What is the Business Model Canvas?

Business Model Canvas is a proven tool used in organizations no matter of their size, industry or sector, or positions we have in our companies. It’s an extremely popular tool, used in start-ups, in large companies, and not least in organizations as is the World Bank. There is one estimation that it has been downloaded more than 5,000,000 times. It’s useful both for the analysis and business model design as well as for co-use with other tools such as the SWOT analysis and Blue Ocean Strategy.

NINE BASIC BUILDING-BLOCKS OF THE BUSINESS MODEL CANVAS

The easiest way for you to imagine the canvas is in three parts: first, central part of the business model canvas is the Value Proposition. We like to say that the Value Proposition is the heart of your business model. We should ask ourselves what is actually the value we are offering? One of the possibilities we have to design our Value Proposition is to identify what is really the problem that we are or would like to solve? And at the same time what is the solution that we are offering? That’s our Value Proposition.

Right part of the canvas is the so-called value part of the canvas or also the intuitive part. They say that women have better developed intuition, therefore, we should definitely have them in our team(s) to design our Customers Segments (yes, to design your Customer Segments), distribution Channels, Customer Relationships and, please don’t forget the Revenue Streams.

The third, the left part of the canvas is the cost or the rational part of the business model canvas. What are the key resources, activities and partners we need? And not least, what is the structure of the key cost?

Business Model Canvas

The Business Model Canvas

RIGHT SIDE OF THE BUSINESS MODEL CANVAS

Customer Segments is the following building-block on the Canvas. In the case we already know who our customers are, this building block will be the start of your business model design. In that case the Value Proposition is the second step. But in general, the Customer Segments are designed up front. Yes, designed up front. Similar as web designers use so called “personas” to design websites. To find out who our customers really are and what is “the job to be done” with our product or service we don’t necessarily need a complex and expensive market research. There is a very informative and entertaining at the same time video on the subject in the case of milkshakes (video, 4:13 minutes) from one of the most influential business professors at Harvard, Clayton Christensen.

Distribution Channels define how the value will be transferred to our users or customers. It’s one of the key components of the business model. In today’s flood, multi-distribution channels the emphasis to design appropriate individual channels is only more important. These first three building blocks of the Business Model Canvas—Value Proposition, Customer Segments and Channels—are forming the so-called backbone of our business model. Similar as you couldn’t walk without the backbone, your business model will not work without it. In our workshops and seminars we’ll walk the talk and have a special emphasis on the backbone of our business models prototypes.

What kind of Customer Relationships do we have with your customers is the next building-block of the Business Model Canvas. Do we orient ourselves over and over again to new customers or are we trying to retain existing customers? Do we have a personal or automated relations with our customers? Do we have long-term or transactional (i.e. one-off) relationships with our customers? Just a hint. The extremes do not exist in this case. We are always somewhere in between.

Revenue Streams. Yes, revenue streams must be designed up front. No questions about that.

LEFT SIDE OF THE BUSINESS MODEL CANVAS

On the left side of the Business Model Canvas we have the Key Resources and the Key Activities. Both activities and resources should be primarily support to the right side of the Canvas. They should enable the realization and dissemination of the Value Proposition, distribution Channels, Customer Relationships and not least the Revenue Streams.

Key partners are the sources outside of our organization. First, we need to identify who our key partners are? What are the key sources that we are retrieving from the key partners? And what key activities provide these key partners? Opportunities for cooperation with key partners within the business models are many, sometimes it is essential to help these partners find their own breakthrough business model, innovation or service. In that case, you could reach a win-win strategy.

And last but not least. Cost structure. What are the most expensive costs of the business model? Which key resources are the most expensive? And which key activities are the most expensive?

Business Model Canvas presentation (video, 2:20 minutes)

Marko Savić
I’m raising awareness of the connection of business model innovation with design thinking. Have just published a book on business models design. You may wish to meet me in person at my next event or interact with me on Twitter.

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