The Business Model Canvas methodology is also applied, in a slightly different way, also by start-ups to shape their future business model and to explain it to their investors, partners and clients.
What is a Business Model and what is the “Canvas” of a Business Model?
A business model describes how an organization creates, delivers and captures value and therefore it is ultimately profitable and viable for its shareholders.
The Business Model Canvas is a simplified one-page representation of the business model that:
summarizes its most important components, so that they can be better understood and its interdependencies can also be visualized
helps identify opportunities to improve the current business model
allows to create a list of possible alternatives to the current business model and to assess them, before choosing the best one for implementation
The business model canvas was developed by Alexander Osterwalder during its PhD work at the University of Lausanne.
Structure of the Business Model Canvas
The Business Model Canvas comprises 9 building blocks organized in 4 main areas: customer, offering, infrastructure and financial viability.
Customer comprises Customer segments, Channels and Customer Relationship
Offering covers the Value Proposition of the company to its customers (and stakeholders)
Infrastructure comprises the Key Partners, the Key Activities performed and the Key resources used
Financial viability comprises Cost Structure and Revenue streams.
Below an image of the Business Model Canvas template.
A 9 steps approach to create the Business Model Canvas
The Business Model Canvas creation or review is conducted in the following order.
The questions below are indicative of the level of detail at which you need to conduct the review and discussion within your organization.
1) CUSTOMER SEGMENTS
Who are you creating value for? Who are your most important customers? What do they need? Are these needs similar or there are material differences among different segments of customers? What do they like or dislike? How large is the market you are trying to address?
2) VALUE PROPOSITION
What value do you deliver to your customers? Which one of the customer’s problems are you helping to solve? Which customer needs are you satisfying? What bundles of products and services are you offering to the different Customer Segments to address these needs?
How do you deliver the value proposition to your customers? Directly or via third parties?
Which channel work best for effectiveness and cost?
Through which channels are your customers expecting to be reached? Are their preferences changing with regards to channels?
4) CUSTOMER RELATIONSHIP
What type of relationship do you have with your customers?
Do you interact with all customers more or less in the same way? Or the level of interaction is differentiated by type of customers?
How often do you engage with them? How much do you help them pre and post sale?
How effective / efficient is it to maintain this type of relationship for you?
5) REVENUE STREAMS
For what value are your customers really willing to pay?
For 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? i.e. Core vs. ancillaries
How are the expectations of your customers changing and how are they impacting your pricing and revenue streams?
6) KEY RESOURCES
What key resources do you require to deliver the value proposition to your customers? These include human, financial, physical and intellectual resources.
How scarce are these resources? How easy or difficult to replicate are they?
Are these resources easier to access for you than for others? Do you have preferential access / rights on them? E.g. patent, contracts, rights,…
7) KEY ACTIVITIES
Which key activities do you need to perform to deliver your value proposition to your customers?
Is your company predominantly “doing” (e.g. manufacturing) or “intermediating” between partners and clients?
Are these activities standardized? Or do they require a high degree of differentiation for each customer / customer segment?
8) KEY PARTNERSHIPS
Who are your key partners?
Who are your key suppliers?
Which key resources are you acquiring from partners? Which key activities do partners perform on your behalf?
How can you leverage these partners and supplier relationships to deliver more value to your customers?
9) COST STRUCTURE
What are the most important cost items of your business model?
Which are the major drivers of these costs? Which key resources are the most expensive to deliver value to your customers? Which key activities are the most expensive?
How do costs link to your revenue streams? Is your business able to achieve economies of scale?
Which percentage of your cost base is fixed and which are variable?
Are you pursuing cost optimization? Or are you able to capture value in a different way?
Why you should consider to review your Business Model Canvas with your team?
The Business Model Canvas discussion takes place in a teamwork environment, whereby the Senior Management team or dedicated teams:
draw the current Business Model Canvas
assess it towards the competition and the evolving customer expectations
identify its strengths and weaknesses and areas of improvement.
For this reason the Business Model Canvas methodology can be seen as an input or pre-analysis of a “bottom up” SWOT analysis, which is typically conducted by the management teams during the strategic planning process.
By conducting the assessment in a team you can achieve a shared understanding and the “buy in” of the entire team on the current situation of your business model and on the actions that you, as a team, are planning to do to make it better.
understand how established businesses operate in the industry
identify the most powerful “painpoints” that the startup can address in order to successfully enter the market
design a new Business Model to address the painpoints
develop a simplified proof of concept of the Business Model to test its viability
after a test period, review the new Business Model effectiveness and change it, “pivoting” it if necessary towards a different one
How can you conduct a Business Model Canvas review and discussion?
You can print the Business Model Canvas template on a large surface and post it on a wall, so your project team can sketch it and discuss it, generally using post-it notes or board markers.
As an alternative, given that more and more project team members are now working remotely, you can use an online Business Model Canvas, which can be viewed and edited by all team members.
Get to know more about Business Model Canvas
If you want to get to know more about the Business Model Canvas and how to apply it to your business, you read the book by Alexander Osterwalder “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challenger”, Wiley, which is available on Amazon in Paperback and Kindle edition.