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The Business Model Canvas Explained

The Business Model Canvas Explained

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The Business Model Canvas Explained

The Business Model Canvas (BMC) is a strategic tool that allows you to visualize, design, and redefine your business model. Created by Alexander Osterwalder and Yves Pigneur, Strategyzer AG is the company behind the development of the BMC. It’s a visual chart with nine blocks that signify different elements of a business.

With the Business Model Canvas, you get a visual, one-page summary of the strategic details needed to get a business (or product) to market, while a traditional business plan is a more detailed, traditional document that outlines a company’s goals and details how those goals can be attained. The BMC is often more suited for early-stage businesses, or when a visual summary would be more useful—for example, during brainstorming sessions. On the other hand, a business plan is typically used by a new or existing business when seeking funding from banks or investors, as it provides the detailed information they usually require.

What Are the Benefits of Using a Business Model Canvas?

The BMC provides a clear overview of your business model, facilitating understanding and communication. It fosters brainstorming, encourages adaptability, and promotes a customer-centric view.

What is the Business Model Canvas?

Business Model Canvas Template

Starting with a business idea, you can use the BMC as a framework to build and refine your business model. Over time, this can lead to business model innovation, altering the landscape of your industry, and giving your business a competitive advantage.

The BMC comprises nine building blocks that together form a comprehensive picture of your business strategy. When looking at the model, you may notice that the right side of the canvas focuses on the customer, while the left side of the canvas focuses on the internal concerns of the business.

The Business Model Canvas is a powerful tool for entrepreneurs, startup founders, project managers, and any business looking to understand, design, or modify their business model. By offering a clear, concise way to visualize and analyze your business strategy, the BMC plays an essential role in any business plan.

Download the official Business Model Canvas template

#1. Key Partners

Key partners are the external companies, individuals, or non-consumer entities that help your business function effectively. This could include suppliers, manufacturers, business partners, strategic alliances, or even certain types of customers. Partnering with other businesses can help your company reduce risks, optimize operations, and gain access to resources or skills that you might not possess.

#2. Key Activities

Key activities are the most crucial tasks your business must undertake to function properly. They directly relate to your value proposition, channels, customer relationships, and revenue streams. For a software company, key activities might include software development, updating and maintaining platforms, and technical support. For a retail company, they might involve managing stock, sales, and customer service.

#3. Key Resources

Key resources are the strategic assets you need to deliver your value proposition, service your channels, and maintain relationships with customers. They can be physical (such as buildings, vehicles, or machinery), intellectual (brands, patents, customer data), human resources (employees or contractors), or financial (cash, credit). These resources enable a company to create and deliver value, reach markets, and sustain the business.

#4. Value Propositions

The value proposition is the unique mix of product/service features, customer service, and pricing structure that differentiates your business in the marketplace. It’s what makes your customers choose you over your competitors. Value propositions can be innovative, solve customer problems, satisfy needs, or differentiate from competitors.

#5. Customer Relationships

This building block describes the types of relationships a company establishes with its different customer segments. These relationships can be driven by customer acquisition, customer retention, or boosting sales. They may be personal (personal assistance), automated (self-service, automated services), or may involve co-creation where customers can design their own products.

#6. Channels

Distribution channels are the ways your company communicates with and reaches its customers. They are the touchpoints that deliver the value proposition and are essential for customer relationships. These can be direct, such as a sales force, website, or social media, or indirect, like retail partners or wholesalers.

#7. Customer Segments

Customer segments are the different groups of people your business aims to reach or serve. They’re defined by shared characteristics, needs, behaviors, or other attributes. Businesses may serve one or several large or small customer segments. Examples of customer segments include mass market, niche market, segmented, diversified, or multi-sided platforms.

#8. Cost Structure

This refers to all costs incurred to operate a business model. These could include fixed costs (rent, salaries), variable costs (shipping, manufacturing), economies of scale (cost advantages gained due to the size, output, or scale of operation), and economies of scope (cost advantages due to a larger scope of operation).

