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Do you have a great idea for a business or a new product/service but don’t know how to get started?
The business model canvas is an easy-to-use tool that can help you understand your idea and make it more concrete. It’s also a great way to talk about your idea with others, so they can give feedback on what works and what doesn’t.
The Business Model Canvas will help you identify the key components of your venture and map out the relationships between them. You’ll be able to see all aspects of your venture in one diagram—from customer segments, value propositions, channels, revenue streams, costs structures to team roles and organizational structure.
While it’s often used by startups, larger businesses, and more “refined” companies, this honestly is a great tool, no matter how large or small your company is.
I’ve created a free toolkit that includes a business model canvas template and more helpful tools. You can grab it below:
In June I was accepted into a business coaching/learning program called “Power Up Your Business.” It’s sponsored by a local community college and essentially they teach you the framework for a powerful business, along with offering business coaching, working on tactical business plans, and more.
I had heard of this before, and even tried to use it for a “business” I was going to run about 4 years ago (which clearly didn’t go anywhere).
When I previously used the canvas, I was really confused on everything and I kind of just put it to the side and never thought about it again. So when I heard the topic for the day I wasn’t wildly impressed. I was thinking it wasn’t worthwhile, and was just another “exercise” some trainers and professors make you do.
But this class was one of those times where you go from “yeah, I already know this” to “holy crap, I have a LOT of work to do.”
I felt energized and excited, and THAT NIGHT I went home and was thinking about this before bed. This led to an episode of entrepreneurial insomnia, and I woke up at 3am with my mind RACING about all kinds of ideas for my business.
I actually started a new note on my phone, wrote down everything that came to mind, and by the time I got done it was quite long!
I got out of bed around 5am and filled out an entirely new business canvas for a pivot I was going to be making in my business.
This exercise gave me so much clarity on how I’m going to be moving forward, so I had to share it with you.
What is the Business Model Canvas?
The Business Model Canvas was created by Alexander Osterwalder, and is a strategic management and entrepreneurial tool used to capture the essence of your new venture. It will help you determine if you are on the right path, saving valuable time, energy, and resources in the process. This tool helps entrepreneurs build businesses that can evolve over time with ease.
In short, the Business Model Canvas is a way to quickly put together a business plan without the need for writing a traditional 80-page business plan detailing every aspect of a business you have yet to create.
It’s a method that allows you to quickly iterate and make changes to the plan without having to start a new business plan.
A lot of you might be thinking:
“But Chenell, I just run a [blog, website, ecommerce store, freelancing business, etc] why would I need something like this?”
I’d say if you’re asking the question of whether or not you need to complete this exercise, that you probably need it more than you think.
Having a plan and strategy for going into business and knowing who your customers are and how you can help them is CRITICAL to success.
This tool is used as a template for lean startups and as a strategic management tool.
The 9 Blocks of the Business Model Canvas
If you’ve been following along, I put together a post about each of these throughout the last week or so.
If you look at the canvas as a whole, the right half of the canvas is essentially the “front of the house” stuff, like what kind of customers you’re helping, how you keep them as customers, etc.
The left half of the canvas is like the “back of the house” where you’re focusing on the activities you are doing in the business, what resources you need, who your key partners are, etc.
Both sides meet in the middle at your value propositions, which are essentially what kind of offering you have for your clients and customers.
There are nine blocks that make up a business model canvas.
1. Customer Segments
Who are your customers? Who are you creating value for?
This section is about figuring out who you are going to provide value for. In this block of the canvas, fill in characteristics of the people you are targeting.
I know you’ve heard all about determining your niche, and choosing your avatar for your business. This is building upon those exercises.
A customer segment is a group of people (or businesses if you’re a B2B company) that you are looking to sell your products and services to. It’s essentially the common characteristics your target market has that will allow you to find and market to them more easily.
2. Customer Relationships
How do you get, keep and grow/upsell customers? How do you interact with your current and potential customers? What type of relationship do they expect from working with you?
How are you getting new customers? This could be anything from email marketing to search engine optimization (SEO) to going out and doing direct sales.
Think about the methods you are going to use to attract the right people to your business. Where are your customers currently hanging out? Are they on Facebook, or are they lingering in an industry-specific forum asking questions?
Acquiring customers can be challenging, and it’s always easier to sell again to a current customer than to get a new one. How are you going to keep your customers around?
Are you going to mail out postcards for special occasions, have monthly check-in calls, or just surprise and delight them with free stuff? Maybe you’re promoting your customers on social media, whatever it is, take note of it.
Grab the Business Model Canvas Toolkit to more easily follow along. This includes a PDF template of the canvas, along with a step-by-step guide to completing your own canvas:
How do you deliver your product or service? Is it B2B, B2C? How are you reaching your customers and prospects?
