The Business Model Canvass
The Business Model Canvass
A business model canvas is a visual representation of a business model, highlighting all key strategic factors. In other words, it is a general, holistic and complete overview of the company’s workings, customers, revenue streams and more.
The actual business model canvas definition was first proposed by Alexander Osterwalder, a Swiss entrepreneur, and consultant, but has gone to be used around the world.
What’s the Purpose of a Business Model Canvas?
Other than providing a general overview of the business model, these canvases enable companies to visualize and analyze their strategy. This includes updating the model as the company evolves, such as changes in the market, new streams or expansions.
The business model canvas provides the central, common source of knowledge through which each department can add their unique input from their respective domains.
It is a template that defines the business - specifically, how each section interacts with the others. For example, understanding the value proposition, the target customer and the channels through which they are engaged all need to be analyzed together, not just in individual vacuums.
Alternatively, the business model canvas can be used by organizations to plan, assess or execute new models altogether. In this way, the canvas highlights the key essentials and ensures that no vital factors are forgotten. If the canvas is incomplete, then the respective strategy is also incomplete.
Elements of a Business Model Canvas
Customer Segments
Whether its B2B or B2C, all businesses have customers. These are the people or organizations that buy your products, use your service or are otherwise essential for creating a profit.
Customers can be defined through various means but it’s important to focus on the core customers first, then assess less critical or potential future clients.
Value Proposition
A company’s value proposition is the sum of its various products and services, specifically in regards to how it uniquely stands out amongst the competition. In layman's terms: what is the unique factor that makes this business better than another?
The creator of the business model canvas, Osterwalder has also stated that organizations need to offer something unique and, what’s more, this needs to be immediately discernible from the competition.
The value proposition can be as simple as being cheaper, faster, more efficient or more readily available than the competition. However, we can roughly place all values in two broad categories:
Quantitative. This refers to benefits that can be easily counted; from a customer’s point of view, this means they can be easily compared to the competition. Examples of this can include pricing or speed. Users may very well choose your service because it's cheaper or quicker.
Qualitative. This refers to abstract concepts such as value or experience - those that can’t be readily measured by hard numbers, but nonetheless, give a strong emotional response to your audience. Examples of this can include various characteristics, such as using local products, being eco-friendly or having a personal, customer-centric approach that competitors lack.
Channels
How will you and your customer interact? Once you define your customer, as well as flesh out your unique value, this will impact what channels you use.
For example, if your audience is busy and on the go, a mobile-facing service will be essential. Likewise, if you’re targeting specific locations, perhaps a physical presence is also needed? What’s important here is that you consider the many touchpoints that your customers may want and highlight the beneficial ones.
However, it should be noted that channels can adapt over time and this is one area where the business model canvas is likely to be updated.
For example, when Domino’s first started, there were only a handful of options, namely dialing the store or visiting in-person. The invention of the internet and mobile apps quickly changed this and now there are over 10 different ways, including smart TVs, slack integration and voice commands.
Yet the decision to expand with new digital products didn’t just happen on a whim; the business model canvas considered the customer needs (efficiency and a desire for less effort) with their value proposition (making food ordering and delivery as easy as possible) to define new channels.
Customer Relationships
This section covers your relationship with each customer. This includes how customers first came to use your business, how you kept these initial customers and, ultimately, how the business will grow its audience.
Revenue Streams
Ultimately, a company has to turn a profit. On the business model canvas, this is represented by revenue streams: the various channels with which income can be generated.
Key Resources
Every organization runs on resources: the essential assets in running the business and providing the value (defined earlier) to customers. Like the other elements, this can come in many forms.
Human resources: if you’re providing personalized value or have a model that requires a lot of staff, the cost and training of employees need to be considered.
Financial: how much investment is required to run and maintain a business before it makes a profit? The more money is needed upfront, the bigger the burden to generate ROI.
Physical: expanding your presence, opening offices or buying physical space is also an asset that needs to be considered. This is mostly true for organizations that need prominent positions, such as high street retailers or hotels. For a lot of businesses, the push into a digital landscape is quickly reducing the strain of this particular resource.
Intellectual property: this can include everything needed to develop your IP (such as an app), as well as develop and maintain it. For example, subscriptions and licenses survive by ensuring customers can not use the service without your business, as you still hold the intellectual property rights.
Key Activities
Similar to the last section, what do you need to do to produce your value proposition and ensure it succeeds? This section includes the key activities needed to make your model effective and successfully connect with customers.
This can include initial investment, such as finding a development company, or even marketing and advertising to generate that initial awareness. This section should take everything into account, including the impact each has on the overall business, to understand the absolute essentials and recommended extras.
Key Partnerships
Very few companies survive on their own. Identifying and preparing key partnerships is essential for long term survivability.
Benefits of a Business Model Canvas
Visuals at a glance
Thanks for having everything in one place, people in the company can gain an immediate understanding of the business model as a whole. It’s easily interpretable and offers a single source of truth for the wider strategy.
Quick Improvements & Iterations
By having everything connected, organizations can see how every part of the business works with the wider structure. This is where people can highlight flaws or identify solutions. By comparing all the factors, such as customers, revenue streams and costs, the company can begin to make strategic improvements it might not have otherwise identified before.
Shareable
Nobody wants to go through a 2-hour presentation everything they want to go through the business strategy. The business model canvas definition is a better way to show this plan. It can be easily shown to new people to help bring them up to speed, while simple changes don’t require extensive explanations; people can see how they fit onto the updated canvas.
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