions are filled in, complete the remaining elements for the positioning of the business: Channels, Customer Relationships and Revenue Streams. If you have specific ones for each Customer Segment, make sure to use the same colour. For example, in the above business model example blue and orange cards were used to distinguish between two distinct Customer Segments that have clearly different Value Propositions, Customer Relationships, Channels, Revenue Streams and Social and Environmental Benefits.
4. Then proceed to fill in the operational side of the business model canvas: the Key Activities, Key Resources, Key Partnerships, Cost Structure and Social and Environmental Costs.
5. Once done, use the canvas to understand and analyse your business model and adapt if necessary.