What is a business model canvas?
A business model canvas is a graphical depiction of a company model that highlights all major strategic elements. In other words, it is a general, comprehensive, and comprehensive picture of the company’s operations, clients, income sources, and so on.
The term “business model canvas” was coined by Alexander Osterwalder (Twitter), a Swiss entrepreneur and consultant, and has since spread around the world.
Customer segments, value propositions, channels, customer connections, income streams, key resources, key activities, key partnerships, and cost structure are the nine boxes on Osterwalder’s canvas.
What are the 9 Components of the Business Model Canvas?
1. Customer Segments
Customer segmentation is the practice of categorising your consumers into groups based on common characteristics.
Segmentation provides an easy approach to organise and managing your company’s interactions with its consumers. This method also allows you to easily modify and customise your marketing, service, and sales efforts to the demands of certain groups.
Segmenting your consumers based on commonalities such as geographical location, gender, age, habits, hobbies, and so on allows you to better satisfy their requirements, specifically by tailoring the solution you provide them.
Customer Segmentation Models
- Demographic Segmentation- Gender, Age, Occupation, Marital Status, Income
- Geographic Segmentation- Location, Language, Workspace, Transportation
- Technographic Segmentation- Device Type, Browser Type, Original Source, Operating system
- Needs-based Segmentation- Service Needs, Product Attributes, Delivery Method
- Value-based Segmentation- Customer Satisfaction Scores, Number of Purchases
- Psychographic Segmentation- Values, Personality, Interests
- Behavioural Segmentation- Lifecycle Stage, Customer Engagement, Ecommerce Activity
2. Value Propositions
A value proposition is a straightforward phrase that communicates the product or service advantage you offer to provide to your clients. It is, in the end, what makes your product appealing to your target buyer. A value proposition describes what your company does better than others and why someone should do business with you or purchase your goods.
Three conditions are met by a compelling value proposition:
- It is particular: What unique advantages will your target consumer receive?
- It focuses on pain: How will your product solve the customer’s problem or make their life better?
- It is unique: How does it manage to be both appealing and exclusive? How successfully does it emphasise your competitive edge and differentiate you from your competitors?
This section describes how your business will communicate with and reach out to its clients. Channels are the points through which your clients may interact with your organisation.
Channels play a role in increasing consumer awareness of your product or service and offering value propositions to them. Channels may also be utilised to provide clients with a way to purchase items or services while also providing post-purchase assistance.
There are three types of channels
Owned Media: Owned media is any content produced on channels that you establish and control (for example, your own website, newsletter, and social media profiles).
Paid Media: Paid media refers to any sort of content or marketing channel that needs money (for example, YouTube ads, podcast sponsorships, and Facebook adverts). It is usually done to increase traffic.
Earned Media: Earned media is any voluntarily generated dialogue or attention about your company (for example, social media mentions from others, referrals, third-party reviews, shares, and backlinks).
4. Customer Relationships
Customer Relationships Describes the many sorts of relationships that a firm has with different customer segments. A corporation should define the sort of connection it wishes to have with each Customer Segment. Relationships can be personal or automated.
There are several kinds of customer relationships- Personal assistance, Dedicated personal assistance, Self-service, Automated services, Communities, and Co-creation.
5. Revenue Streams
Revenue streams are the sources of money generated by a firm by selling their product or service to clients. In this section, you should explain how you plan to monetize your value propositions.
(e+g- Product sales, Ads revenue, Subscription revenue, )
6. Key Resources
This is where you identify the major resources or main inputs you’ll need to carry out your core actions and develop your value offer.
There are several sorts of critical resources, and they are as follows:
- Human (employees)
- Financial (cash, lines of credit, etc) (cash, lines of credit, etc.)
- Intellectual (brand, patents, IP, copyright) (brand, patents, IP, copyright)
- Physical (equipment, inventories, structures) (equipment, inventory, buildings)
7. Key Activities
What activities/tasks must be accomplished in order to achieve your company goal? In this part, you should outline all of the important tasks required to make your business model a success. These important tasks should concentrate on delivering a value offer, reaching out to client groups, sustaining customer connections, and earning money.
(e+g- R&D, Design, Manufacturing, R&I, Distribution)
8. Key Partners
Key Partners are partnerships that a firm has with other entities that aid in the operation of the business model (for instance, suppliers, manufacturers or advisors). These collaborations provide the assistance required to succeed in areas that would be inefficient for the organization to handle on its own.
Apple key partners: Accenture, IBM, Deloitte, Salesforce, SAP, Cisco
How do I make a business model canvas? (6 steps, Free template)
Step 1: Naming the purpose of the business
How will we know if a model is excellent or bad if it lacks a defined purpose? This may be whatever you want, such as: earning a passive income from home, To strengthen our parent organization’s financial stability, and creating secure livelihoods for young people in danger of becoming homeless.
The beautiful thing about this is that we now have a set of criteria for evaluating our ideas, as well as some ideas for unique approaches to achieve this goal.
Step 2: Customers and Value Propositions
On a canvas, there is no set order to follow, however, I’ve found that this is the ideal spot to start.
Your company revolves around its clients, the people you hope will be driven enough to test your new product/service in exchange for some form of compelling advantage.
This is a genuine individual who is out and about right now.
They are seeking solutions to their present challenges and like discovering methods to simplify their life.
Our duty is to gain a good knowledge of this person: what their occupations, tasks, and responsibilities are.
What are their aims, desires, and goals?
