2 The Business Model Canvas

One of the most accessible and straightforward approaches to developing, analysing and understanding a business model is the Business Model Canvas (Figure 2).

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Figure 2 The Business Model Canvas (click to view PDF) [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)]
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The Business Model Canvas is shown as a rectangular box split into nine smaller rectangles. Each rectangle represents a key area of a business. The rectangles are labelled (from left to right) Key partners; Key activities; Value propositions; Customer relationships; Customer segments; Key resources; Channels; Cost structure and Revenue streams. Under each heading is further text to help you understand the purpose of each key area:

Key partners

Who are our key partners?

Who are our key suppliers?

Which key resources are we acquiring from partners?

Which key activities do partners perform?

Motivations for partnerships

Optimization and economy; Reduction of risk and uncertainty; Acquisition of particular resources and activities

Key activities

What key activities do our value propositions require?

Our distribution channels?

Customer relationships?

Revenue streams?

Categories

Production; Problem solving; Platform/Network

Value propositions

What value do we deliver to the customer?

Which one of our customer’s problems are we helping to solve?

What bundles of products and services are we offering to each customer segment?

Which customer needs are we satisfying?

Characteristics

Newness; Performance; Customization; ‘Getting the job done’; Design; Brand/status; Price; Cost reduction; Risk reduction; Accessibility; Convenience/usability

Customer relationships

What type of relationship does each of our customer segments expect us to establish and maintain with them?

Which ones have we established?

How are they integrated with the rest of our business model?

How costly are they?

Examples

Personal assistance; Dedicated personal assistance; Self-service; Automated services; Communities; Co-creation

Customer segments

For whom are we creating value?

Who are our most important customers?

Mass market; Niche market; Segmented; Diversified; Multi-sided platform

Key resources

What key resources do our value propositions require?

Our distribution channels?

Customer relationships?

Revenue streams?

Types of resources

Physical; Intellectual (brand patents, copyrights, data); Human; Financial

Channels

Through which channels do our customer segments want to be reached?

How are we reaching them now?

How are our channels integrated?

Which ones work best?

Which ones are most cost-efficient?

How are we integrating them with customer routines?

Channel phases

1.Awareness

How do we raise awareness about our company’s products and services?

2.Evaluation

How do we help customers evaluate our organization’s value proposition?

3.Purchase

How do we allow customers to purchase specific products and services?

4.Delivery

How do we deliver a value proposition to customers?

5.After sales

How do we provide post-purchase customer support?

Cost structure

What are the most important costs inherent in our business model?

Which key resources are most expensive?

Which key activities are most expensive?

Is your business more

Cost driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)

Value driven (focused on value creation, premium value proposition)

Sample characteristics

Fixed costs (salaries, rents, utilities); Variable costs; Economies of scale; Economies of scope

Revenue streams

For what value are our customers really willing to pay?

For what do they currently pay?

How are they currently paying?

How would they prefer to pay?

How much does each revenue stream contribute to overall revenues?

Types

Asset sale; Usage fee; Subscription fees; Lending/renting/leasing; Licensing; Brokerage fees; Advertising

Fixed pricing

List price; Product feature dependent; Customer segment dependent; Volume dependent

Dynamic pricing

Negotiation (bargaining); Yield management; Real-time-market

Figure 2 The Business Model Canvas (click to view PDF)

(Note: If you are viewing the Business Model Canvas PDF on screen then zooming is required for readability. If you are printing this PDF then A3 size or larger is recommended.)

The Business Model Canvas approach was developed by Alexander Osterwalder (2012) and can be applied to organisations of any size, type or sector. It describes an organisation and its functioning in terms of nine specific areas:

  • Customer segments – the customer and market segments you serve.

  • Value propositions – how you solve customer problems and satisfy their needs.

  • Channels – how you deliver your unique value proposition to customers, including communication, distribution and sales channels, among others.

  • Customer relationships – how you maintain relationships with customers and customer segments and the types of relationship you have.

  • Revenue streams – income and revenue from the sale of your product, service or idea.

  • Key resources – the most important resources required to deliver your unique proposition to the market.

  • Key activities – what you actually do as a business in order to generate revenue streams and deliver your offer to the market.

  • Key partners – who you partner with outside the business in order to deliver your proposition, e.g. suppliers, distributors, etc.

  • Cost structure – the costs you incur and the way your costs are structured and managed.

(For more detail see Osterwalder and Pigneur, 2010.)

Activity 1 The role of the Business Model Canvas

Timing: Allow approximately 15 minutes to complete this activity

In this 3-minute video clip (Stanford eCorner, 2012), Alexander Osterwalder, creator of the Business Model Canvas, explains how it all fits together:

Alexander Osterwalder: The Business Model Canvas
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As you are watching, reflect on your business or a business you are familiar with. Can you see how each of the nine areas of the Business Model Canvas has a role to play in supporting business success?

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Discussion

An important issue to consider is that the information inserted in the categories of the canvas are coherent. This is a critical issue that affects the credibility of your business model and the feasibility of your entrepreneurial idea.

For example, if the channel chosen to target your key customers is not appropriate, your business model will be questioned. Using internet sales to target people who don’t use the internet means that your idea does not address your customers’ actual needs. In addition, costs and revenues that are not balanced mean that your business will not be financially sustainable, hence putting your venture at risk.

1 What is a business model?

3 Where do business models come from?