#9. Revenue Streams

Revenue streams are the ways a company generates cash from each customer segment. This is where you indicate how you make money and how that aligns with your overall business strategy. Revenue streams may come from product sales, service fees, subscription fees, licensing, renting/leasing, or even advertising.

Each of these building blocks interconnects and influences one another, together providing a comprehensive view of a company’s business model.

Value Proposition Canvas

A sub-component of the BMC, the Value Proposition Canvas, enables a deeper understanding of customer needs and how your product or service meets them. It includes customer segments, customer jobs, pain relievers, and gain creators.

Lean Startup and the BMC

The Lean Startup methodology emphasizes developing a minimal viable product, measuring its impact, and learning from the feedback. The BMC is often used in conjunction with this methodology to quickly iterate and refine business models based on market feedback.

Example of a Business Model Canvas

Imagine we’re looking at the BMC for a hypothetical online bakery:

  • Key Partners: Suppliers of baking ingredients, delivery services, online payment providers.
  • Key Activities: Baking, marketing, online sales, customer service.
  • Key Resources: Bakery equipment, online selling platform, delivery vehicles, baking skills.
  • Value Propositions: Freshly baked goods delivered at your doorstep, ability to customize orders.
  • Customer Relationships: Personal assistance via online chat, automated order and delivery updates.
  • Channels: Website, social media platforms, email.
  • Customer Segments: Busy individuals who value convenience, dessert lovers, gift shoppers.
  • Cost Structure: Cost of ingredients, baking equipment maintenance, delivery costs, website maintenance, salaries.
  • Revenue Streams: Direct sales of baked goods, customized order premiums, delivery fees.

Wrapping Up

Remember, the Business Model Canvas is a dynamic tool that should evolve with your business. It’s okay (and expected) for your first version to be a rough draft. The value lies in the process of thinking critically about your business and being willing to adapt and change your approach based on what you learn.

FAQs About the Business Model Canvas

Do I need to fill in all nine sections?

Yes, each section is interconnected and important for creating a comprehensive picture of your business model.

It’s also worth having team members fill out the canvas over time to see if leadership is missing any opportunities. 

Can I change my Business Model Canvas after I’ve filled it out?

Absolutely. In fact, it’s encouraged to revise and modify your BMC as your business grows or if market conditions change.

Can a Business Model Canvas replace a business plan?

While a BMC provides a great visual overview of your business, it’s not as detailed as a business plan. However, it can be a great starting point before diving into a full business plan.

Do I need to fill out the sections in a specific order?

While there’s no hard rule about the order in which to fill out the sections, starting with the value propositions and customer segments often makes the process easier. After identifying these, you can proceed with the remaining sections in a way that makes sense for your specific situation.

What if my business has more than one customer segment or value proposition?

It’s quite common for businesses to have multiple customer segments and value propositions. In this case, you may want to create a separate canvas for each combination to ensure you’re addressing the unique needs and interactions of each segment.

What level of detail should I include in each section?

The BMC is designed to be a high-level overview, so it’s best to keep the details to a minimum. The goal is to provide a quick snapshot that can be easily understood at a glance.

How do I know if I’ve identified the right key activities or resources?

Key activities and resources should directly relate to delivering your value proposition to your identified customer segments. If there’s a disconnect, you may need to revisit these sections.

What’s the difference between ‘Key Partners’ and ‘Key Resources’?

Key partners are external entities that help your business operate, while key resources are the internal assets you need to deliver value to your customers.

How do I balance the Cost Structure and Revenue Streams to ensure profitability?

Start by outlining your current (or projected) costs and revenues. Then, analyze the relationship between the two. If costs outweigh revenue, you’ll need to explore ways to reduce costs or increase revenue. The canvas should evolve as your business strategies and market conditions change

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

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The Business Model Canvas Explained

The Business Model Canvas Explained

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