The business model canvas is a strategic planning tool used by entrepreneurs and managers to develop and illustrate their business models. The business model canvas template identifies the key elements that make up a business model. The tool was first designed by Alexander Ostwerwalder and co-authored by Yves Pigneur among 470 contributors. It consists of nine main building blocks:
- Key Partners
- Key Activities
- Key Resources
- Value Propositions
- Customer Relationships
- Channels
- Customer Segments
- Cost Structure
- Revenue Streams
These elements all link and work with each other to ensure the success of the business.
Why this tool?
The Business Model Canvas can be used to illustrate, modify and pivot your business. By modifying the building blocks of the business model canvas, you build a better understanding of where your business stands and what needs further analysis and enhancements.
How to use this tool?
Step 1: Draw your canvas
The canvas is a simple diagram to help you map your business model components. Download our template, you can fill it digitally or print it out and use sticky notes or draw on it. It’s always preferred that you use the canvas in your way.
Step 2: Fill the nine blocks
The tool consists of a group of blocks representing different components that shape your business. In each block, think about ways to explain those components by answering the questions mentioned under each block.
Step 3: Analyze your data
After you answer all the questions, you can use this data to think of ways to modify your business and improve it. Look at each block and write down suggested enhancements that will improve your overall performance.
The nine blocks of the BMC are described as follows:
- Key Partners
Key partners are the companies or people your business works with to create a strategic relationship. Good examples of key partners for a business like Amazon E-commerce are logistics partners and sellers. Key Partners can be identified by answering the following questions:
- Who are our significant partners?
- Who are our significant suppliers?
- What critical activities do our partners perform?
- What important resources are we acquiring from our suppliers?
- Key Activities
Key activities are specific activities or tasks that are fundamental to the operation of your business. An example of a key activity would be the procurement of fresh foods for a restaurant. Key Activities can be identified by answering the following questions:
- How do we produce our offerings?
- What key activities do we need to perform?
- Key Resources
Key resources are the assets necessary to operate and deliver your value proposition. For example, a factory cannot operate without production equipment. Here are a few things to consider about key resources:
- What specific assets are necessary to operate your business, deliver your value proposition, and generate revenues?
- What resources are needed to maintain customer relationships and customer satisfaction?
- Value Proposition
Value Proposition is an extremely important element of the business model canvas. The value proposition determines the fundamental offering the company is providing to its customers. It is the primary driver of all business operations. For example, Amazon’s E-commerce value proposition is “to provide an online shopping platform that offers and delivers any item to any person, anywhere, at any time.”
Here are a few things to consider about value propositions:
- What exactly is your company trying to provide for your customers?
- What problem is your company trying to solve and what needs is your company satisfying?
- How does your offering satisfy the demands of your customer segments (e.g. price, quality, design, status, etc.)?
- Customer Relationships
Customer Relationships are the different types of interactions a company has with its customers. For example, a designer suits company will provide significant help for the customer, tailoring to their needs and working directly with them to create the suits they want. Consider a few things about customer relationships:
- What type of relationships do each of our primary customer segments expect us to build and maintain with them?
- How are they integrated with the rest of our business model?
- How costly are they?
Customer Relationships can take the form of automated services, co-creation, communities, dedicated personal assistance, personal assistance, and self-service.
- Channels
Channels are how you deliver your company’s products and value proposition to your customers. Channels encompass all of a company’s supply, distribution, and marketing channels. For example, the channels for Amazon E-commerce include global distribution through shipping partners, application interfaces, affiliates, and social media. Here are a few things to consider about channels:
- How do you deliver your value proposition?
- How do you reach your customer segments? What channels are used?
- Are your supply, distribution, marketing, and communication channels well-integrated and cost-efficient? Are they being utilized effectively?
- Customer Segments
Customer segments are the group of individuals or companies to which you sell your products or services. Customers can be segmented into distinct groups based on their needs, behaviors, social and demographic profile, interests and motivations, and other similarities they share. An organization may choose to target a single group or multiple groups through its products and services.
