The Business Model Canvas Model

The Business Model Canvas is a strategic management template used for developing new business models and documenting existing ones.

“A business model describes the rationale of how an organization creates, delivers, and captures value.”

— Alexander Osterwalder, Co-creator of the Business Model Canvas  

This canvas gives you several important advantages, namely these:

It’s collaborative – so you can bring the various partners together on the same page to generate and analyze ideas, and have an early testing ground for concepts before you advance to service staging a prototype.

It’s human-centred – so you can keep close track on how to create and maximize value for customers as well as stakeholders and other partners.

It makes it easier to collect rich data – if you have a clear purpose and strategy in mind. 

 

A business model canvas typically contains 10 boxes:

1.      Value Proposition 

   The item you think will create value for your customer: e.g., a new idea, a price drop. This is a summary of what your business will deliver to customers, and feeds into the value proposition canvas, the tool you’ll use to expand this.

 

The Value Proposition is foundational to any business/product.

It is the fundamental concept of the exchange of value between your business and your customers/clients.

Generally, value is exchanged from a customer for money when a problem is solved or pain is relieved for them by your business.

Good questions to ask when defining your business/product:

·         What is the problem I am solving?

·         Why would someone want to have this problem solved?

·         What is the underlying motivator for this problem?

Tips:

A good way to approach this for users/customers is by looking at your customer segments and figuring out where your product/service solves the problem for your customer, based on Maslow’s Hierarchy of Needs.

If you are selling your product or service to another business, you are a key partner in them achieving their Value Proposition for their customers.

It is important to have context around the goals the company is trying to achieve for their Customer Segments and where your business/product/service fits in the value chain.

 

2.      Customer Segments – 

       

Your most important customers (e.g., seniors); consider the value of personas here.

 

Customer Segmenting is the practice of dividing a customer base into groups of individuals that are similar in specific ways, such as age, gender, interests and spending habits.

Things to consider when determining your Customer Segments:

·         Who are we solving the problem for?

·         Who are the people that will value my value proposition?

·         Are they another business?

·         If so, what are the characteristics of those businesses?

·         Or, are they other people?

·         Does my value proposition appeal to men/women or both?

·         Does it appeal to young adults aged 20 to 30 or teenagers?

·         What are the characteristics of the people who are looking for my value proposition?

Another thing to gauge and understand is your market size, and how many people there are in the Customer Segment. This will help you understand your market from a micro and macro perspective.

A great place to start understanding your customer is to create customer personas for each of your Customer Segments.

 

3.      Customer Relationships – 

     

Where you envision the relationship each customer segment expects: e.g., customer acquisition, retention and upselling (i.e., How do you get customers? How do you keep customers? How do you continue to create value for them?).

we know our Value Proposition and have developed Personas to better understand our Customer Segments or ‘customers’, but what is the relationship we have with our customers?

Customer Relationships is defined as how a business interacts with its customers.

So, do you meet with them in person? Or over the phone? Or is your business predominantly run online so the relationship will be online too?

Some examples are:

·         In-person (one-to-one)

·         Third-party contractors

·         Online

·         Events (one-to-many)

·         Phone

A really helpful step is to create a User Journey Map of your customers as they interact with your business.

This helps clarify the points of engagement between you and your customer and the modes used to relate to your customers.

This will also help you start to define your operations as a business and also help you identify opportunities for automation.

 

4.      Channels – 

     

How you deliver the value proposition. Will it be online, through physical means or a combination? Here, you identify which channels are the best (both desirable for customers as well as cost-efficient and cost-effective for the brand).

 

Channels are defined as the avenues through which your customer comes into contact with your business and becomes part of your sales cycle.

This is generally covered under the marketing plan for your business.

Good questions to ask when identifying the channels to reach your customers are:

·         How are we going to tell our customer segment about our value proposition?

·         Where are our customers?

·         Are they on social media?

·         Are they driving their car and listening to the radio?

·         Are they at an event or conference?

·         Do they watch TV at 7pm on a Friday night?

