Business Model Canvas
The Business Model Canvas, initially invented (developed?) by Alexander Osterwalder in 2010, provides the structure of a full business plan within a single coherent framework. By focusing on the key drivers of the business, the model helps clarifying the value-adding activities. The inherent flexibility makes it easier to tweak the model and try things through the scenario filters, and the transparency and simplicity of the model makes it easier for both internal and external associates to see the full picture of the business as a whole.
We recommend working through the Business Model Canvas goes from right to left. First, you need to establish your customer segments, the value proposition that you provide, and the channels and relationships you establish between your offering and customers. In the light of the product-side of the canvas, you should be able to link revenue streams mutually to customers and the value proposition you provide them. The left hand-side of the canvas form the infrastructure of the business, in other words, the
things that need to be executed in order to bring about the value proposition. Here, you need to establish which activities that must be undertaken, and which resources that are needed to carry out these activities. Most businesses cannot handle all activities and resources themselves, and therefore you need to map the key partners handling everything outside your own business model. All infrastructure can finally be linked to the cost structure.
1. Customer Segments
What job are you doing for the customer? What problems are you solving? What needs are you fulfilling? Customers are grouped by certain characteristics, and outlining your specific customer segment is key to developing a good business model. Hence, we recommend using a good amount of time on describing and understanding your customers, and classifying them according to particular needs. If you have a multi-sided market (e.g. Newspapers have readers on the one side and advertisers on the other), we recommend using the Scenario Filter at the top-right corner. Also, if the buyer and the end-user of the product are not the same person (e.g. Toys are bought by parents but used by children), you will need to list both personas.
2. Value Proposition
What useful product or service do you provide, and how does it solve the identified customers problems or needs? What is unique about your value proposition, and why would customers prefer it to current alternatives? Value propositions should be prioritized, so that you can keep only the most critical ones as you move on with your business model. Each value proposition should have a clear link to at least one customer segment, and we recommend dividing different value propositions into different scenarios.
How does each customer segment want to be reached? Through which interaction points do you provide your value proposition? Channels include the entities you use to communicate your proposition to your customers, as well as distributional entities through which you sell (and eventually later provide service) to your customers. Each channel should be linked to at least one specific customer segment. For instance, selling shoes through a website would be a channel insofar people order and pay through the website, but advertising for the website would also constitute a channel (for getting customers’ attention) (*)
4. Customer Relationships
How do you interact with your customers (and how do they interact with you) through sales and the product lifecycle? How do you earn and retain customers? The relationships with customers not only includes the overall image of your company or organization, but also the customer experience. The latter can be described by going through a customer journey, and this is where you e.g. decide whether to provide phone support or not. You will probably have different relationships with different customer segments, which is why we recommend linking your customer relationships to segments in each scenario.
5. Revenue Streams
What are customers really willing to pay for, and how do they pay? Are you generating transactional or recurring revenues? Revenue is obviously a focal point in doing business, and it is therefore important to look closer at where you are driving revenue, and if it aligns with the rest of your business model. We recommend linking each value proposition to a customer segment, and derive the revenue streams from it.
6. Key Resources
Which strategic assets do you need in order to create value? What needs to be in place before you can conduct your key activities? Key resources depends on the type of business you are running, and varies from machines to ideas to people and money. A product-driven business typically sees talent and expertise in a certain area as their competitive advantage. Scope-driven businesses typically have key knowledge about their customers’ needs, and tends to create synergy around those (e.g. an IT-company providing systems to a bank). Infrastructure-driven businesses, like telecommunications, sees economies of scale in repeatable areas as their competitive advantage, and hence their key resources would be physical or virtual infrastructure.
7. Key Activities
What do you have to implement or achieve in order to create value? Which of these activities are the most crucial? Key activities are what you need to deliver on the proposition, and what needs to be done in order to make the rest of the business work. For instance, a product-driven business’ activities would include ongoing learning in order to build a better product. A scope-driven business’ activities would include maintaining superior expertise on the segments you are serving, and an infrastructure-driven business’ activities would include keeping reliability and improving efficiency. It is crucial that activities and resources conform to each other.
8. Key Partners
Who works with the business for creating value for the customers? Do you have strategic allies, suppliers or co-operators? What activities and resources are outside your business type or structure – and could partners do some of those? Key partners includes everyone outside your business model that helps bring your value proposition about. Here, it is important to focus on only the most essential in order to reduce costs and risks. We recommend linking your key partners according to their relationship with key activities and key resources.
9. Cost Structure
How does your key activities, resources and partners drive your costs? Are those costs well aligned with your value proposition? Are the costs more fixed or variable as you test different scenarios? In contrast to revenue, costs are easier to project, and hence you should be able to give a quite accurate estimate of your costs in different scenarios. Here, we recommend looking at different risks, and implement them in the cost structure of your business. In this way, your canvas will account for eventual deviations.