Understanding your business model is essential in no matter what organisation you are running. The model outlines how and why the business operates and how it interacts with its surroundings. Business modeling, however, requires a lot of thinking and strategizing.
Part of the process of coming up with one or more business models requires looking at your business from all angles. You should not only be thinking of your company in the present, but also its long-term sustainability as well. You’re not only thinking of your company’s relationship with its customers, but also to its employees and stakeholders, as well as to the society and the external environment.
One of the most prominent figures when it comes to business modelling is Alexander Osterwalder, a Swiss business theorist, author, consultant, and entrepreneur. He developed the now famous, Business Model Canvas, a strategic management and lean startup template used by startups across the globe. The canvas is ideal for business owners and managers looking to develop new products, services or entire businesses. It is also great for examining existing business models, in order to identify potential shortcomings and opportunities for improvement.
The Canvas has been replicated hundreds of times and is readily available on the Internet. Once you have it in hand or on your monitor, we can now start working on using it.
What is the Business Model Canvas?
The business model canvas is essentially a visual chart with elements that contain the value proposition, infrastructure, customers, and finances of a business, product, or service. All these elements form what will be the building blocks of the organisation. Altogether, they create the roadmap for the strategy and operations of the business.
Key components of the Business Model Canvas
With a business model canvas, you create a visual representation of the makeup of your organisation. It is up to you whether to use the canvas to examine an entire business or specific products or services. The document is split into blocks, with each block given a title:
- Customer Segments – Who are the customers? What is their shared commonality, such as problem, belief or requirement?
- Value Propositions – What makes your business stand out? Why should customers buy or use your products or services?
- Channels – How do you promote these value propositions? How do you get them across to your audience? Consider, also, your sales channels, including the precise supply chain required for customers to receive their purchase.
- Customer Relationships – How do you interact with your audience?
- Revenue Streams – How do you earn revenue with your value propositions?
- Key Activities – What unique things do you do to deliver those value propositions?
- Key Resources – What are your assets? What are your strengths and opportunities? What are the things that allow you to be competitive?
- Key Partnerships – What can you do to deliver on your Key Activities?
- Cost Structure – What are your cost drivers? How is this in relation to your revenue?
How do you use the canvas?
To fill in your business model canvas, you have to visualize all the different elements and fill out each of the blocks with all relevant information. You may need to conduct brainstorming sessions for this in order to ensure that each block is adequately filled out. It is a great idea to involve your team or any other relevant individuals in this exercise.
Print or recreate the canvas in a large format and use sticky notes to add, remove and change the section of different points or ideas. This will make things easier and will leave the template neat. Once you’re done, you’re not really done. You will need to revisit this canvas from time to time in order to update or modify it to suit your organisation’s needs and circumstances.
Overall, a business model canvas lays down the groundwork or the infrastructure of your business. It also lists the nature and revenue stream of the business. However, there are now many business model canvas examples and variations that you can use for various businesses.
The canvas should not be the end of your business planning. When you launching a new organisation or a product or service, the canvas should be used to give you a general idea of what you might need. The next step in a responsible organisation is to create a business plan, where the information stuck onto the canvas is repeated, giving further context, data, costs, and SMART objectives.
Business Model Canvas vs Lean Canvas
There is also another business template called the Lean Canvas. Essentially a simplified version of the Business Model Canvas, the Lean Canvas is ideally only used by startups. The document is a good place to start if you want to focus solely on the Problem/Solution aspect of the business. It also lays down the channels to help you achieve the solution, as well as the costs and revenue streams.
Unlike the original canvas by Osterwalder, the Lean Canvas doesn’t include the customer segments because of the startup nature of the businesses that use this.