[Pasan Premaratne] To run through this exercise, we're going to borrow a model created by a wonderful group of people

and put together in a book called Business Model Generation.

Now, I'm a big fan of this process and I've used it in a few other videos because it's a relatively easy way

for you to get acquainted with your business model.

We're going to use it as a starting point to create all the business plans we want.

All of business, big or small, old or new, can be broken down into a set of 9 distinct sections.

Customer segments, value propositions, channels, customer relationships, revenue systems,

key resources, key activities, key partnerships, and the cost structure.

Exploring each section for your business or idea

will help you generate all the information you need to know to create your business plans.

Let's start with customer segments--In this section, we're going to think about

who our potential customers are based on a certain set of characteristics.

And then, note them down in as much detail as possible.

Your customer segments are the different groups of people or organizations that you are going to reach out to and business with.

We call this section customer segments because we can usually identify our customers in separate distinct groups

that necessitate different strategies in terms of customer relationships, channels, and revenue streams.

Grouping customers into segments involves looking on their relationships with other parts of our business model.

For example, if you reach a certain group of customers through a different channel than normal,

you should group them into a separate customer segment.

Here are a few different ways we can group customers.

If you modify your value proposition for some customers, there are different segment.

Don't worry, we'll get into what a value proposition is in a bit.

If you get to these customers through different channel than your usual customers different segment.

If the revenue stream is different, different segment.

Finally, if the customer relationship is different, we're going to put them in a different segment.

When trying to define customer segments, start at a high level.

You could have a mass market segment. In this situation, you don't really have a distinct customer segments with one large market.

You only offer one flavor of your product or service and don't differentiate it much in terms of pricing, relationships, or channels.

A good example of this is a Playstation or Xbox.

They have a single marketing message, price point, and a channel for the entire customer base.

You could have a niche market where you focus your business on a very specific customer segment.

Everything is tailored to that specific segment including your distribution channels, revenue streams, and so on.

Consultants are the best example of a niche market.

They usually work in a specific section with an industry and with a small group of clients.

You can have segmented markets where you have different customer segments

with slightly different variations of the same problem.

Apple has a large customer base of people who want to listen to music on the go.

This market is then segmented into people who want a small form factor with the iPod Nano and Shuffle,

large storage base with the iPod Classic and a touch screen device capable of running apps with the iPod Touch.

Finally, you can have diversified markets. This is where a company serves 2 customer segments that are completely unrelated.

Amazon has its retail store where you can buy almost anything.

Then, they also have a completely separate cloud computing service that targets an entirely different market.

Those are just few examples of the different types of customer segments you can have.

Once you have figured out the high levels of who your customer segments are, you can dig deeper and start to define them properly.

Understanding your market will allow you to better estimate the size of your target audience

and figure out who your competitors are.