There are a few phases of channels to keep in mind:
- Awareness – these channels could be search engines, social media, etc.
- Evaluation – Your website, review sites, and again social and search
- Purchase – Merchant accounts, invoicing platforms, your website
- Delivering Value Proposition – postage or mail, email providers, systems you use to deliver the product or service. Are you going to be delivering value with an online course, consulting and coaching, or do you have a “done for you” kind of offering?
- Post-Purchase Support – your email newsletter, chat platforms, content marketing, and customer service reps.
4. Value Proposition & the Value Proposition Canvas
“A value proposition is a promise of value to be delivered, communicated, and acknowledged. It is also a belief from the customer about how value (benefit) will be delivered, experienced and acquired.” – Wikipedia
What value do you deliver to the customer? Which problem(s) are we helping to solve for the customer?
This is one of the more important exercises to do because if you don’t know what you’re providing and to who, you’re going to fall down a lot more than you need to.
It’s so important, that half of the business model canvas is actually called the value proposition canvas (I know, ALL of the canvases!).
Pause here, and go figure out your value proposition.
5. Key Activities
What do you need to do well to make money? What kind of activities do you need to do to provide that value to the customer?
How exactly are you going to provide value and what kinds of activities need to happen in order for your customer to get what they expected?
As we determined in the value proposition phase, there are certain things customers are going to expect from your business. The key activities block of the canvas helps us figure out what those are and what we should be paying attention to that might not necessarily drive value.
6. Key Resources
What key resources do you need to deliver that value proposition?
Key Resources are the important things your business needs to build out the value proposition you promise customers. Without these resources, you wouldn’t be able to deliver value, and you wouldn’t have a business to build a business model canvas for.
There are four types of key resources: financial, intellectual, human and physical. These can be things like machinery, systems and processes, patents, salespeople, credit cards, and business loans.
7. Key Partners
This piece of the canvas can get a little confusing once you read through all the types of partnerships there are. But if you take a really granular look, these strategic partnerships can be as simple as a virtual assistant (VA) you’re going to hire, or someone you are going to get into an affiliate relationship with.
Having a partner can be as easy as referring customers to each other. Or it can be as complicated as two businesses creating a third company together because they found a need in the market and can each contribute a piece of that new pie.
Partnerships are one of the essential building blocks of the business model canvas, and for any business. It’s almost impossible to have a business that provides value for its customer and doesn’t require some kind of partner.
Essentially, we are answering these questions: who is going to help you deliver on that value proposition? A business can’t be all things to all people, so what kind of partnerships do you need to deliver the best service?
8. Cost Structure
This piece is where we should be looking at your fixed costs and variable expenses. But also looking at whether you’re going to be a cost-driven or value-driven business. In short, this means are you going to be focused on providing the lowest cost solution, or will you be focused on providing value and not worry so much about low costs.
There are a few types of cost structures, including cost-driven, value-driven, fixed costs, variable costs, etc.
What the major cost drivers for the business? Include key resources and key activities in this. What type of cost structure are you going to be using?
9. Revenue Streams
How is the business earning revenue from customers and delivering the value proposition?
There are a few main types of revenue streams (these are not exclusive):
- Subscription fees – i.e. Netflix
- Fees for usage – i.e. cell phone companies
- Selling assets – i.e. Amazon
- Lending/renting/leasing – i.e. Airbnb, Zipcar, Turo
- Licensing – photography and music
- Brokerage fees – i.e. real estate brokers
- Advertising – i.e. Google Adsense or partnerships
When to Use the Business Model Canvas
The Canvas can be viewed as a one-page business plan, that can be easily updated. I think it’s extremely helpful for these business situations:
When you’re launching a new product or service.
Sure, it may seem as easy as saying, I’m going to start selling bread at my pastry shop. But then you dig deeper by filling out the canvas and realize you’re going to need new ovens, new employees (or at the very least extensive training for current employees), new marketing strategies, a different managerial schedule (baking usually happens in the wee hours of the morning), and on, and on.
When you’re starting a new business (or blog!)
Many of us have literally “fallen into” entrepreneurship because we had a skill people wanted to pay us for, and we just started selling it without thinking strategically. It’s time to take a step back and get that clarity you’re missing. This will take a few hours out of your day, but it will add so much relief to your life, trust me!
When you need clarity on your current business (this was me!) and don’t have a serious business plan in place.
Similar to the one above, I fell into offering marketing services because the people around me needed help. I knew nothing about running a business, and have just been guessing my way through most of it. Not anymore!
When you want to compare a few different ideas for a new business, service, or product to sell.
This one is so critical! We always have a million ideas running around in our heads, why not narrow it down to the 2 or 3 we are most excited about and really dive deep into those ideas? Do we have a strong business model? Do people actually need what we are offering? Can we actually make a living from this?