Joe Johnson, Ph.D.
Entrepreneur. Investor. Startup Expert.
Introduced in his book Business Model Generation by Alexander Osterwalder, the Business Model Canvas (BMC) provides entrepreneurs with a way to conceptualize their businesses in a format that’s simpler than a business plan, yet still captures the essentials. It can be utilized as a roadmap to help guide growth, as a means of checking a business idea’s validity and feasibility, or merely as a means of formally recording your business model so you can get to work.
A BMC focuses on nine principal components that are similar to those found in a traditional business plan. It’s intended to be an iterative document that’s easy to amend as goals and/or needs change over time. Plus, it’s easy to understand. For individuals who’ve elected to bootstrap, a BMC may provide a superior means (vs. a traditional business plan) of plotting out an idea.
To get started with a BMC, you’ll first need to either locate a template you like or create your own. Strategyzer, the company co-founded by Osterwalder that capitalizes on the success of the BMC concept, offers a sharable free template under a Creative Commons license. In return, Strategyzer asks only for acknowledgement and a backlink when it’s shared.
If you’re creating your own BMC, it should contain these nine components:
- Customer Segment
- Value Propositions
- Customer Relationships
- Revenue Streams
- Key Resources
- Key Activities
- Key Partnerships
- Cost Structure
While you can treat this as a one-page outline to expand upon in a traditional business plan, it can also stand on its own. You can create a template of any size or simply enlarge it on your whiteboard.
A BMC can utilize sticky notes, colors, drawings, or photos – whatever works best for you and your business. The goal is to tell the story of your business in a way that illuminates how best to bring value to your customers.
In order to tell that story, you’ll need to focus on detailing and describing each of the nine components. As you work through them, consider what an outsider or an investor might ask about each one in order to ensure that you’re providing sufficient information. Be clear and concise, but don’t skimp on information when it’s needed.
As you’re working through your canvas, don’t be afraid to start over or alter your original idea. Doing so is definitely part of the process. If you find that you’re missing a component or that something doesn’t make sense, it’s necessary to brainstorm and problem-solve to give your BMC the best possible chance of success. Also, you don’t necessarily have to stop after completing a single BMC. If you have multiple ideas, the process of creating multiple BMCs may help you determine the best course of action. It can also be a very useful decision-making tool.
As we progress through the BMC’s different components, you’ll notice that we aren’t working left-to-right. In fact, we’re starting at the upper-right corner and then jumping to the middle. This is the method describe by Osterwalder and should hopefully prompt you to consider how the various pieces fit together and influence each other.
Your customer segment is your target audience or audiences. Who are they? What’s their buyer persona? If you have more than one customer segment (e.g. if you offer both B2B and B2C services), you’ll want to clearly delineate each segment and ensure that you address the different ways in which your business will serve each one.
Your value proposition is your product or service. It’s your solution to your buyer persona’s specific need or issue. How is your value proposition unique and how will it help your customer segment?
If you have two or more customer segments, you should have an equal number of value propositions – one for each segment. Why? Well, the product or service that you provide to your B2B clients, for example, won’t be exactly same as what you provide to your B2C clients. It’s important to clearly differentiate here in order to help you better design and describe your business.
As you detail your value proposition, make sure that you’re setting yourself apart from the competition.
How will you get your products and/or services to your customers? Will you be focusing on selling goods online or in a brick-and-mortar shop? Will you be providing in-home service(s)?
In this segment, you should describe your actual delivery mechanism. Consider whether there’ll be any intermediaries such as manufacturers or service centers. If necessary, differentiate the channels by customer segment if they require different delivery methods or models.
How will you interface with your clients or customers? Will your activities be restricted to the sale of products and/or services or will you also provide post-sales support? Will you conduct business online, over the phone, or in person? Consider the various costs and benefits (e.g. premium support services vs. self-service model) and how they’ll affect your business. This is important because it relates directly to your brand, as well as to your company’s day-to-day operations.
Now that you’ve identified your customer segments, your proposed products and/or services, how you’ll be providing those products and/or services, and the extent of customer interaction, it’s time to determine how you’ll make money.
- Possible revenue streams include:
- Product or Asset Sales
- Usage Fees
- Leasing or Renting
- Brokerage Fees
- Advertising Fees
How is your company planning to make money? Will different segments have different revenue streams? For example, you may notice that many online retailers offer visitors the ability to purchase their products – but they also host advertisements on their pages. They generate revenue both by selling their own products and from providing advertising space.
At this point, the right-side of your BMC template should be completed. Most of it was customer-oriented; now it’s time to focus on the business itself.
What resources will you utilize to make your value proposition possible? Depending on the specific products and/or services you’re providing, your key resources may include talented staff, physical components, machinery, intellectual property, etc.
In what sort of activities will you need to partake in order to make your value proposition possible? Will you need to attend trade shows or cold call IT firms? Will you contact retailers to pitch them your innovative POS? List any activities here that are necessary to produce your value proposition. Consider whether you’ll require research and development or focus groups. Will you need specialized training or certifications?
Your key partnerships are the individuals, groups, and companies who’ll help make your value proposition a reality. These can include suppliers, manufacturers, and more. List those entities here. If you haven’t yet established those relationships, detail how you’ll work toward creating them in the future.
Most of your model is now laid out. You’ve specified the products and/or services you’ll be providing and to whom. You know how you’ll be providing those products and/or services, how you’ll be interfacing with clients or customers, how you expect to generate revenue, and the key resources, activities, and partnerships necessary to make it all happen. Now it’s time to evaluate the costs of running your business and determine whether it can be successful in its current iteration.
When determining your cost structure, be sure to keep all of the other components in mind. For example, if you’ve determined that you’ll be selling loose-leaf tea and accessories at a brick-and-mortar location, you’ll need to ensure that your cost structure accounts for the wholesale costs of your products, your rent and utilities, your staffing needs, your advertising requirements, and more. Remember that some costs change over time while others remain the same. Thoroughly examine each component for information on expenditures. Don’t forget to account for one-time costs such as the purchase of furniture or display cases.
The Business Model Canvas has proved to be a popular alternative to traditional business plans and it’s not difficult to see why. With a focus on drawing connections between components and clearly illustrating the ways in which your value proposition will benefit your customers and lead to revenue, you can use the BMC to test your business hypotheses.
Whether you’re evaluating full-fledged business concepts or new ideas within an established company, the BMC framework may save you time and money – or even help you conceive of an entirely new idea for providing value to your customer.
About the Author
Dr. Joe Johnson is an entrepreneur, investor, and startup expert. He is the founder and principal of GoodField Investments and the GoodField Foundation (www.GoodField.com).
Joe has a Ph.D. in Entrepreneurial Leadership and an MBA. He is the author of the upcoming book on The Science of Why Most Entrepreneurs Fail and Some Succeed.
Most importantly, he is the incredibly blessed husband of one amazing wife and father of six wonderful children. He resides in Bradenton, Florida. For more information on Dr. Johnson and his work, go to www.JoeJohnson.com.