 

Examples of channels:

·         Social media

·         Public speaking

·         Electronic mail (email marketing)

·         Networking

·         SEM (Search Engine Marketing)

·         SEO (Search Engine Optimization)

·         Engineering as marketing

·         Viral marketing

·         Targeting blogs

·         Sales and promotions for commissions

·         Affiliates

·         Existing platforms

·         PR

·         Unconventional PR

·         Social advertising

·         Trade shows

·         Content marketing

·         Community building

·         Offline advertising (billboards, TV, radio)

 

5.      Key Activities –

     

Those vital actions that go into the everyday business to get things done; these are all the activities needed to realize and maintain the value proposition, and to power everything else involved.

The Key Activities of your business/product are the actions that your business undertakes to achieve the value proposition for your customers.

Questions to ask:

·         What activities does the business undertake in achieving the value proposition for the customer?

·         What is the resource used?

·         Time?

·         Expertise?

·         Distribution of product?

·         Technical development?

·         Strategy?

·         Offer resources (human/physical)?

·         What actions does it take you and/or your staff to achieve value exchange?

Examples:

·         Consulting

·         Designing

·         Web development

·         Baking

·         Driving

·         Shoveling

 

6.      Key Resources – 

\     

The tools needed to get those things done, stretching across all areas the canvas covers to include, for example, customer retention.

 

Next, you should think about what practical resources are needed to achieve the key activities (actions) of the business.

Key means the resources your business requires to do business.

·         These resources are what is needed practically to undertake the actions/activities of your business:

·         Office space

·         Computers

·         Hosting

·         People (staff)

·         Internet connection

·         Car

·         Bike

·         Oven

·         Electricity

·         Car Parts

 

7.      Key Partners – 

       

The people who will help you fulfill the key activities, using the key resources. 

 

Key Partners are a list of other external companies/suppliers/parties you may need to achieve your key activities and deliver value to the customer.

This moves into the realm of ‘if my business cannot achieve the value proposition alone, who else do I need to rely on to do it?’.

An example of this is ‘if I sell groceries to customers, I may need a local baker to supply fresh bread to my store’.

They are a key partner to achieve the value my business promises to the customer.

 

8.      Cost Structure – 

 Here you find the most essential cost drivers. This allows you to consider the return on investment (ROI).

Your business cost structure is defined as the monetary cost of operating as a business.

·         How much does it cost to achieve my business's key activities?

·         What is the cost of my key resources and key partnerships?

·         How much does it cost to achieve the value proposition for my customers/users?

·         Are there additional costs to running a business?

·         Legal?

·         Insurance?

·         What is the cost of my business?

·         It is important also to place a monetary value on your time as a cost.

·         How much would it cost you to hire you?

·         What is the opportunity cost of running your business?

 

9.      Revenue Streams –

   

Where you find potential revenue sources (e.g., advertising). 

Revenue Streams are defined as the way by which your business converts your Value Proposition or solution to the customer’s problem into financial gain.

It is also important to understand pricing your business accordingly to pain of purchase in exchange for the pain of solving the problem for your customer.

But how do you gain revenue?

There are many different revenue models here:

·         Pay per product (pay per view)

·         Fee for service

·         Fixed rate

·         Subscription

·         Dividends

·         Referral feeds

·         Freemium

·         Equity gain

 

10  Sustainability –

     

How sustainable your offering is overall, to the environment, to the social good, etc.

 

 

How to Build a Business Model Canvas

For the best results, follow these guidelines and aim to fill in all the gaps, looking out for cause-and-effect relationships that run between boxes/throughout:

·         Complete the top seven boxes (Key Partners to Customer Segments) – using all the information you can gather from your research.

·         Complete the next boxes: 

ü  Cost Structure – Determine the cost drivers from the Key Partners, Activities and Resources boxes; and

ü  Revenue Streams – Determine these from the Customer Relationships, Customer Segments and Channels boxes.

Once you have established these, you can work to estimate them in monetary terms.

·         Complete the Sustainability box – according to the insights you’ve found.  

 

Why do we use it?

To quickly draw a picture of what the idea entails.

·         It allows us to get an understanding of your business and to go through the process of making connections between what your idea is and how to make it into a business.

·         It looks at what kinds of customer decisions influence the use of your systems.

·         It allows everyone to get a clear idea of what the business will likely be.

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