Remember the time you started a business, fixed on one goal to have a rock-solid business model? Just when you feel everything is in place and all the hard work has been done, you get confronted with another goal – to have a customer base that generates recurring income. All of a sudden, you are facing a challenge – your existing business model needs to be refined and it needs to be done quickly and efficiently.
You pause for a moment and start to think about how best to do it. That’s when the Business Model Canvas comes into play. The Business Model Canvas is the go-to tool for any entrepreneur, big or small, looking to validate their business model.
Introduction To The Business Model Canvas
The Business Model Canvas is a strategic management tool that simplifies the process of developing a detailed business plan on a single page. The business model canvas offers a visual chart with elements describing a company’s value proposition, infrastructure, customers, and finances. The holistic view allows businesses to design, challenge, and pivot their business model in an efficient and coherent manner.
Conceived by Swiss business theorist, consultant, and entrepreneur, Alexander Osterwalder, the Business Model Canvas was initially proposed in his Ph.D. thesis “The Business Model Ontology – a proposition in a design science approach.” This work was later expanded and co-authored with Yves Pigneur in the international bestseller “Business Model Generation.”
The goal behind creating the Business Model Canvas was to produce a straightforward, easy-to-use tool that would allow individuals and businesses to sketch out and visualize business models. The business model innovation’s simplicity and clarity have led to its widespread adoption among entrepreneurs and companies of all sizes, across various industries.
The Business Model Canvas moves away from traditional lengthy business plans, providing a cleaner, agile alternative that’s suited to the fast-paced business environment of the modern world. It allows for a snapshot view of the business, helping teams align on their understanding of their business and promoting strategic decision-making and continuous iteration.
Structure Of The Business Model Canvas Template
The Business Model Canvas provides a framework that replaces intricate business plans with a single page organized into nine distinct but interconnected blocks, each representing a critical element of your business. While these blocks can be filled in any order, they all feed into each other to create a comprehensive view of your business model. These blocks cover the four main areas of a business: customers, offer, infrastructure, and financial viability. Let’s break it down step-by-step:
Step 1 (Of 9): Customer Segments
The Customer Segments block represents the different groups of people or organizations your business aims to reach and serve. These are the individuals or organizations for whom you’re creating value. They are essentially the users or consumers of your products or services.
Your customer segments could be categorized in various ways, depending on your business model. They could be segmented based on demographics, geography, psychographics (social class, lifestyle, personality traits), or behaviors (usage rate, brand loyalty).
Understanding your customer segments is crucial because different segments can have different needs, preferences, or behaviors. In the Business Model Canvas, you may have more than one customer segment, especially if your existing business models already serve multiple markets.
When filling out this block, ask yourself:
- Who are the most important customers for our business model?
- What are their needs, wants, or problems that our business aims to address?
- What are the characteristics that define our customer segments?
By completing this first step, you will gain a better understanding of who your customers are, which will help you create more targeted value propositions and marketing strategies.
Step 2 (Of 9): Value Propositions
The Value Propositions block outlines the bundle of products and services that create value for a specific customer segment. In other words, it’s the reason why customers turn to your company over another. It answers the question, “What unique and different value propositions do we deliver to the customer?”
Your value proposition could be anything that makes your product or service attractive to customers. It might be innovation, customization, design, price, convenience, brand status, or cost reduction, among others.
The key to a strong value proposition is ensuring that it directly addresses the problems, needs, or wants of your identified customer segments. It should offer a solution that is distinct and more appealing than those of your competitors.
When completing this block, consider the following:
- What are the products and services that we offer to each customer segment?
- How do these offerings solve problems or satisfy the needs of each segment?
- What is unique or superior about our value proposition compared to competitors?
Remember, a value proposition can evolve and change over time, based on customer feedback, market trends, and competitive landscape. Therefore, it’s essential to continually revisit and potentially revise this element of your business model canvas.
Step 3 (Of 9): Channels
Channels are the routes through which your business communicates with and delivers its value propositions to its customer segments. They play a crucial role in enhancing customer awareness about a company’s products or services and in delivering the value proposition.
