Table of Contents
- What’s the Business Model Canvas?
- How do you get started?
- Why use the Business Model Canvas?
- When should you use the Business Model Canvas?
- How do you use the Canvas to facilitate alignment and focus?
- Step 1 (of 10): Customer Segments
- Step 2 (of 10): Value Propositions
- Step 3 (of 10): Channels
- Step 4 (of 10): Customer Relationships
- Step 5 (of 10): Revenue Streams
- Step 6 (of 10): Key Activities
- Step 7 (of 10): Key Resources
- Step 8 (of 10): Key Partnerships
- Step 9 (of 10): Cost Structure
- Step 10 (of 10): Applications, Analysis & Next Steps
- Example A: Enable Quiz (Startup)
- Example B: HVAC in a Hurry (Enterprise)
- Using the Google Doc’s/PowerPoint Template
- Talk Back
What’s the Business Model Canvas?
If you’re already familiar, you can skip to the next section, ‘How do I get started?’.
The Business Model Canvas (BMC) gives you the structure of a business plan without the overhead and the improvisation of a ‘back of the napkin’ sketch without the fuzziness (and coffee rings).
The Canvas has nine elements:
Together these elements provide a pretty coherent view of a business’ key drivers–
- Customer Segments: Who are the customers? What do they think? See? Feel? Do?
- Value Propositions: What’s compelling about the proposition? Why do customers buy, use?
- Channels: How are these propositions promoted, sold and delivered? Why? Is it working?
- Customer Relationships: How do you interact with the customer through their ‘journey’?
- Revenue Streams: How does the business earn revenue from the value propositions?
- Key Activities: What uniquely strategic things does the business do to deliver its proposition?
- Key Resources: What unique strategic assets must the business have to compete?
- Key Partnerships: What can the company not do so it can focus on its Key Activities?
- Cost Structure: What are the business’ major cost drivers? How are they linked to revenue?
The Canvas is popular with entrepreneurs and intrapreneurs for business model innovation. Fundamentally, it delivers three things:
- Focus: Stripping away the 40+ pages of ‘stuff’ in a traditional business plan, I’ve seen users of the BMC improve their clarify and focus on what’s driving the business (and what’s non-core and getting in the way).
- Flexibility: It’s easier to facilitate alignment by tweaking the model and trying things (from a planning perspective) with something that’s sitting on a single page.
- Transparency: Your team will have a much easier time understanding your business model and be much more likely to buy in to your vision when it’s laid out on a single page.
How do you get started?
The first time you engage with the canvas, I recommend printing it out or projecting it on a whiteboard and going to town (see below for a PDF). However, if you’re ready to put together something a little more formal (for distribution, presentation, etc.) here’s a Google App’s template you can copy or download as MSFT PowerPoint:
LINK TO THE DOWNLOADABLE TEMPLATE
If the canvas is working for you, you’ll probably end up editing it a lot and presenting it, so there are a few options below for documenting your canvas in an editable format:
|Canvas Presentation||Printable PDF||Google Doc/PowerPoint||Omnigraffle*||Stratygizer Web App|
|Good for…||Brainstorming alone or in a small group||Documenting the Canvas in Google Doc’s or MS Office (PowerPoint)||Documenting a canvas (if you have a Mac & Omnigraffle)||This is a nice tool and very robust.|
|By the way……||You can take any of these and project them on to a whiteboard for group sessions||This uses the presentation app in Google Doc’s, which does a pretty good job of exporting to PowerPoint.LINK TO INSTRUCTIONS||This one uses layering to manage the canvasLINK TO INSTRUCTIONS||This one needs a little more set up but has lots of features|
*Omnigraffle a popular diagramming program for the Mac. It has a fairly easy to use layering environment which you may find handy as you want to tinker with and produce different views of the canvas. You can try Omnigraffle for free (the basic paid version is $99).
Why use the Business Model Canvas?
The short answer is this: because it’s simple yet focused and that means more of your audience is likely to pay attention to it. Also, it’s highly amenable to change on the margins.
This matters a lot- more than most people think. A company that wants to innovate has to be ready to be wrong. A good VC in early stage investments succeeds with a prevalence of something like a 1/10. If you think you’re doing a lot better than that with substantial new innovation investments (a startup or a new line of business inside an enterprise) you’re probably throwing good money after bad.
