This week in Studio 3 we have been looking into the business end of managing a game development studio – how to manage yourself and others when money is involved. The first port of call is a Business Model Canvas, a method of expressing the way your business will operate. a Business Model Canvas is split into nine sections:
1. Customer Segments
Customer segments are the customers for which your product will create value for. It’s worth noting that these are the people which your product will save money/time/convenience for and not always who the product is designed for. My team and I are developing an Educational AR app for kids, the customers for which are educational institutions, and not children. When describing customer segments, knowing the size of your market is critical. Is your market niche? segmented? diversified? A multi-sided platform? Knowing what to expect from your market will let you make informed decisions about how to market and design the product.
2. Value Propositions
Now that the customer segments are clear, what value does your product provide to your customers? You should already know what kind of problem your product will solve; whether you are competing based on your product’s performance, design, price, cost reduction, convenience, risk reduction, accessibility, or anything else, these points will be what sets your product apart from the competition.
With your customer segments and your product’s value proposition defined, the next stage is breaking down through what channels you’ll be connecting with your customers and at what times.
Channels can be broken down into phases, because your product will require different types of communication with customers in these phases, which are:
- How do customers become aware of your product? This ties into the customer segment section. Could a website be the best way to attract business customers? What about attending conferences? For our education AR app, connecting with the right clients means we should track them down at educational conferences where they will be great in number and looking for ways to augment their teaching ability.
- When the customer knows about your product, how do they evaluate whether it’s good for them? A website helps a lot here, as well as offering a way to connect with them if they have any further questions. This is your business’ chance to make a second impression on the customer and seal and deal if they’re still interested
- The customer’s purchased your product — now what? This is where you keep an open channel of communication with your client in order to address their needs and prepare for the delivery of your product.
- How is your product delivered to customers? Will you be on-location delivering it? Will it happen online? Be aware of this so you can deliver smoothly to customers
- What will happen to your customers and product after you’ve delivered it? Offering good after-sales support is very attractive to customers; the piece of mind that you will look after them if something goes wrong with your product is worth a lot, and providing this will go a long way with customers.
4. Customer Relationships
What type of relationship should customers expect out of your product? Will your company provide personal assistance, create communities for your product, or automate this process?
5. Revenue Streams
When it comes time for customers to purchase your product, how much will they pay, and when?
Will you structure your pricing by:
- charging per-asset
- Usage fees
- Subscription fees
- Licensing fees
- Fixed Pricing based on customer, volume or features
- Negotiated pricing
Knowing how your pricing will be broken down will help customers decide if your model will gel with their finances, or allow them to strike a deal that benefits them, depending on their circumstances.
6. Key Resources
The next phase is to define the resources that are key to your operations. Your key resources include every piece of physical, digital and intellectual properly that your business requires to stay active. For example, your key resources may be:
- Internet Connection
- Software (Unity, Unreal, Adobe Creative Cloud, Etc.)
- Operating Capital
- Any extra money
- Services (GitHub, Unity Pro, etc.)
list every resource your business needs in order to operate, this will help to inform your investors of where your money will go and for how long before they may see a return on investment.
7. Key Activities
Now that you’ve defines your key resources, your key activities will be where they go. Ask yourself what you’ll do with these resources to build your business. Some key activities may be:
- Developing the product
- Reaching out to clients or seeking contracts
- Developing server systems
- Communication with clients
8. Key Partners
Your key Partners are the companies your business cannot live without — if these companies closed or disappeared, your business will too. For a game development studio, your Key Partners may be:
- Your Clients
- Unity/Unreal/etc – for their software
- Microsoft – Operating System and software
- Atlassian/GitHub – for hosting your Repo
- The Bank – lending money and holding yours
- Distribution chains – those your business relies on to provide for clients
Your Key Partners are those who your business is dependant on, so the more Partners your business requires the more risky your business’ success is, so try to scale back as much as possible to retain confidence in your business.
While working this out, also be sure to define the motivations for these partnerships — what part of this relationship benefits you and how? Why partner with Unity instead of Unreal? Is it because your team is more confident in their software? Explain here to building confidence in your choice of partners.
9. Cost Structure
Lastly, with all of your business’ components defined, you need to cement your Cost Structure — where your money goes. You want to define the most important costs inherent in the business model thus far.
The first port of call here is to decide whether your business is Cost or Value Driven. Cost driven businesses provide a cost-efficient structure to their customers, allowing them to operate at a low cost by taking advantage of operational efficiencies. For example, companies like GOG are able to undercut competitors like major games retailers by avoiding the costs of retail employees, postage and distribution to pass those savings onto the consumer. Value driven business are able to use their higher expenses to provide a greater value to consumers. A good example of this type of business is Apple. Their products are comparatively expensive (where many Android phones use their low-cost to drive sales) but Apple is able to provide a more meaningful and valuable experience through after-sales support (both online, on call and retail) and their products retain their value for longer after purchase compared to similarly priced Android phones.
With this, you can define your actual costs. There are several types of costs that your business must prepare for:
- These are all of the costs that won’t change. Things like rent, utilities, salaries, etc. are all fixed costs that won’t change according to your business.
- These are costs that are dependant on the output of your company. Costs related to your required materials and delivery that will increase or decrease according to demand are costs that should be listed here.
Economies of Scale
- These are costs that will shift according to your supply, but instead of working like Variable costs, these are costs that will reduce as your volume increases. According to Anastasia writing for Cleverism, as the volume increases, the fixed costs are spread thinner which brings down the cost per unit, commonly through bulk buying.
Economies of Scope
- Economies of scope are all about diversification. Sometimes businesses will branch out into tangential product lines in order to lower their average production costs, as well as securing more than one income stream to support their cost structure. A good example that Anastasia provides is CocaCola, which not only branches out into parallel drink lines (Coke Zero, Sprite, Fanta, etc) as well as entirely other products like Fuze iced tea, Glaceau Vitamin Water and Powerade, (though their product portfolio is actually over 500 products worldwide)
Completing your business canvas will provide you a better idea of how your business will operate and the costs, operations and items involved with it. If you’re pitching to investors, having this information fully fleshed out will build confidence in your business plan and allow you to get the funding you need to grow.
Cost Structure Block in Business Model Canvas. (2015). Cleverism. Retrieved 14 August 2017, from https://www.cleverism.com/cost-structure-block-in-business-model-canvas/
List of Coca-Cola brands. (2017). En.wikipedia.org. Retrieved 14 August 2017, from https://en.wikipedia.org/wiki/List_of_Coca-Cola_brands