Channels can be direct or indirect and can involve sales forces, web sales, physical storefronts, wholesalers, or any other means by which a business reaches its customers. Effective channels are key to the overall customer experience, often impacting how your value proposition is perceived by your customer segments.
When filling out this block, consider the following:
- Through which channels do our customer segments want to be reached?
- How are we reaching them now?
- How are our channels integrated? Which ones work best?
- Which ones are most cost-efficient?
Understanding your channels will help you to refine your marketing strategies and better deliver your value proposition to your targeted customer segments. It’s also important to review your channels as market preferences change. For instance, e-commerce has become a major channel in recent years due to advancements in technology and changes in consumer behavior.
Step 4 (Of 9): Customer Relationships
The Customer Relationships block defines the type of relationship your business establishes with specific customer segments. It reflects how you interact with your customers at each stage of the customer journey – from acquisition to retention, and potentially to upselling.
Customer relationships can be driven by several motivations, such as customer acquisition, customer retention, or boosting sales. These relationships might be personal, automated services, self-service, or involve community building or co-creation. The type of relationship you choose should align with your overall business strategy and customer expectations.
Questions to consider when filling out this block:
- What type of relationship do our customers expect us to establish?
- How costly are they?
- How are they integrated with the rest of our business model?
Remember, establishing good customer relationships is key to creating customer loyalty and enhancing customer lifetime value. It’s essential to not only attract but also retain customers to ensure the sustainability of your business.
Step 5 (Of 9): Revenue Streams
The Revenue Streams block represents the cash a company generates from each customer segment. In other words, these revenue models are the ways your business makes money from providing a value proposition for its customers.
Revenue streams can come from a variety of sources, including:
- Sales of Goods or Services: This is the most straightforward revenue stream. Customers pay to purchase the product or service you offer.
- Subscription Fees: Customers pay a regular fee, usually monthly or annually, to have continuous access to a product or service.
- Renting, Leasing, or Lending: Customers pay to get temporary rights to use a particular resource.
- Licensing: Customers pay for rights to use protected intellectual property.
- Brokerage Fees: Revenue generated from an intermediary service performed on behalf of two parties.
- Advertising: Revenue generated from fees for advertising a particular product, service, or brand.
When determining your revenue streams, you should consider the following:
- For what value are our customers really willing to pay?
- What do they currently pay?
- How are they currently paying?
- How would they prefer to pay?
- How much does each revenue stream contribute to overall revenues?
Your revenue streams directly impact your business’s profitability and sustainability, making it a crucial part of your business model. It’s important to continually assess your revenue streams as markets evolve and consumer behaviors change.
Step 6 (Of 9): Key Activities
The Key Activities block in the Business Model Canvas represents the most important tasks that your company must perform in order to execute your business model successfully. These activities are crucial in delivering your value proposition, reaching your customer segments, maintaining relationships with customers, and ultimately, earning revenue.
Key activities can range across a broad spectrum, and they differ from business to business. For a software company, key activities might include software development, while for a retail company, they could include managing inventory and shipping products.
When identifying your key activities, consider:
- What key activities do our value propositions, distribution channels, customer relationships, and revenue streams require?
- What are the critical tasks necessary for our business model to work?
- What resources are essential to perform these tasks?
Your key activities should align with your business’s unique value proposition and customer segments. They should also complement your key resources and partnerships. By understanding your key activities, you’ll be better equipped to optimize operations, reduce costs, and increase efficiency.
Step 7 (Of 9): Key Resources
Key Resources are the strategic assets that your business needs to function and that are crucial in supporting the business. These resources are uniquely strategic things that allow your company to create and offer a value proposition, reach markets, maintain relationships with customer segments, and earn revenues.
Key Resources can be categorized into four types:
1. Physical: These are tangible assets such as buildings, vehicles, machines, systems, point-of-sales systems, and distribution networks.
2. Intellectual: These are non-tangible assets such as brands, proprietary knowledge, patents and copyrights, partnerships, and customer databases.