Transparency, simplicity, and focus are great facilitators of the ‘creative destruction’ a good innovation program needs, and the Canvas does a nice job of delivering that across lines of business. For a large corporation with multiple lines of business at various levels of maturity, I actually prefer the Corporate Innovation Canvas as a starting point. However, from there, the Business Model Canvas does an excellent job of bringing clarity to the questions of how, for example, a given line of business creates focus and then implements it in an innovation-friendly way with, for example, ‘objectives and key results’ OKR’s. It’s a central element in the ‘innovation stack’ where an enterprise is able to go from priority innovation areas (with the Corporate Innovation Canvas) to testable business model designs (with the Business Model Canvas) to product charters (with an agile team charter) to individual learning pathways to cultivate the talent they need to execute.
Even more important than the top down cascading of objectives with testable results and KPI’s is the improvement in the feedback in outcomes that helps the overall innovation program learn and adapt quickly. With layer appropriate innovation metrics, it’s much easier for the achievements of individuals to cohere (or not) to the job of teams and in turn from there to lines of business back up to corporate objectives. This helps both help the company’s talent understand where they might benefit from more practice and learning as well as what constitutes success in their individual roles and collaborations.
When should you use the Business Model Canvas?
Anytime you want to have a focused discussion about what matters to a given line of business, the Business Model Canvas is a good place to start. The Canvas has received a lot of attention as a tool for startup entrepreneurship. While this may be one of the ‘sexier’ and more ostensibly simple applications of the Canvas, I actually think it’s one of the least compelling. For a startup, the only thing that matters is product/market fit, which the Canvas represents as a set of relationships between Customer Segments and Value Propositions. The Canvas doesn’t do a bad job of describing this, but it’s kind of overkill- the whole left side of the Canvas which describes the delivery infrastructure is mostly irrelevant for startups that are still finding product market fit, since all that’s provisional about where (and whether) they arrive at product/market fit.
Where the Canvas really shines is describing an existing line of business to answer questions like:
a) What does product/market fit mean for this business?
b) Where have we focused our company building and is it still relevant to ‘a’?
c) What are our key revenue, cost, and profit drivers, and how do we improve those?
Now we’re taking! Whether you’re an ‘intrapreneur’ exploring a new extension to the business or a ‘digital transformation’/IT consultant trying to facilitate a discussion about what ‘strategic IT’ means and how you’ll know if you achieve it, the Canvas is a quick and productive place to anchor such a discussion.
How do you use the Canvas to facilitate alignment and focus?
First and foremost, I’d try it out for yourself. Fill out the elements the business you’re working on and then ask yourself ‘Does this make sense?’ ‘What are the most important linkages and components of the model?’
From there, you may just want to use the Canvas you sketch to facilitate alignment on some other topic. However, if you’re working with a team on a new venture or with a client on a new project, you may then want to take it from the top and facilitate a workshop where you facilitate a fresh take on the Canvas, levering your experience thinking through it once. The link below will take you to a related curriculum item that has workshop slides, prep. items, and agenda.
Otherwise, the next sections (10 steps) offer a tutorial on how to think through a business model design with the Canvas. The closing sections offer notes on how to use the Google Doc’s/PowerPoint and Omnigraffle templates.
Step 1 (of 10): Customer Segments
For purposes of using the canvas you should make sure you can answer these questions:
1. Segment Dimensions
Do you have a single or multi-sided market? If you have a multi-sided market you’ll have at least as many segments as you have sides. An example of such a market is a media property like CNN.com: they have readers on the one side and advertisers on the other.
2. Segment Composition
If the segment dimensions are the ‘macro’ analysis of your customer base, then looking within each segment at individual customer types as ‘Personas’ is the ‘micro’. As with economics, this is where most of action happens. You should be able to visualize these Personas- what kind of shoes do they wear? And you should understand what they think, see, feel, and do in your product area. Be sure to list both buyers and users of your product (many Personas will be both). For coaching on this, check out: Tutorial- Personas.
3. Problems, Needs, Habits & Current Alternatives
What job are you doing for the customer? What need are you fulfilling? There are no new behaviors- make sure that you can identify an existing need/problem and identify specific alternatives that your customer uses today. If you’re not sure, go out and observe, talk to some representative people. You’ll want to be able to clearly link your Value Propositions back to these in the next section.
Output: a list of Personas, organized by Customer Segment if you have more than one segment. I recommend trying to prioritize them- Who would you pitch first if you could only pitch one? Who next? And so forth…
Notes: If you’re spending a lot of time on this first item, that’s OK (and it’s probably good). The Canvas is a tool, not a strategy and not all the nine blocks are equal. The pairing of Customer Segments and Value Propositions is really the ‘independent variable’ that should be driving everything else in your business model. When I use the Canvas in my Venture Design classes, we usually spend all of the first session (plus time for field research) on Customer Segments and Value Propositions.