There are thousands of ways to create Customer Segments. What you should keep in mind when setting your criteria is that it should help you better identify your customers.
When determining your customer segments, consider the following:
- Depth of pain: The greater the pain (need), the greater the chance that the client will be open to your solution.
- Budget: Are customers willing to pay for your solution? How many? And how much? The greater the pain (need), the more customers are willing to spend.
- Reach: How are you reaching your customers? Is it too expensive to deliver in person or more effectively?
- Market size: What part of the market do you need to meet?
Customers can be segmented through different profiles. It is key to describe your customer segments in every detail possible, primarily:
- Demographic: establishes the consumer community by characteristics such as age, ethnicity, religion, gender, educational level, income, among others.
- Geographic: defines the audience by area, such as country, city, region, and even by the differentiation between rural and urban areas.
- Psychographic: puts together clients with the same social status, lifestyle, personality traits, behavior, and consumption, in addition to the desired benefits.
- Cost Structure
The cost structure refers to how a company spends money. The company’s operating costs must be less than the revenue for the business to be sustainable. For example, the cost structure for a clothing factory is split into fixed (e.g., equipment, salaries, utilities, rent, marketing) and variable (e.g., raw materials). Here are a few things to consider about cost structure:
- What are the key costs in your company’s business model?
- How do your key activities and key resources contribute to the cost structure?
- What proportion of costs is fixed V.S. variables?
- Revenue Streams
The revenue Streams block is about how the business generates money. A company might have multiple revenue streams, i.e., advertising, asset sale, brokerage fees, renting, leasing, licensing, subscription fees, usage fee, etc. For example, Apple has multiple revenue streams between its variety of products and its services, such as smartphone sales and Apple Music subscription fees among others.
Here are a few things to consider about revenue streams:
- For what value are our customers willing to pay?
- How are they currently paying?
- What method would they prefer to use for paying?
- What is the pricing strategy for the products offered by our company?
Hints for using this tool
One of the common mistakes while using the Business Model Canvas is filling it in once only. The canvas has to be revisited repeatedly and adjusted with every change occurring in the business. Do not rely on assumptions and make sure you test all of them as your business continues to grow.
Case Study
Sarah wants to build an online platform that enables homeowners and brokers to rent apartments and rooms for students and travelers.
Sarah began constructing her business model canvas, First, she researched and observed the market to identify her customer segments. She noticed that the majority of tenants are travelers and students of ages between 18 to 30 years old.
After close observation of her customers, she articulated the different value propositions she wants to deliver for both homeowners and guests, as each has different pain points. For homeowners, it is easy to list and generate income. For guests, it is the ease of browsing accommodations and finding a variety of pricing and locations.
She surveyed and interviewed her customer segments to identify the channels they use when they look for a place to rent. She decided to build web and mobile applications and run digital marketing campaigns since most of her target age group are technology-enabled.
She also decided to establish customer support for both renters and homeowners to answer their inquiries online. The relationship she wants to have with her customers is self-service and transparency.
After that, she began to think about the operations side of her business. The first thing she identified is the key partners needed to deliver her value proposition. Primarily, they are homeowners, digital marketers who can help owners promote their properties online for better exposure, and technology infrastructure providers. As for the key activities, for her business to operate, she will need online platforms development, home owners’ acquisition, marketing, and customer service. Those activities require key resources, which Sara defined as the online platform, employees, and a trusted brand that is essential to gain customers’ trust.
The cost structure is believed to be mostly fixed costs that included marketing, technology development and infrastructure, customer support, and legal fees. As for the revenue streams, she will charge customers a service fee per transaction in addition to commissions from homeowners.
Now, Sarah has a better understanding of her idea’s business aspects and has more clarity on how to execute her business.
Pros and Cons
This tool is simple and flexible. It saves the time and effort normally required for preparing a traditional business plan. However, the tool is not detailed enough, does not provide any priorities, and does not consider the competition. It can only help you conceptualize your business aspects, but further analysis might be needed at a later stage.
Click on the attachment below to download the business model canvas template.
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