How to create your winning Business Model CANVAS? All you need to know in 9 steps.
Ever wondered how the most successful business in today’s market get ahead and stay ahead of the competition? The business model CANVAS is a great tool to help you understand a business model in a straightforward, structured way. Using this canvas will lead to insights about the customers you serve, what value propositions are offered through what channels, and how your company makes money. You can also use the business model canvas to understand your own business model or that of a competitor! The Business Model Canvas was created by Alexander Osterwalder, of Strategyzer.
What are the benefits for your digital business?
Simplicity. This single, straightforward sheet means there’s no filler. Your canvas highlights the basics of your business, so you should already know the answers to most of these. The compiling of information might be overwhelming, but the business model canvas ensures a simple process.
Customer focused. Your canvas shows how you think about and interact with your customer, and it can help expose any weaknesses.
For any company. Whether you’re a one-person start up or part of a multi-national company, the business model canvas works.
What are the 9 basic criteria of the Business Model CANVAS?
This section is all about the things you need in terms of people, process, partners & technology to run your business.
Key activities. What does your business do? Are you managing large software teams? Do you have to manage a large supply chain? These are activities essential to the business. If your business is a barber shop, for examples, your key activities might be hiring and training staff, cutting and styling hair, opening and closing the shop, sending emails and offers, and making thank you cards to improve customer relations.
Key resources. These are the things you need to perform as your key activities, in order to create economic value. The key resources of a barber shop are staff, a physical location, marketing, and customers. Which resources do you have that are unique to you and give you an advantage? It might be an excellent 3-year contract on a prime downtown property because its owner had to sell quickly. It could be that you get discounted shaving products from the manufacturer because you worked there for 15 years or negotiated a deal.
Partner network. These are people in your network who can help you. People reading your business model canvas like to see that you are not a lone wolf, starting from scratch. They want to see you have support. They want to see that they are not the only ones who are signing up to help your business succeed. The partner network is the place to brag about who you know. These can be team members, suppliers, marketing avenues, etc. Anyone who is on board to contribute to the business.
This section explores the value you offer to your client and how you are going to be profitable.
Value proposition. Your value proposition is the most important component of any business. Why are you valuable? If the business provides no value, then, why? Why should anyone buy into it? Why should anyone support it? Why does anyone need it? This value needs to be directed at who your business serves in the marketplace. The proposition is not why you are valuable to the readers and the investors. The value needs to be directed at who your business targets. Google helps people find things they wish to know. Apple makes elegant, simple products designed to work out of the box. Your salon cuts and styles people’s hair.
This section is all about your customers: whether, where, and how you talk to them, and they buy from you.
Customer segments. These are the people to purchase your product. It is helpful to think of your first customer. In the end, you may want everyone to be a customer, but, right now, who will be the first person to buy your product? Customer segmentation can be categorized by demographic, geography, social class, financial class, personalities, etc.
Channels. How do you meet your customers? Do you go to them? Do they come to you? Channels could be Twitch.tv for a media platform. It could be a writing contest for a Hack-A-Thon. It could be the business location for a coffee shop. It could be a website for a microservice. It could be engineers’ Twitter accounts for any software company. The channel is a pathway of communication that links a community to the business.
Customer relationships. What kind of relationship do you want to have with your customer? What is the relationship’s nature? Transactional, personal, automated, self-service, community oriented. A vending machine is self-service. Major cloud providers are mostly self-service. They lack in support so much that other companies can be built entirely around providing customer service for their platform. Other cloud providers are popping up, too, whose business’ value proposition is that they have phone-call customer service—a unique value for certain categories of customers.
The finances section really wants to know your income statement. What are your costs and how do you bring in money?
Cost structure. What are your company’s costs? Income statements do a good job of putting expenses into operating expenses and income expenses and that can serve as a good model for this part of the canvas. Operating expenses are the day-to-day costs of doing business. At the barber shop, it would be largely labour costs for hiring barbers. Capital expenditures would be costs associated with stocking shelves with hair products, rent costs, and electricity costs.
Revenue streams. Finally, how does your company make money? The barber makes money by cutting and styling hair. They maintain a register to sell hair products. Maybe they create distinctions in their stylist offerings and do normal cuts, styled cuts, perms, colourings, and events like weddings or model shoots.
How to use the Business Model CANVAS for your business?
Step 1: Before you start
You can learn a lot from your competition. Choose some competitors and map their business models. Armed with this information you’ll have deep insight into what customers want and what they are willing to pay for. You’ll have a clearer picture of just how customers’ needs are met across the entire industry, not just in your company. And, you’ll uncover vital information about how other businesses, maybe even very successful businesses, have created their own spaces in the market. Checklist:
- Get the right team of 3-5 people together
- Grab a large chunk of wall space
- Print or draw the canvas on a big sheet of paper
- Have plenty of sticky notes and markers ready
- Allow yourself 45-60 minutes of undisturbed time
Step 2: High level
Start by mapping out the business on a high level: only the most important, vital aspects of the business model.
TIP! Try to make your criteria as clear as possible, so that you and others will still understand what they mean in three months’ time. split up more complex design criteria.
Step 3: Connect the building blocks
Link up the building blocks: every value proposition needs a customer segment and a revenue stream! When everything is on the board, take a step back. Have a short break. Did you miss anything? Forget something?
Tip! If you have multiple customer segments it is best to pick a colour for each segment in the post-it notes you use. That way you easily see if for each segment there a value proposition and a revenue stream is.
Step 4: Current state
Don’t mix ideas for a future state with what is going on right now, and don’t mix different departments!
Tip! If you work for a large organization, you might find varying value propositions and business models. In that case ask the different departments to map out their own business models. You can compare them afterwards.
Step 5: Review
Take a step back check if every customer segment is linked to a value proposition and a revenue stream. Make sure everything on the left side of the canvas is needed to support the right side of the canvas. Everything else can go.
Rank your business model’s performance (0:bad, 10:excellent) for each of the following questions:
- How much does switching costs prevent your customers from churning?
- How scalable is your business model?
- Does your business model produce recurring revenues?
- Do you earn before you spend?
- How much of the work can be done by others?
- Does your business model provide built-in protection from competition?
- On what cost structure is your business model based?
Step 6: Next steps
Tip! Have an artist visualize your business model. It helps to create impact when sharing the model and it makes it easier for others to become connected. Checklist:
- Take a snapshot picture of your business model canvas for easy to share future reference
- Ask team-members discuss the business model with others
- Trigger team-members to actively look for 1-2 blind spots
- Filter out the design criteria
- Test your assumptions
The business model CANVAS is a great tool to help you understand a business model in a straightforward, structured way. Using this canvas will lead to insights about the customers you serve, what value propositions are offered through what channels, and how your company makes money. Use the 9 building blocks of the Business Model CANVAS strategically to map out your business and innovate quickly. You can use the easy 6 steps described by Alpha Digital to implement define your own digital business strategy or to innovate on your current business model. What will your next move be?