Step 2 (of 10): Value Propositions
Which of the Problems or Needs that you identified in your Personas are you fulfilling? What is unique about your Value Propositions and why does your customer prefer them to their Current Alternatives? You may have a whole lot of these- and that’s fine. When you’re getting going with this, jot them all done on a whiteboard, index card, Post-It, etc. But then rank them and you’ll probably want to winnow out all but the most critical. What things do you do that actually cause a customer to pick you over a competitor or alternative?
For example, at Leonid, an enterprise software company I founded, we thought our largest customers worked with us because of the cost savings we offered and our knowledge about best practices. It turned out that was mostly wrong- reducing their time and risk to get new services to market was the most important. It’s not that the other things weren’t important, but they weren’t the top Value Proposition. That made a difference on how we sold the product and how we focused on operationalizing it for customers.
Once you’ve isolated these, try mapping them to the Customer Segments; it will look something like this:
LINK TO THE DOWNLOADABLE TEMPLATE
This mapping says ‘We have 3 personas. Persona 1 cares about VP 1 & 2. Persona 2 cares about VP 2; Persona 3 cares about VP3. (One segment only so segments not noted)’.
Output: a prioritized list of Value Propositions and linkages from each Personas to the VP’s relevant to them.
Notes: Again, this pairing is the key driver for most business models and if you want more on how to describe and discovery what to put in this part of the canvas, I recommend this: Tutorial- Personas.
Maybe you feel like you’re in good shape on understanding the customer’s world but you don’t have any validation on whether the Value Propositions are clicking because this is a new venture? If you’re not sure, that’s OK and good for you for acknowledging the uncertainty! It’s the responsible thing to do. The key is to write down those assumptions, prioritize them, and figure out the quickest and cheapest way to prove or disprove them. That’s what Lean/Startup is about and there are resources here to help you with that, if you’d like- Tutorial: Lean Startup.
Step 3 (of 10): Channels
Channels includes entities you use to communicate your proposition to your segments, as well as entities through which you sell product and later service customers (see AIDAOR journey below). For example, if you sell bulbs for light houses and there’s a website all light house attendants purchase equipment, that site is a sales Channel. If you use Google AdWords, that’s a Channel, too (for getting attention). If you use a third party company to service the bulbs when they break, that’s also a Channel.
Output: a list of important Channels, linked to Personas or Segments if they differ substantially. Make notes on what steps are relevant for each- promotion, sales, service, etc. See Note this section for more structure on this.
Notes: Channels and the next item, Customer Relationships, define your interface with the Customer. It’s important to think all the way through the customer ‘journey’ in specific terms. For most businesses, the way they get a customer’s attention is different than the way they onboard them or support them over the long term. For this, I recommend the AIDA.OR framework (attention-interest-desire-action-onboarding-retention) and storyboarding your way through it. Here’s a post explaining all that- Storyboarding AIDA(OR). If you don’t want to do the storyboards, I recommend at least making notes about your customer journey through the AIDA(OR) steps.
Another consideration is whether your channels will give you enough visibility into the user, including, for example, a way to follow up with users. Not sure? Document your assumptions Lean Startup style and figure out how you’ll quickly prove or disprove them.
Step 4 (of 10): Customer Relationships
How does the customer interact with you through the sales and product lifecycle? Do they have a dedicated personal contact they see? Call? Is all the interaction over the web? Do they never see you at all but instead talk to a Channel? A few litmus test questions you may want to ask yourself at this point:
– Can the Value Proposition be delivered to the Customer this way? All the way through from promotion, to sale, to post-sale service? (See AIDAOR above on this.)
– Can you make the numbers work?
– Is there a premium support product you need to create/test? Many companies, like Apple, have rejected the false choice of ‘Do we provide phone support or not?’ instead offering personal support for a reasonable charge.
Output: a description of Customer Relationships, with notes if they differ across Customers (between Segments or among Personas within a Segment) or across the customer journey.
Notes: If you’re a startup, be sure to document and review critical assumptions here. Also, the focal items are in a kind of specific order- you should validate your Segments and their relationship to the Propositions above all else. If this means you provide personal support in the early days (a ‘concierge test’ in Lean Startup terms) to do discovery and validation of Segments and Propositions, that’s OK. You can subsequently test the Customer Relationship models. (Here’s a post on using consulting as a concierge vehicle in B2B if you want more detail: Consulting as B2B Concierge Vehicle).
Step 5 (of 10): Revenue Streams
I won’t bore you with proclamations about the importance of revenue- you get it. If you have an existing business, this will be self-evident.