3. Human: Every enterprise needs human resources; some businesses are heavily reliant on particular human skills or types of expertise, such as a software company needing experienced coders.
4. Financial: Some business models require significant financial resources, including lines of credit or a large sum of cash.
When determining your key resources, consider the following questions:
- What key resources do our value propositions, distribution channels, customer relationships, revenue streams, and key activities require?
- Which resources are essential for us to deliver our offering?
- What resources are necessary to fulfill our business model?
Identifying your key resources can help you understand the unique strategic assets that you need to prioritize, which can guide your business strategy, partnerships, and expenditure.
Step 8 (Of 9): Key Partnerships
Key Partnerships are the network of suppliers, contractors, and partners that make the business model work. They are the relationships that your business forms to ensure its key activities can take place, its key resources are available, and its value proposition is delivered to the customers.
Partnerships can be strategic alliances between non-competitors, co-opetition (strategic partnerships between competitors), joint ventures to develop new businesses, or buyer-supplier relationships to ensure reliable supplies to the mass market.
These partnerships can help you reduce risks, gain access to resources and activities, or optimize your business model. They may be driven by various needs, such as acquiring expertise, gaining access to resources, reducing costs, or accessing new markets.
While identifying key partnerships, consider the following:
- Who are our key partners and suppliers?
- What key resources do we acquire from them?
- What key activities do they perform, and why have we chosen them?
By understanding your key partnerships, you can manage them more effectively, optimize resources, reduce risk, and focus on your business’s core capabilities.
Step 9 (Of 9): Cost Structure
The Cost Structure block describes all the costs incurred to operate your business model. These costs are a consequence of everything your business does, from key activities and key resources to your channels and customer relationships.
When defining your cost structure, it’s important to understand whether your business is more cost-driven (focused on minimizing costs wherever possible) or value-driven (focused on delivering value with less emphasis on cost). This will influence the decisions you make regarding your costs.
Costs are typically broken down into two categories:
1. Fixed Costs: These costs remain the same regardless of the volume of goods or services produced, such as rent, salaries, or equipment leases.
2. Variable Costs: These costs fluctuate with the volume of goods or services produced, such as direct material costs or commissions.
You might also consider economies of scale or scope and whether costs will decrease as your business grows and delivers more volume.
While determining your cost structure, ask:
- What are the most important costs inherent in our business model?
- Which key resources and activities are the most expensive?
- How do costs link to the rest of our business model?
A clear understanding of your cost structure is essential for ensuring the financial viability of your business model. This will not only help you budget and manage your costs but also identify areas where you can improve efficiency and profitability.
5 Benefits Of Using A Business Model Canvas Online
The Business Model Canvas offers a range of benefits, making it a popular tool for strategizing and planning in businesses of all sizes. Here are five key benefits:
1. Simplicity: The Business Model Canvas simplifies complex business ideas by breaking them down into nine key elements. This makes it easier to understand the components of the whole business idea and their interrelationships.
2. Clarity: By visually mapping out the business model, the Canvas provides a clear, comprehensive view of how a business creates, delivers, and captures value. This clarity can aid in decision-making and ensure that all team members have a shared understanding of the business model.
3. Flexibility: The Canvas is not set in stone. As a business evolves, the Canvas can be easily updated and adapted to reflect changes. This makes it an excellent tool for iterative development and continuous improvement.
4. Collaboration: The Canvas is a great collaborative tool. It can be used in team meetings or workshops to stimulate discussion, generate ideas, and build consensus.
5. Alignment With Lean Startup and Agile Methodologies: The Canvas is an excellent tool for businesses adopting Lean Startup or Agile methodologies, as it encourages experimentation, customer feedback, and iterative development. By frequently revisiting and updating the Canvas, businesses can stay adaptable and responsive to market changes.
In sum, the Business Model Canvas is a powerful tool that can help businesses visualize their model, align their activities, and adapt to change.
When Do You Create And Use The Business Model Canvas Template?
