An Introduction to the Business Model Canvas

What is the business model canvas and why is it important?

If you need to summarize and communicate a business idea or concept, the business model canvas is an ideal visual tool to do just that.

Originally devised by Alexander Osterwalder in 2005, the basic model is described in his 2010 book “Business Model Generation” (written with Yves Pigneur). Although numerous specialized versions of the canvas have since been devised (including a lean version) the basic template remains a simple document with nine boxes representing the core elements of any business model or idea: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, cost structure.

As you can see, the nine elements of the business model canvas include both the main external and internal factors that will affect any business. By combining the two sets of influences in a single exercise, you can clearly identify your business’s value proposition: i.e. exactly what your business is offering to customers and clients.

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What is the purpose of the business model canvas?

The purpose of the business model canvas could be described as simplicity. A new business idea or concept can be a complicated challenge to make real. The beauty of the business model canvas is that it brings all the essential information about the business together and lays it out logically on a single sheet of paper (not always a physical sheet of paper, of course).

This aids in keeping a variety of complex, interrelated factors in mind, while enabling entrepreneurs, business owners, and strategists to move the business forward – always focused on the value proposition at its core.

The importance of business model canvas is that it offers a high-level analysis, provides important insights, and a greater understanding of your venture, all while avoiding getting bogged down in the details.

What does it look like in detail? Let’s examine each of the nine ‘boxes’ on the template…

The business model canvas elements, item by item

The single-page template provides a coherent vision of your business or business concept – on the right-hand side are the external factors (customer-related), and on the left, we find the internal factors (the key elements of your business setup).

1. Customer segments – Your target audience. Who are the key customers or users of your business? Who are you solving a problem for? What do they do? What draws them to you? What are your top three segments? (If you’re wondering how to define ‘top three’, consider which segments produce the most business and revenue.)
2. Value proposition – What are you offering the customer/client/user? What are your products and services? What problem(s) and specific pain points do they address? What is unique about your business? Why would your target market turn to you rather than the competition? How can they distinguish between you?
3. Revenue streams – Where does (or will) your business’s revenue come from? How exactly will you capitalize on the value you are providing? Direct sales? Pay per product or pay per view? A freemium model? Licensing? Subscription?
4. Channels – How do you reach out and connect with your customers? How exactly do your customers come into contact with your business? How are you communicating your value proposition? This includes both physical (bricks & mortar store, sales reps, face-to-face networking, etc.) and digital channels (website, mobile app, cloud platform, social media, etc.)
5. Customer relationships – What are the key relationships, and how do you maintain them? Having attracted clients and customers, how do you plan to retain them? How do you nurture your customer/client relationships? Are you going the automated route (think about how Amazon maintains post-sale contact with automatic messages and emails) or something more personal (think about a local, independent store you use – how do they keep you coming back?)
6. Key activities – What are the daily activities that keep your business (and business model) running? What is it you actually do to deliver your value proposition?
7. Key resources – What do you use to run your business – people, knowledge and skills, office space, the internet, intellectual property, budget, etc. What resources are necessary to keep running?
8. Key partners – Who are the people and institutions without whom your business wouldn’t run? These might be other companies, joint venture partners or collaborators, suppliers, holding companies or subsidiaries, strategic alliances, or other third parties. Who else do you rely on to deliver your value proposition?
9. Cost structure – What are the costs of running your business model? Consider production or manufacturing costs, the physical space your business occupies (if any), research & development, marketing and sales, legal costs, etc. Are these costs fixed or variable?

Benefits of business model canvas

Apply the business model canvas to your existing situation or to a new concept or direction. The potential advantages and uses of business model canvas include:

• Visualize and explore your business model,
• Clear expression and communication of your idea or concept to the team, stakeholders or potential investors,
• Clarify the issues faced by your customers or users, leading to more sophisticated and targeted solutions,
• Involving the team and stakeholders in the process raises engagement and commitment to the business,
• Incorporate user feedback into your business model,
• Verify that your business model is correctly focused (or correct it if it isn’t),
• Understand the influence that customers and users have on the way you do business,
• Where you have multiple product lines or services, get a clear view on the potential conflicts and dependencies,
• A business model canvas can serve as the foundation for a more detailed business plan.

Another advantage relates not so much to the outcomes as to the process itself: given the scope of the exercise, the business model canvas is quick to complete, giving you rapid insights into your business.

Finally, you don’t have to apply the business model canvas only to your own business. Take time to map the business models of your key competitors. This gives you a more in-depth understanding of the market as a whole, how customer needs and pain points are currently being addressed (or not!), and how you can further differentiate yourself from the competition.

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Business model canvas – example

At Boldare, we like to practice what we preach, and that’s why we used the business model canvas in the creation of Boldare itself.

Boldare was formed by combining a software development company (XSolve) and a web design agency (Chilid). The overarching goal was to offer full-cycle product development services, handling digital product design and development from digital prototyping to MVPs, through to achieving product-market fit and then scaling products for wider adoption.

The business model canvas was the ideal tool to assess and explore this new business venture. Using it enabled us to collaboratively map out Boldare’s mission, vision, and value proposition, and then further elaborate the kinds of offerings and customer profiles that we needed to aim for.

Using the business model canvas, we were able to explore the market need for a full-cycle development service, as opposed to the (at the time) more common ‘software development’ company approach.

This led us to develop an effective strategy for launching the new Boldare business model, including research and early testing with real users, refinement of the overall business proposition, and an MVP website.

For the full story of how we approached the launching of this new business, check out our article, “How to test a business idea with minimum cost, time and effort”

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Why is the business model canvas important?

Every business is at risk from the unknown, especially when heading in a new direction or launching a new product or service. To minimize and manage that risk, you need knowledge and insight. The business model canvas is ideal for gathering existing knowledge about your business and presenting it in a highly usable format. It also clearly outlines any gaps in that knowledge, pointing the way forward and enabling you to develop an appropriate and nuanced strategy for success.