At this point, you should map Segments to Propositions to Revenue Streams. The example below says ‘Revenue stream 1 is driven by Persona 1′s involvement with Propositions 1 & 2; Revenue Stream 2 is driven by Persona 2′s involvement with Proposition 2; and Revenue Stream 3 with Persona 3′s involvement with Proposition 3.’ That’s relatively diverse- yours may be much simpler and that’s fine.
Output: a list of Revenue Streams, linked (mutually) to Personas (or Segments if the mappings are the same within a set of Personas) and Value Propositions
Notes: If you have a startup or are re-engineering the business, this is a time to look at where you’re driving revenue and whether it aligns with the rest of your focal points. Are you charging on value? Perceived value? They say everyone loves their banker; hates their lawyer. Why is that? Is there an actionable analog in your business?
Congratulations on making it halfway! At this point, you may want to step back and look at the picture you’ve created about your Offering and Customers. The next four steps deal with your ‘Infrastructure’, the plumbing you need to execute:
Step 6 (of 10): Key Activities
These are the crucial things the business needs to do to deliver on its propositions and make the rest of the business work- for example, if selling through 3rd parties is part of the model, then activity around channel management is probably pretty important.
For a product-driven business, this probably includes ongoing learning about users and new techniques to build better product. If you’re focused on doing a bunch of things for a particular set of customers (ex: comprehensive IT for law offices), this probably includes maintaining superior expertise on the segment(s) and creating or acquiring products and services that are a good fit, whatever that entails. For an infrastructure business (ex: electric utility), it probably includes keeping the infrastructure working reliably and making it more efficient.
You’ll then want to consider how the Key Activities (and/or Key Resources) drive your Value Propositions:
Outputs: a list of Key Activities linked to your business’ Value Propositions.
Notes: One question this analysis should raise for you is whether or not certain Activities and Resources are actually core, actually focal to your business, something you’ll want to think through .
Step 7 (of 10): Key Resources
Key resources are the strategic assets you need in place, and you need in place to a greater or more targeted degree than your competitors. The Business Model Canvas proposes that there are three core business types: product, scope, and infrastructure. These tend to have similar types of Key Resources.
The following diagram describes how Key Activities drive the accrual of Key Resources:
Outputs: a list of Key Resources linked to your business’ Key Activities.
Notes: Product-driven businesses have a differentiated product of some sort. Rovio, the company that makes the popular app Angry Birds, is such a company. Key Resources in product-driven businesses are typically key talent in critical areas of expertise and accumulated intellectual property related to their offering.
Scope-driven businesses create some synergy around a particular Customer Segment. For example, if you started a business that would take care of all the IT needs for law firms, that would be a scope-driven business. These businesses typically have key knowledge about their segment, a repeatable set of processes, and sometimes infrastructure, like service centers.
Infrastructure-driven businesses achieve economies of scale in a specific, highly repeatable area. Telecommunications is traditionally an infrastructure business. Retailers focused on retail, like Walgreens or Costco, are primarily infrastructure-driven businesses. The Key Resources for this type of business are, you guessed it, various types of physical or virtual infrastructure.
Let’s take a single product category: diapers. The Honest Company or another innovating around compostable or otherwise more environmentally friendly diapers would be a product-driven take on the category. Procter & Gamble which has a cradle-to-grave strategy for providing consumer products is a scope-based take; so are various baby-focused retailers. Kimberly-Clark (wood pulp) or DuPont (chemicals and polymers) are both infrastructure-based takes: diapers is just another way to sell something they produce at scale with relatively little differentiation.
Step 8 (of 10): Key Partnerships
At this point, hopefully the Canvas has helped you sharpen and articulate your business’ focal points. What Activities and Resources are important but not aligned with what’s uniquely strategy for you? What’s outside of your business type? Could partners do some of those? Why? Which?
I recommend mapping Key Partners to Key Activities. If an activity is key, it’s still part of your business model. This is a way to denote which specific Partners are handling various Key Activities for you.
Output: a list of Key Partnerships with notes on their relationship to Key Activities.
Step 9 (of 10): Cost Structure
You’ve worked to understand how your Key Activities drive your propositions and hence your revenue. How do they drive costs? Are those costs well aligned with the key Value Propositions? Are the costs more fixed or variable as you test different business models? Are they more linear with your scaling or more fixed? You’ll want to have these in mind as you tweak your model.
For purposes of linking things together, I’d look at how your Key Activities drive your Cost Structure:
If there are major cost components that don’t map to a Key Activity, I’d take a closer look at those costs.
Output: a list of Cost Structure elements with notes on their relationship to Key Activities.