What are their guiding principles and worldviews?
Do they have a decent idea of how they can acquire what they want?
This is what we include in the Customer Segments section.
To begin, we categorise our consumers into clusters, characterising each one by their common features, such as small company owners, students, parents, and so on.
Second, we create helpful consumer segment descriptions.
These might include demographics such as age, race, gender, height, income, or postcode.
These might be Psychographics such as political beliefs, altruism, prejudices, or preferences. Remember that our clients are the ones who make purchasing decisions and pay for our products/services (not to be confused with the End User or the Beneficiary).
We describe what the buyer is truly seeking for in the Value Propositions section.
It’s not so much about what we offer them as it is about why it matters.
Gain Creators might include greater social standing, well-being, career credibility, or enjoying our sinful pleasures. These might be Pain Relievers such as fear of exclusion, social guilt, reclaiming lost time, or decreased worry.
We want to know how our products/services improve their lives to the point that customers will gladly pay us for this Value Proposition.
Step 3: Channels and Customer Relationships
Now that we know who we’re serving and how we’re going to pleasure them, we can design three things: how we get them, how we keep them, and how we connect with them.
The Channels box allows us to explain how we first meet our clients and how we provide our Value Proposition.
For example, your company may locate clients using Google Ads or Facebook, then service them via face-to-face seminars or drop-shipped goods.
Both of these strategies are listed below.
The Customer Relationships section describes how our contacts will take place.
Are we looking for a long-term or a short-term relationship?
Is it necessary for each client to talk with a human or employ technology?
If so, does it have to be a specific individual or the same one each time they return?
Will we have to put in more effort to recruit or keep customers?
Is one more likely to occur spontaneously than the other?
Step 4: Key Resources, Key Activities and Key Partners
These three boxes define how the business will operate “behind the scenes,” including all operational components that make the Value Propositions a reality.
We want to highlight all of the essential elements, critical procedures, and priceless partners that allow our company to exist.
People, locations, machines, patents, and intangible assets are examples of key resources.
This is not an exhaustive inventory, but rather a list of the resources that, if lost, would render the firm inoperable.
The procedures and actions that must be accomplished in order for our clients to be served are referred to as Key Activities.
e.g. If you were to go on vacation, what would your successor need to do to keep things running smoothly?
These might involve sales calls, workshop delivery, dinner preparation, or report authoring.
These are the activities in particular that you excel in.
Because every organisation conducts some bookkeeping, it’s unlikely to be your Key Activity…unless you’re an accounting firm.
Key Partners are individuals or organisations who take on part of your responsibilities.
They may provide raw materials or completed items, refer consumers to you, or function as a sponsor/enabler.
Which external backers are critical to the model’s success?
Who might make things tough if they left?
There is considerable leeway in these three categories; consider how you might outsource services that aren’t your core competencies to a partner, or how you could bring things in-house to save money or enhance quality.
Step 5: Cost Structure and Revenue Streams
The bottom line of the canvas depicts your company’s bottom line: money in, money out, and perhaps some money left over.
We want to understand how money flows through the firm.
This entails comprehending the volumes (how our costs/prices are determined) and frequency (how frequently we receive repeat customers/bills).
Cost structures are the 7-8 largest expenditures – how much we spend, how frequently we spend it, and whether or not it fluctuates as sales fluctuate.
Rent, labour, raw materials, advertising, setting up the store, or paying commissions to other parties are examples of these.
Revenue Streams are the pricing that each sort of consumer normally pays, as well as the frequency with which they return.
This distinguishes major spenders from one-time consumers and shows which items are purchased upfront vs those acquired over the next months and years.
While these boxes do not substitute a complete financial model, they do allow us to construct fundamental estimates such as contribution margins and breakeven points.
It also allows us to consider our price approach – intelligent pricing may significantly boost the profitability of your new firm.
Step 6: Assumptions Testing
Simply writing something witty on a canvas does not make it a reality.
As a result, we begin by assuming that all of the words on the page are assumptions, and our next task is to test them, beginning with the most important.
This is made easy for me by using a basic Test Card, which asks you to define the major assumptions, choose a method of assessing the truth, and establish pass/fail criteria.
Simply drawing something clever on a canvas does not transform it into a reality.
As a consequence, we start by assuming that all of the words on the page are assumptions, and then we test them, starting with the most significant.
This is made easier for me by utilising a simple Test Card, which asks you to identify the primary assumptions, select a method of determining the truth, and construct pass/fail criteria.
Why use the Business Model Canvas?
Business models are critical for both new and existing companies. They assist new and expanding businesses in attracting investment, recruiting talent, and motivating management and workers.
Established firms must change their business models on a regular basis or they will fail to predict future trends and issues. Business models also assist investors in evaluating firms of interest to them, and workers in understanding the future of a company they may want to work for.
7 Business Model Canvas Examples
1. Google (Technology company)
2. Apple (Technology company)
3. Amazon (E-commerce company)
4. Microsoft (Technology company)
5. Tesla (Automotive Company)
6. Starbucks (Coffeehouse company)
Frequently asked questions
1. When should you use the Business Model Canvas?
The business model canvas is an excellent tool for understanding a company model in a plain, organised manner. Using this canvas will provide insights into the clients you serve, what value propositions are supplied through which channels, and how your firm generates revenue.
2. How do you know if your business model will be successful?
A good company strategy simply requires more money from customers than it costs to manufacture the product. Simply put, this is your profit.