This is a complete guide on how to use the Business Model Canvas. I have also included some downloads for high-quality pdf versions of the Business Model Canvas, the popular canvas created by Osterwalder and Pigneur.
What Is A Business Model Canvas?
A business model contains nine separate components. With the result that the nine parts together combine to create value. Business modelling now is one critical part of assessing a digital strategy.
A model is easy to understand and analyze. Moreover, it provides a common framework that managers can use to develop new models. Most companies need to be more innovative. As a result, modelling is a creative way to explore new business opportunities.
Today there is a larger variety of how companies can make money. Much is due to new technologies. As an example the Blockchain.
How To Map A Business Model
To develop a visual map of a business model you put the nine blocks together. Redesign the blocks and you create new forms of value. A mistake often made is to ignore the customer in the design. Increasingly with services taking centre stage, business modelling defines the customer experience.
In comparison to other methods, the visual mapping process is a useful team process. Besides exploring new opportunities, it creates a shared understanding between team members.
Why Use The Business Model Canvas?
The Business Model Canvas is popular with entrepreneurs and intrapreneurs for business model innovation. Fundamentally, it delivers three things:
- Focus: It focuses on what’s important the fundamental business logic – what I mean does it all fit together. It quickly clarifies and demonstrates whether the pieces fit together to make a business worth investment.
- Flexibility: Often I find that the original ideas get tweaked as the Business Model develops. This is particularly true when working in organizations and across different skill sets.
- Transparency: Team can refer to it easily. It is an ongoing tool that facilitates discussion, debate and also requires further research. Further research can be around financials, segments, and partners. Often, once the business model is created there needs to be some initial validation.
Strengths And Weaknesses Of The Business Model Canvas
Strengths
- Focus on the problem-solution fit.
- Defines the main business components and their relationships.
- Develops clarity of thought for business logic.
- Tool for facilitating discussion, debate and further research.
- Easy to understand.
Weaknesses
- The Business Model Canvas is NOT a strategy. You still need a strategy.
- Doesn’t take into account the competitive arena.
- Often when used is based on assumptions rather than facts.
- Doesn’t take into account sustainability – missing the broader view of economy, society and environment.
- Doesn’t show the different stakeholders involved in the business model.
- Lacks components that are available
- If you’re a startup then you might want to use the Lean Business Model Canvas instead.
The following elements provide an overview of the main business drivers:
- Customer Segments: Who are the customers? What do they think? See? Feel? Do?
- Value Propositions: What’s compelling about the proposition? Why do customers buy, use?
- Channels: How are these propositions promoted, sold and delivered? Why? Is it working?
- Customer Relationships: How do you interact with the customer through their journey?
- Revenue Streams: How does the business earn revenue from the value propositions?
- Key Activities: What uniquely strategic things does the business do to deliver its proposition?
- Key Resources: What unique strategic assets must the business have to compete?
- Key Partnerships: What can the company not do so it can focus on its Key Activities?
- Cost Structure: What are the business major cost drivers? How are they linked to revenue?
The Business Model Canvas (BMC)
The Business Model Canvas (BMC) gives you a structured way to design a business. The goal is to create a business model that is unique and compete in the market. It is an ideal way to check the business logic of why customers will buy your product or service. It also provides a way to understand how all the different elements come together to deliver your products or services, the cost structure, value proposition, customer segments and profits.
How To Get Started?
Identify the overarching purpose of the business
I suggest that to start with you print out several copies of the business model canvas (see above for high-quality PDF print versions). Fill out the elements and start to get a feel with how the different elements sit together and whether they make sense.
Keep copies of them and also mark on each the version (1.0, 1.1…) that way you can refer back to ideas and also see how your thoughts have progressed.
Different Ways Of Using The Business Model Canvas?
The business model canvas can be used to not only develop your business model but also analyze potential competitors. How do you know if your business model is unique and difficult to replicate if you don’t know the market?
I’m not suggesting mapping every competitor. Quite often you find many have similar, if not the same, business model, which makes it hard to differentiate them.
Remember that that sometimes different cost structures can make a huge difference in a market – Aldi vs Sainsbury’s. Needless to say, that using a business model canvas on a known company can help you build out your own ideas to compete.
Step 1 (Of 10): Customer Segments
This sounds obvious, but when you get into the detail many people overly simply the customer and don’t create a clear picture of who they are. As a result, the tendency is to make generalizations.
1. Customers Segments
Understanding who you are aiming your business at is critical to success. As an example, HR directors – they are an identifiable group of people that use the label HR Directors to identify themselves and their role. You can find HR directors on Linkedin for instance as individuals and through Linkedin Groups.
2. Segment Composition
A Segment is the maco level of a potential customer base. Understanding the composition of the customers – how they vary, how many are there in different sub-segments helps you to determine the market potential and viability.
The traditional way of looking and understanding these sub-segments is to use Marketing Personas. This is where you should be able to visualize the people that are actually going to buy your product and how. It is the detail and depth of understanding here that counts. We are talking here about observations not just theory or statistics cleaned from a marketing report.
You need to understand what they think, see, feel, and do in your product area. Be sure to list both buyers and users of your product (many Personas will be both).
3. Problems, Needs, Behaviours & Current Alternatives
Many customers have hidden needs. In other words when you watch and observe them trying to do things they have to do workarounds or take a long route to accomplish their task. Understanding what customers are trying to achieve and observing how they achieve things provides valuable insights into why and how you can help them
Make sure that you identify their existing needs/problems and identify the alternatives that they currently use. If you’re not sure, go out and observe, talk to some people. You’ll want to be able to clearly link your Value Propositions back to these in the next section.
