The Business Model Canvas

This image shows a populated business model canvas for a disruptive new business model that we all know well – ride sharing. We chose this example because it succeeds in clearly describing the fundamental elements of a unique and innovative business model.

Uber was founded in 2009, with a groundbreaking and disruptive business model. Yet the business model canvas and its nine core elements were first proposed in 2005. Although niche variations of the business model canvas have since emerged, the original design has really stood the test of time.

What is the business model canvas, in a nutshell?

The business model canvas is a diagram that captures the most important features of a business model in predefined categories. It is arranged on a single page as a collection of nine boxes, with each box dedicated to one of the predefined categories. The diagram shows how the elements all work together to generate value for customer segments, and how that value is captured in the business. In addition, it considers the major resources, competencies and partnerships that the business will need, how the business will build and maintain customer relationships, and the channels through which the customers will be reached.

The nine elements of the business model canvas

The nine elements actually fall into five different groups:

• Customers
• Value Propositions
• Operations
• Cost Structure
• Revenue

Within the customers group, we have Customer Segments, Customer Relationships, and Channels. These three elements work together to tell the story of who you are selling to, the methods by which you will build and maintain customer relationships, and the channels through which you will market your business and deliver value to your customers through.

The next group, Value Propositions, defines what you will deliver to your customers to create value – in other words, the ‘bundles’ you will offer to specific customer segments that will be of value to them. Value propositions can appeal to all customer segments, or you might want to create different value propositions for each customer segment or for different sales channels. In our Uber example, all three of the value propositions apply to all customers and all channels. There is no universal right or wrong here, the approach you take will depend on what works for your business model.

Next up is the Operations group. Within this group, we find three elements – Key Activities, Key Resources, and Key Partnerships. The key activities element describes the main tasks your business performs in delivering the value propositions to your customers. Uber’s example is interesting – notice the lack of moving people from A to B. That is is job of the drivers, who are (ignoring recent legal actions) self employed. Instead, Uber’s job is to create the platform to connect the drivers to the customers. The Key Resources element describes the resources your business will need at its disposal to conduct the Key Activities. Think facilities, staff, capital equipment, etc.

Finally, the Key Partnership element recognizes that it is not possible, or at least not beneficial, for a business to operate in a vacuum. This element captures the strategic partnerships your business will seek because it cannot (or should not) build those resources internally. Example – for a small company developing a low volume physical product, it is likely that it will not want to take on the capital expense of setting up its own manufacturing plant – it is likely to want to find a manufacturing partner will the skills, equipment and scale to build the product reliably and cost effectively. Note that in the case of Uber, it views it drivers as partners rather than resources – a defining characteristic of its strategy. Another example of a Key Partnership would be to work with an outsourcing partners to bring critical skills and expertise to the company before it can justify hiring dedicated staff. See our page on Fractional HR for more information about strategic outsourcing of Human Resources and People Ops.

The next group is Cost Structure. This element considers the most important costs inherent in the business model. This is the place to consider how your largest costs will be structured. Are you a capital intensive business (e.g. manufacturing), or are you more of a people business (e.g. consulting)? Will you have large fixed costs, or are they mostly variable? How cost sensitive are your customers – will you need to be a cost-driven business (price sensitive), or will you focus on maximum value creation? How will your costs scale as the business grows?

The final group contains the Revenue streams element. This element describes how your business will capture the value that you create for your customers, and turn it into cash. The uber example is quite straightforward in this regard – it takes a cut of the driver’s earnings. Other businesses have more complex revenue streams – think about the myriad ways Amazon collects cash from its customers – product sales, commission of third party sales, advertising, prime subscriptions, music and video streaming, and sellings its spare computing resource as Amazon Web Services to name just a few.

How can the business model canvas be used?

The business model canvas is a versatile tool that can be put to many valuable uses. Here are just a few ideas:

• As a framework for developing a business idea into a more structured, tangible business model
• As a basis for a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats)
• As an effective method to communicate your business model to other people
• As a useful input to a formal business plan

How can I get a Business Model Canvas for my business or business idea?

Work with us! Our Business Model Canvas package is available at a 25% discount for a limited time. The package includes:

• FREE initial consultation before you buy
• 3 x 1 hour interactive, facilitated workshops to explore all of the areas of your business idea, identifying and filling gaps and weaknesses
• Professional preparation of the final document, which is delivered to you to own and do whatever you would like with!

This service works equally well one-on-one with you and one of your experienced facilitators, or with your whole team. The sessions are a lot of fun and will add tremendous value to any business idea. This inclusive package is available for a limited time for $528 (new clients only). Contact us now with offer code BMCNEWCLIENT25 to find out more.