The Business Model Canvas (BMC) was developed by Alexander Osterwalder and Yves Pigneur. They defined nine categories of which they refer to as the building blocks of an organization.
“A Business Model describes the rationale of how an organization creates, delivers, and captures value” – Business Model Generation by Alex Osterwalder and Yves Pigneur
These blocks of the canvas let you visualize all the components needed to turn customer needs/problems into a profitable company.
It is a visual overview all laid out on the same page, a tool that allows you to map out and discuss your business model. The first version of your BMC (for start-ups) will be a starting point where you list the guesses/assumptions about your business that will need to be proven through interaction with your customers. As your business develops the BMC can become a scorecard. It allows you to revise as you gather facts about your product, customers, costs etc. Overtime your BMC will become a flip book that shows how your business has evolved.
This means that is continually reviewed, monitored, revised, edited and updated as you rethink and learn from research and testing you hypothesis. Simply put it is subject to evolution. It encourages looking at several scenarios, brainstorming and team work. It is a living document.
Users have put the canvas to work in many different situations and stages of business. Developing a new business, launching of new products/services, or revamping their existing business model and strategy. The performance of an existing organization can easily be improved, and when setting up a new company clearer decisions can be made in advance using the Business Model Canvas.
Each block defines a very specific part of your business and how it functions. This way you can spot potential weaknesses and strengths of your business and act on them.
The 9 building blocks:
Value Proposition – your company’s value proposition is what distinguishes itself from its competitors. What problem or need are you solving, and why would customers choose your company over others. This section does not only include your concrete product or service but also the benefits that your business offers and what makes you unique.
Customer Segments – define the target audience you will serve. Identifying and understanding your customers is vital to your business and the best way to focus and use your valuable resources.
Who is your ideal customer? Who will gain from the value you offer?
Start to list the different types of consumers that suffer from the problems your product/service solves. Now paint a picture of these customers. Ask yourself relevant questions about them. Are they married? Are they male or female? Do they play golf? Define them in as many relevant ways as possible.
Choose specific demographics to target – the average or typical characteristics of your customers.
And also consider the psychographics of your target – what motivates them to take action.
You may have more than one target market and that is OK, however it is important to profile each of them.
Channels – how will you reach your desired customer segments? Which ones are most targeted and cost-effective? How will you communicate with them? Consider these types of channel phases:
– Awareness – how do we raise awareness about our company (advertising, social media,
promotional materials etc.)
– Evaluation – how do we help customers evaluate our organizations (surveys, reviews etc.)
– Purchase – how does a consumer purchase our product/service (store front, website, etc.)
– Delivery – how do we deliver our product/services (over the counter, delivery etc.)
– After Sales – how do we provide post purchase support and stay connected with the consumer
(return policy, customer assistance, thank you card, monthly emails etc.)
Customer Relationships – what type of relationship do you want to create with your customer? Consider, atmosphere, customer service, interactions (personal assistance, self-service, automated service etc.)
Revenue Streams – the way your company will make money through a variety of revenue flows. Consider all the methods by which money comes in. Besides purchases of your products or services are you: Renting space? Have monthly subscription plans? This is a time to look at where your income is coming from and whether it aligns with the rest of your focal points. For what do your customers currently pay? How are they currently paying? How would they prefer to pay? What are they willing to pay and for what value?
Key Resources – These are the resources necessary for you to run your business, the tools you use to create the value for your customer, and to sustain and support your business. Consider: Physical (buildings, POS, equipment, inventory etc.) Intellectual (brand, patents, copyrights etc.) Human (key employees, contractors, customer service representative etc.) Financial (lines of credit, loans, cash etc.)
Key Activities – the tasks that you must do to establish and maintain your business model successful. What Key Activities does your value propositions require? Your distribution channels? Your customer relationships? Revenue streams?
Key Partnerships – are the relationships that you have with other business, government, or non-consumer entities that help your business model work. They can be the relationships that you have with your suppliers, your manufacturers, business partners, etc. They are also strategic alliances between non-competitors and/or competitors, joint ventures and collaborations. Partnerships are formed to optimize your business model, reduce risks, and acquire resources, since companies rarely own all the resources needed to perform every activity by itself. IE: A key partner of a food truck who sets up in a municipal park would be the municipality. Betty Crocker partnering with Hershey’s to include chocolate syrup in its signature brownie recipe.
Cost Structure – In order to make money you also have to spend money. Try to be as precise as possible in listing your costs so you can gain a realistic understanding of what costs there are. Consider fixed costs (remain the same despite changes in volume of goods or services produced/sold IE: rent, loan payment etc.) Variable costs (varies with the level of output. IE: volume of goods/services sold)
Consider costs incurred within all of the building blocks. This block is to be done last.
Once your BMC is completed you should look at it in its entirety. Understand how everything is tied together as a working business plan. Even minor changes in one block influences the rest of the model so always move to the macro view after making micro changes.
When working on a business model it is always recommended to get input from others. Creativity, innovation, opportunities, threats, go hand in hand with collaboration and brainstorming. We can become cursed with “insider information” when working alone.
Have questions or would like help with creating your Business Model Canvas or Business Plan Contact Us.