Outcome
You should as a result of completing this section be able to clearly define your segment and have a number of personas for the different sub-segments that describe the profile of your customer, their behaviours, their problems, and current workarounds or alternatives
Step 2 (Of 10): Value Propositions
The Problems or Needs that you identified earlier and used to build your Marketing Personas now come into play.
The Value Proposition Canvas describes the details of how the value proposition and customer segments interact.
In its simplest terms, a value proposition is a positioning statement that explains what benefits you provide for who and how you do it uniquely well. It describes your target customer, the pain point you solve, and why you’re distinctly better than the alternatives.
What Is Value?
It means seem a bit odd asking this but there are many different dimensions to value? Equally, there are often hidden barriers people do not see the value the same as you
What is important at this stage to challenge yourself your Value Propositions and why does your customer might prefer them to their Current Alternatives?
Quite often you will have multiple value propositions. They are not the same benefits. Remember that value propositions are the sum of benefits you offer. A value proposition clearly aims at defining how it solves a problem and presents a new way of doing it compared to existing solutions.
Use a whiteboard or index cars for each value proposition. What things can you do that actually will make the biggest difference to the customer and be unique and better than the competition?
Outcome
You should now have a clear link between value propositions and your personas. The value propositions should clearly tie in with the customer and why they will buy.
Step 3 (Of 10): Channels
Channels include the methods that you are going to use to reach your customers. Are there clear customer communities, what labels or job titles refer to your customers, what interests groups do they have that can help you identify them?
Being able to reach your customers through marketing channels is crucial to being able to make them aware of your product and test your value propositions. Some typical channels are paid search (e.g. Google Adwords), social media ads (e.g. Facebook ads, Instagram ads), SEO (long term), PR…
Outcome
For each Persona or Segments, if they differ substantially. Make a clear note of potential channels that can be used to reach to the customer. In the marketing growth blueprint, I cover in more detail how to design and develop a clear marketing strategy for your business model.
Step 4 (Of 10): Customer Relationships
Some questions to help guide you on this block of the business model canvas:
- How do you develop a customer relationship?
- How will the customer interact with you through the sales and product lifecycle?
- What is the customer journey?
- What are the most critical elements of the customer journey?
- How much do you use automation and what do you make personal?
- Do you use outbound reach and calls?
The value proposition should link closely to the level of service and touchpoints you use to interact with customers?
The costs associated with how you deliver your communications, service the customer will be reflected in costs.
Use storyboard and customer journey maps to map the current customer journey. Then map how your value proposition will be delivered and make a note of the critical points in the journey and the overall lifecycle.
Outcome
A description of the type of customer relationship for each segment/persona.
Step 5 (Of 10): Revenue Streams
The most important thing is to map the number of each segment and potential revenue. Don’t overestimate this. Remember you have to often out early adopters vs. the mainstream of regular buyers who are often harder to convert. Try and be realistic – use a spreadsheet and calculate your variables.
Outcome
A list of Revenue Streams, linked (mutually) to Personas (or Segments if the mappings are the same within a set of Personas) and Value Propositions.
Step 6 (Of 10): Key Activities
These are the essential things the business needs to do to deliver on its propositions and make the rest of the business work.
For a product-driven business, this will involve learning about users and new techniques to build and test new products. Rarely does the first design go straight through to production? In particular, with products, you need to consider how much time is involved between new design sand prototypes to test. There are lots of new ways to get prototypes developed fast and therefore speed up the innovation process.
If you’re focused on doing a set of services for customers, then include maintaining superior expertise on the segment(s) and creating or acquiring products and services that are a good fit, whatever that entails.
Outcome
A list of Key Activities linked to your business Value Propositions.
Step 7 (Of 10): Key Resources
Key resources are the strategic assets you need in place, and you need in place to a greater or more targeted degree than your competitors. The Business Model Canvas proposes that there are three core business types: product, scope, and infrastructure. These tend to have similar types of Key Resources.
Outcome
A list of Key Resources linked to your business’s Key Activities.
Step 8 (Of 10): Key Partnerships
At this point, hopefully, the Canvas has helped you sharpen and articulate your business’s focal points. What Activities and Resources are important but not aligned with what’s a unique strategy for you? What’s outside of your business type? Could partners do some of those? Why? Which?
I recommend mapping Key Partners to Key Activities. If an activity is key, it’s still part of your business model. This is a way to denote which specific Partners are handling various Key Activities for you.
Outcome
The left of the business model has blocks that logically support and fit together. Understanding costs associated with yoru activities is a key part of your business modelling. A list of Key Partnerships with notes on their relationship to Key Activities.
Step 9 (Of 10): Cost Structure
You’ve worked to understand how your Key Activities drive your propositions and hence your revenue. The key questions to ask at this stage of the business model canvas are:
- How do they drive costs?
- Are those costs well aligned with the key Value Propositions?
- Are the costs more fixed or variable as you test different business models?
- Are they more linear with your scaling or more fixed?
You’ll want to have these in mind as you tweak your model.
Outcome
If you’re a startup then knowing your costs and predicting a run rate for costs is critical. The business model canvas helps to focus on the resources and activities that are associated with your business design.
As an outcome, you should have a list of Cost Structure elements with notes on their relationship to Key Activities.
Step 10 (Of 10): Applications, Review & Next Steps
Core Applications
The most core and obvious applications of the Canvas are to ask:
– Does it make sense?
– Could it be better?
– Does the rest of my team understand and agree? Have additional ideas?
– Rinse and repeat at least quarterly
Competitiveness
The business model canvas does a good job of helping you figure out your business, which is a good place to start. You also want to look at the competitive environment and think about whether you how you have and can maintain a long term competitive advantage.
Business Model Canvas Examples
Next Steps
Every business is a work in progress. As you go through the canvas, you may encounter areas that give you trouble. Reach out if you need any help with the business model canvas.
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