Key Resources in the business model canvas are the main inputs and assets the business uses to function effectively. Phrased differently it is what you need. For example,
- Plant and Equipment
- Intellectual Property
- Computer Software
- Expert Knowledge
- Political Connections
The key resources overlap to a certain extent with tangible and intangible assets on the balance sheet. However, it goes much further. In the Business Model Canvas, we only state those resources that make you unique compared to your competitors in the market.
Examples of Key Resources
Let’s say you have a fashion outlet. You sell large quantities of overcapacity stock outside the city centre. Your key resources are:
- the cheap location with
- good access and
- contracts with fashion producers.
In my analysis of the Google Business Model I identified Google’s key resources as the:
- the algorithm, and
- its computing power.
Computer power included – hardware, software and the engineers to write the code and configure the software and hardware.
In all three of these cases, the companies have far more resources than they use. The resources that we focus on are the ones that are absolutely critical to the success of the business model. If you don’t have them you are toast.
- Oil Fields – British Petroleum, Exxon
- Car Factories – Ford, Toyota
- Planning Permission – Property companies
- Patents – GlaxoSmithKline, Bayer
- Monopolies – British East India Company
- Customer Data – Google, Facebook
Physical Key Resources
These are tangible resources. For example, equipment, buildings, machines, transportation or distribution networks. Dell’s distribution network was a Key Resource, enabling them to deliver PC’s at home – years before others did the same.
One example of key resources in the business model canvas is Tesla. Tesla’s business model includes the Giga Factory which produces a significant proportion of the world’s large batteries. This gives Tesla the advantage of economies of scale in cost in its electric car production.
Physical resources are tangible things that you can touch and feel. For a company distributing beer in rural Kenya, the key resources could be:
- the lorry, and
- the reliable supply of petrol.
In contrast, for a logistics company in the UK the key resources could be:
- the route planning software, and
- the warehouse automation system.
Both companies do something similar but the market and the competitive environment mean that what they see as key resources are quite different.
Human Key Resources
Human resources are the people that you need to do the work. People are often how you transform key resources, through activities into the value proposition. In most cases, human resources are either bodies or knowledge.
When I ran a food delivery operation we needed lots of motorcycle delivery riders. We weren’t really concerned about the quality or the skill set of the people. We just needed enough of them who could ride a bike and had insurance. An even starker example would be the West Indies sugar plantations. Slaves were imported from Africa and put to work in the plantation. Output was correlated to the number of slaves on the plantation, not to their willingness, strength or knowledge.
In contrast, knowledge is all about particular domain knowledge or relationships. A consulting company’s key resource may be the lead consultant’s knowledge of economics that he has acquired over 30 years and won a Nobel prize for.
Conversely, it could be a different consultant’ Rolodex of all the property developers he has drunk whisky and played golf with over the same time period.
Financial Key Resources
Many businesses need cash for operations or capital projects. If you are going into chip fabrication or jet engine design you need scads of money to invest in the research, development and plant construction.
As a startup going into a new category, for example like Uber, then money becomes a critical key resource as you can use your wall of money in a land grab as you attempt to build market share ahead of competitors.
Intangible Key Resources
It is also important to remember that key resources may be more intangible. A patent that allows you to have a monopoly on producing a drug or which blocks a competitor’s access into a market are also key resources. Trade secrets and know-how are also important.
A good example of know-how that is a key resource is the Toyota Production System which has enabled Toyota to consistently increase its productivity and quality over decades through process improvement.
Another example is the Audible business model. In this case, some of Audible’s key resources are the network effects that come from the number of audiobooks on its platforms and the sunk costs of many customers with hundreds of books that they have access to.
How to Determine Your Key Resources
There are four key questions that you need to ask
- what key resources does the value propositions require?
- what are the key resources required by our marketing and distribution channels require?
- which key resources are required to deliver our customer relationships? and,
- How do key resources support our revenue streams?
When you do this exercise it is often useful to talk through the customer’s user journey.
For example if we look at the Rent- the- Runway business model
- the customer goes to the website – we need a website – and,
- chooses a dress – we need a stock of dresses, then
- has it delivered – do we deliver it ourself or get this outsourced
- wear it out for the night, and
- returns it to be drycleaned – another requirement
So from the user journey we can see that we need
- cleaning and repair
The next step is to ask
How do we deliver all these?
When I build a business model there are two or three ways of deciding the key resources.
The first is the simplest. I look at what other similar companies are doing and look at their key resources. Then I tailor the current business model to reflect how other companies in the industry work. This is a safe middle of the road approach. It’s not desperately interesting but you have a reliable outcome.
Working backwards from the Key Activities
Alternatively, you work backwards from the key activities in the business model. Here you have worked out what it is that you need to do in order to deliver the value proposition.
Then you work on what you need to have in order to deliver the key activities. You can think of it like building a bridge. You know you have to design the bridge and construct it. What are you going to need to design it? Engineers and Architects. What are you going to need to construct it? Building materials, planning permission, construction equipment and more engineers.
With startups, you can make this very powerful by looking at very different ways of delivering the key activities. For example, in the Apple business model, all the manufacturing is outsourced and Foxconn is a key partner supplying the manufacturing resource.
Starting from the Value Proposition
The final approach is to look at your value proposition and decide what are the resources that you need in order to make it happen. If I wanted to build a search engine for recruiters then the key resources would be a search engine and a large number of CVs. My key activities would then ask how do I get these and make them accessible to recruiters in order to generate revenue.
Playing with Key Resources In the Business Model Canvas
One of the things that I love about the business model canvas is that it makes it easy to open your eyes to more possibilities. The key resources are great for this. As an entrepreneur, you always have a choice of make, rent or buy. This depends on your appetite for risk, expected returns and available cash. It also has a huge impact on your cost structure
If you were designing the Airbnb business model, you could decide to build your own custom website and have everything just the way that you want.
Alternatively, you could pay another company a monthly fee to white label their commercial product, or you could buy an existing room-sharing website and rebrand it.
Airbnb decided that it would make its website. The Uber business model is based around not making or owning its own cars. Instead, it rents them and the drivers.
You can make this decision with all your key resources. In fact, if you don’t make these decisions then you are missing a trick and could make significant improvements to your business as a result.
You can apply this to all your key resources.
These are your Key Resources. Add these to your canvas.
Business Model Innovation
Business model innovation is all about combining all these factors with the other nine segments of the business model canvas and finding potential patterns that match the problem that you are trying to solve. They also have to deliver lots of value to your customers and solve their pain.
Business model design is frequently far harder than many entrepreneurs realise and it is good to have a guide to help bring things together. It is also critical to have a clear idea of how you are going to test your business model. This is so that you can validate it early and save time and money, or pivot whilst you still have a runway.
How to Build a Great Business Model Canvas – The FREE Course
This free course is in 10 lessons – each with a video and accompanying text. It describes how the business model canvas works and how to use it.
- Value Propositions
- Marketing & Distribution Channels
- Customer Relationships
- Key Resources
- Key Activities
- Key Partners & Suppliers
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