Congratulations- you have a working canvas! The section below offers a few analytical ideas and suggestions for next steps.
Step 10 (of 10): Applications, Analysis & Next Steps
The most core and obvious applications of the Canvas are to ask:
– Does it make sense?
– Could it be better?
– Does the rest of my team understand and agree? Have additional ideas?
– (rinse and repeat at least quarterly)
The canvas does a good job of helping you figure out your business, which is a good place to start. You also want to look at the competitive environment and think about if and how you have/maintain a long term competitive advantage.
For this, I like Michael Porter’s Five Forces framework (Wikipedia Page; see also Chapter 2 of ‘Starting a Tech Business‘). Try walking through the Five Forces for your company and then bounce back to your canvas. How does it all hang together?
Every business is a work in progress (sorry, I try to avoid saying things like that but it seemed to fit here). As you go through the canvas, you may encounter areas that give you trouble. The table below summarizes a few of the most common that I see in my work as a mentor and coach:
|You’re having trouble crystallizing your Customer Segments and Value Propositions||I recommend the material here on Personas.|
|You’re looking for a more end-to-end view of how to design the venture- customer discovery, Lean-style experimentation, product design, product development.||The Hypothesis-Driven Development materials provide a more comprehensive view of how to approach a new product or venture.|
Example A: Enable Quiz (Startup)
What is Enable Quiz?
Enable Quiz is a (fictional) startup that’s building a lightweight quizzing application for companies that hire a lot of technical talent (engineers). Their take is:
For hiring managers who need to evaluate technical talent, Enable Quiz is a talent assessment system that allows for quick and easy assessment of topical understanding in key engineering topics. Unlike formal certifications or ad hoc questions, our product allows for lightweight but consistent assessments of technical talent.
Why and how would Enable Quiz use the Business Model Canvas?
They have a small team, but arriving at a clear, shared understanding of what they’re after is still important. That said, it’s important that the way they talk about this is both highly visible and amenable to change. Given that, the Canvas is a good fit.
The Business Model Canvas at Enable Quiz
This page shows Enable Quiz’s current working view of product/market fit:
Example B: HVAC in a Hurry (Enterprise)
What is HVAC in a Hurry?
HVAC in a Hurry is a mid-sized enterprise that services commercial HVAC (heating, ventilation, and air conditioning) systems. Their take on the business is:
For facilities managers & business owners who need their heating & cooling systems managed and repaired, HVAC in a Hurry is a full service provider that allows for easy and responsible management of a business’ HVAC systems. Unlike smaller firms, our commitment to best practices and training allows customers to worry less and realize superior total cost of ownership for their HVAC systems.
Why and how would HVAC in a Hurry use the Business Model Canvas?
HVAC in a Hurry has a working version of product/market fit. However, their industry is competitive and successful firms increasingly use technology to improve customer experience (CX) and reduce cost (overhead) in their operations. HVAC in a Hurry has a small ‘digital transformation’ team that’s working on digital applications to improve the company’s performance. This team decided to use the Canvas to ‘manage upwards’ in order to facilitate better discussions about where they should focus, how that aligns with the business as a whole, and what success definition makes sense for them.
The Business Model Canvas at HVAC in a Hurry
Here’s their current view of product/market fit:
Using the Google Doc’s/PowerPoint Template
If you’re not familiar with it, Google Doc’s is a web-based office suite, similar to MS Office. If you have a gmail account, you can access it (no guarantees- that was the case last time I checked).
First, you’ll want to link to the template file: BUSINESS MODEL CANVAS TEMPLATE IN GOOGLE DOC’S.
Once you’re accessed the file, you can make make it your own by going to the File menu and either ‘Make a copy…’, creating a copy in your own Google App’s domain or you can use the ‘Download as…’ option to download it as PowerPoint (and a few other formats).
Probably the most key thing here is that I set it up so you edit the list of Canvas items (Segments, Relationships, etc.) in the Slide Master. I know what you’re thinking- I hate those Master things and I never use them. Generally, neither do I. But in this case it’s a good way to achieve some rudimentary layering, allowing you to do show things on top of the Canvas without having to recopy all the elements. You’ll see what I mean on the file. The key thing is that to edit the list of Canvas items: Go to the ‘View’ menu, then go to ‘Master’ and edit the first slide you see under the Layout label over on the left:
Last note: The lines with multiple bends that you see are called a ‘Polyline’ in Google Doc’s. If you click the downward arrow on the line item in the menu bar, you’ll see it.
What’s your experience with the Canvas? How have you used it? What worked? What didn’t? Please consider posting a comment!