Startup Playbook

What Is Business Model Canvas and Why You Need One

An amazing startup idea got into your head but you’re struggling with writing a detailed business plan? Try using a business model canvas! This one-page technique may be the solution you’ve been looking for all this time.

This article will give you a clearer picture of the business model generation following simple instructions.

Why the canvas model is a strategic management tool

The main purpose of a business plan is to describe how your business intends to make money. The canvas model is a strategic management tool that allows you to effectively visualize and assess your business concept on a single page.

Most business model canvas (BMC) examples contain nine boxes representing core elements of a business and may serve as an excellent pitch deck template to attract investors.

A business model canvas template, or “lean canvas,” was developed by Alex Osterwalder and Yves Pigneur and introduced in the book “Business Model Generation” as a framework for planning and testing the business model of an organization.

The left side of the BMC focuses on your business and internal factors of your enterprise which you can control like Key Activities, Key Resources, Key Partners, and Cost Structure.

The right side of the canvas represents external factors and things you can’t influence directly like your Customer Segments, Customer Relationships, Distribution Channels, and Revenue Streams.

The center of the framework is the Value Proposition, which serves as an exchange point between your business and your customers.

The very process of filling out this framework will help you conduct research on each aspect of your business. All the collected data can serve as an excellent pitch template to find a co-founder to help you build an MVP or find a mentor who could help you pinpoint the strengths and weaknesses of your business or even attract investors.

How to create a business model canvas?

Let’s dive deeper into what the nine building blocks of the BMC are and how to fill them properly. This information will help you better understand your business and become an excellent template for a pitch deck in the future.

Customer segments

Customer segments are basically groups of people and companies you are trying to reach out to. Look for similarities like age, gender, user behavior, geographical area, interests, and other relevant things.

Depending on your business model, you may target a specific niche, mass market, or even customers with very different needs.

After you have done your research, create a customer persona for each segment. This will help you better understand your customers' pains and customize your approach to create perfect marketing campaigns.

Customer relationships

The customer relationships section of your business canvas represents how you are going to interact with different customer segments on their journey with your company.

There are several ways you can arrange this interaction. Some companies choose a more personal approach and communicate with their customers directly via phone calls, live conversations, emails, chats, or any other means.

Other businesses prefer not to interact with their customers directly and offer them self-service. In this case, companies provide their customers with some sort of user guides and/or a slew of automated services to perform all interactions with your products by themselves.

Communities also serve as an effective channel of communication with the public. People can give feedback on your products, exchange opinions, or help each other to solve their problems on their own.

Sometimes companies engage in co-creation with their clients and give them the freedom to create content for their audience, like social media.

Creating a customer journey map in addition to your business model canvas will help you better understand the stages your clients go through while interacting with your business.

Distribution channels

The distribution channels section describes the means your company connects with the customers. Although there is a word “distribution” in the name of this section, the true purpose behind it is not only to deliver your value propositions, but to spread the word about your company and raise brand awareness.

The company may use its owned channels (a website, social media, etc.) or act through partner channels (marketplaces, partner websites, retail, etc.).

Revenue streams

The revenue streams section is responsible for sales and represents sources from which your company generates money. The model of revenue stream can be either transaction-based made from single-time payment or recurring made from ongoing payments from subscription or post-sale services.

Your business can stream revenues not only from selling the right of ownership for a product (asset sales) but also for providing this right for a limited time (leasing or renting), as well as by charging for single-time use (usage fee) or on a regular basis (subscription fee).

You can also charge customers for permission (licensing) to use your intellectual property, acting as an intermediary (brokerage fees) between parties, or allowing them to promote their products on your platform (advertising).

Key activities

The key activities section must be filled with tasks your company needs to perform to achieve its business goals.

Those activities must include fulfilling your company’s value proposition, delivering it to all customer segments, maintaining relationships with your customers, and, of course, generating income.

There are three general categories which are:

  1. Production - when a company manufactures and delivers a product.
  2. Problem-solving - offering a new solution to a customer’s pain.
  3. Platform - developing and maintaining platforms that will support third-party products.

Key resources

The key resources section represents the resources you need to perform key activities, in order to deliver your value proposition.

There are four main types of resources:

  1. Human - your employees
  2. Financial - investments, grants, cash, lines of credit, etc.
  3. Physical - inventory, buildings, machinery, any other equipment.
  4. Intellectual - your company’s brand, patents, IP, copyright, etc.

Key partners

In the Key partners section, you will put all your suppliers and other external companies helping you carry out the key activities. Forge partnerships to acquire necessary resources and reduce potential risks.

There can be several types of partnerships including:

  1. Joint venture - when partners develop a new business together.
  2. Strategic alliance - when non-competitors form a partnership to strengthen their positions.
  3. Buyer-supplier relationship - when one company provides the other with resources to carry out its key activities.

Cost structure

The cost structure section will help you identify what it takes to operate your business. Examine the costs of creating and distributing your value proposition, maintaining customer relationships, and creating revenue streams.

Your company may either focus on minimizing costs or providing maximum value in the selected price range.

Value proposition

At the heart of your business model rests the value proposition canvas. It represents the product or service you want to deliver to your customers that creates value for them or solves one of their problems.

It can be either quantitative (better price and speed of service) or qualitative (new customer experience or superior design).

To succeed, you should deliver a value proposition that is either unique or different from those offered by your competitors. When offering a new product, make sure it is innovative and disruptive. If you attempt to enter the market with a product that already exists, make sure it stands out among competitors, with new features and attributes.
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