The Business Model Canvas is a flexible, strategic management tool that can be used at various stages in a business’s life cycle and for different purposes. Here are some instances when you might create and use a Business Model Canvas:
1. Business or Product Launch: If you’re starting a new business or planning to introduce a new product, the Canvas can help you articulate your business model and identify potential gaps or inconsistencies. It helps define and understand the value proposition, customers, and how to reach them effectively.
2. Strategic Planning and Development: For established businesses, the Canvas can be a powerful tool for strategic planning. It can help clarify how different parts of the business work together, identify areas of potential growth, or explore the impact of strategic initiatives.
3. Pivoting or Redefining the Business Model: If your business is facing new market conditions, competition, or other significant changes, using the Canvas can be a structured way to explore alternative or new business models, and strategize about how to pivot effectively.
4. Innovation and Ideation Sessions: During brainstorming or innovation sessions, the Canvas can help structure thinking and ensure that new ideas are considered from a comprehensive, strategic perspective.
5. Investment or Stakeholder Communications: The Canvas can be a useful communication tool when pitching to investors, orienting new team members, or discussing strategic issues with stakeholders. It provides a clear, concise overview of the business model, making it easier to understand the business’s value proposition and operations.
While the Canvas is a useful starting point, it’s important to remember that it’s a high-level, simplified representation of your business model. As such, it should be complemented with other tools and analyses for more detailed business planning and decision-making.
How To Get Started?
Getting started with the Business Model Canvas is a straightforward process. Here’s a step-by-step guide:
1. Understand the Nine Blocks: Before you begin, it’s important to understand what each of the nine blocks represents and the kind of information that goes into each one. These blocks are: Key Partnerships, Key Activities, Key Resources, Value Propositions, Customer Relationships, Channels, Customer Segments, Cost Structure, and Revenue Streams.
2. Gather a Team: The Canvas is best filled out collaboratively. If possible, gather a diverse team from different parts of your business to ensure a wide range of perspectives.
3. Find a Template: You can find a Business Model Canvas template online or draw one on a large piece of paper. If you’re working with a remote team, consider using an online tool that supports collaboration.
4. Start Filling Out the Blocks: Start filling out each block, keeping in mind that this is a brainstorming exercise and nothing is set in stone. You can start with any block, but a common approach is to start with the value proposition, niche market and customer segments, and then work outwards from there.
5. Review and Refine: Once all the building blocks are filled out, step back and review the Canvas as a whole. Does it tell a coherent story of how your business creates, delivers, and captures value? Are there any inconsistencies or gaps? This is also a good time to validate your assumptions and refine the Canvas based on feedback or new information.
6. Use the Canvas as a Living Document: Remember, the Business Model Canvas is a dynamic tool and should be revisited and updated as your business evolves or as you gain new insights.
By following these steps, you can create a Business Model Canvas that provides a clear, concise overview of your business model and helps guide your strategic decisions.
Business Model Canvas Example
A good example of a startup that used the business model canvas is Skype. Skype provides its users with two distinct value propositions: complimentary internet and video calling, and affordable calls to phones. These offerings successfully attract two separate customer segments: those who utilize the free services and those who opt for calling phones.
A significant majority of Skype’s user base, around 90%, make use of the free calling feature over the internet, with only 10% opting for the prepaid service. This can be better understood by examining the business model in terms of key partnerships, key activities, and key resources.
The core components that enable Skype to offer both free and low-cost calls are its key partnerships, key activities, and key resources. Contrary to traditional telecom providers, Skype doesn’t need to construct and maintain a vast, complex infrastructure to operate effectively. Instead, it primarily relies on backend software and servers that host user accounts, embodying what’s known as the freemium business model.
Here is a template that startups can mirror for similar results: Business Model Canvas Template
Alright then, let’s wrap this up. So, the Business Model Canvas – it’s really something, isn’t it? It takes all the complexity of your business and lays it out on a single, understandable page. It’s like a map, guiding you through the often chaotic world of business. Crafting a solid Business Model Canvas is a critical step on the path to startup success. It gives you a clear view of your company’s core components, enables strategic planning, and encourages clear communication.
So, using these insights brings your business ideas to life in a structured, visual way. It’s time to put your business plan into action and propel your startup forward.