Anyone who reads my blog regularly will know that I generally write about responsible leadership and social responsibility in business, however it was requested recently on Twitter that I provide a few blog posts which cover more general business and leadership themes. I have therefore decided to respond to this request and I will be starting this new series of blog posts by presenting an overview of the ‘Business Model Canvas‘. This is a popular tool and it is great to use when devising business plans. In addition I have provided a FREE PDF download of the business model canvas which you will find at the end of this article.
What is the ‘Business Model Canvas’?
The Business Model Canvas is a tool which provides a structured template for business planning. The model was first proposed in 2008 by Alexander Osterwalder and it has grown in popularity over recent years. It is applicable to new business model creation and also the development of existing business models. It offers a visual chart covering the key elements associated with business model planning.
The Nine Elements of the Business Model Canvas
1. Value Proposition
This refers to the collection of products and services that a business offers in order to meet the needs and desires of their customers. The value proposition should be what makes the business unique from all other competitors. Value can be expressed through design, price, performance, customisation, accessibility, technology or any other similar means.
2. Customer Segments
A business must understand exactly who their customers are in order to maximise their potential for income. Customers can be segmented based on their different needs, attributes and interests. This process will ensure that communications and marketing strategies reach the right people. A business may have one or multiple customer segments depending on the nature of their work.
Once a business has devised its value proposition and identified its customers it will need to establish the best channels in which to communicate. A business needs to find channels which allows it to effectively distribute its value proposition in the fastest, most efficient and most cost effective way possible. Channels may include the business’ website or newsletters or could also include external channels such as a distributor or social media.
4. Customer Relationships
Customer service, care and retention should be at the heart of every business. Typically speaking it is difficult to get new customers so once a business has a new customer it should do everything in its power to keep them. Businesses need to identify the strategies they will use in order to maintain a positive relationship with their customers over the long-term.
5. Key Activities
By this stage the business will now have a fairly good idea of what it hopes to achieve. Now is the time to begin identifying the key activities that need to take place in order to make progress on the business plans. In other words, what activities and tasks need to be performed in order to implement the value proposition and reach the customers that have been identified?
6. Key Resources
What resources are required to turn the value proposition into a reality? The business should consider a wide range of resources including human, financial, equipment, facilities and time. Knowledge, experience and skills of employees should also be considered within this section of the business model canvas.
7. Key Partners
The term partners does not refer to business partnerships in the traditional sense but rather it refers to any external organisations who the business plans to partner with in order to deliver their value proposition. These partners may include buyers, suppliers, subsidiaries, joint ventures, trade groups, regulatory bodies and alliances with other businesses.
8. Cost Structure
The final two sections of the business model canvas are associated with the financial aspects of the business. It is all very well having a solid value proposition but unless it can be delivered in a financially viable way it will simply not work. Exploring the cost structure will ensure the business understands what costs and expenditure it will need to cover. Considerations may include fixed costs, variable costs, sunk costs and over-heads along with any other relevant expenses.
9. Revenue Streams
Businesses need to understand where their income is going to come from and if it is likely to exceed the amount proposed in the cost structure. Income can be obtained in a number of ways and this section of the business model canvas encourages the business to think beyond simply selling a product to a customer by exploring other forms of income generation. Additional revenue streams may include subscription, rental, licensing, advertising, affiliate sales and many more.
Benefits of Using the Business Model Canvas
The most important benefit of using the business model canvas when planning your business activities is that it provides a comprehensive overview of the key topics. This ensures you do not miss any fundamental elements from your plan. If you are starting a business for the first time and don’t know where to begin the business model canvas provides clear guidance and direction.
When used in a group setting it may be useful to print out a large business model canvas and use Post It Notes to stick onto the plan. This way everyone can write and contribute equally without waiting for the pen and it also allows for flexibility and continuous adjustment. The simplistic structure of the model also helps to limit the planners’ ability to waffle and get side-tracked thus maintaining focus on the core principles at all times. This can be a great way to initially brainstorm business ideas and financial viability.
If a more formal business plan is required, such as for presentation to investors, then this model will ensure you have all the key information you need in a structured format. The information collected on the canvas can be transferred directly into a formal document and simply smartened-up and refined for presentation. The business model canvas is a very popular and useful planning tool that can be used for any business: big, small, new or established. If you would like to use the business model canvas I have created a PDF version which you can download by clicking the images provided below:
FREE PDF DOWNLOADS