A business model framework is a way to visually describe how an organization creates, delivers and captures value. The Business Model Canvas (BMC) usually consists of nine building blocks, each represented by a rectangle. The right side of the BMC focuses on the customer (external), while, the left side of the canvas focuses on the business (internal). Both external and internal factors meet around the value proposition, which is the exchange of value between your business and your customer/clients.
Link up the building blocks: every value proposition needs a customer segment and a revenue stream! If you have multiple customer segments it is best to pick a color for each segment in the post-it notes you use. That way you can easily see if for each segment there is a value proposition and a revenue stream.
Create your Business Model Canvas by completing the building blocks in the following order:
- Customer Segments – Define the different groups of people or organizations you aim to reach and serve. This involves defining the customer base, or the types of people (or businesses) the company will target. The more specific the target customer demographics, the easier it is to understand the customer journey and meet customer needs. It is possible to have multiple customer types, and it’s important to list them and rank them by importance. Here are some questions to consider:
- Who are the target customers you are solving the problem for?
- Who are the people that will value my value proposition?
- Are they another business? If so, what are the characteristics of those businesses?
- Or, are they other people?
- Does my value proposition appeal to men/women or both?
- Does it appeal to young adults aged 20 to 30 or teenagers?
- What are the characteristics of the people who are looking for my value proposition?
- Who are your most important customers?
- Is the customer base a Mass Market, Niche Market, Segmented, Diversified or Multi-sided Platform?
- List the top three segments. Look for the segments that provide the most revenue.
- Value Propositions – Describe the products or services that create value for your customers. It is important to have context around the goals the company is trying to achieve for their Customer Segments and where your business/product/service fits in the value chain. The Value Proposition is foundational to any business/product. It is the fundamental concept of the exchange of value between your business and your customer/clients. Generally, value is exchanged from a customer for money when a problem is solved or a pain is relieved for them by your business. The value proposition of a business is the unique offering or solution that a business offers its customers. A value proposition might be a new product or service customers can’t get anywhere else, or an improved version of an existing product or service. Here are some questions to consider:
- What is the problem I am solving?
- Why would someone want to have this problem solved?
- What is the underlying motivator for this problem?
- Which customer problem or need do you solve or help solve?
- Which products or services are offered?
- What bundles of products/services are offered to each customer segment?
- What value does the product/service deliver to the customer segment?
- Which customer outcomes are being satisfied?
- Why would a customer choose your company?
- Channels – Determine how you reach your customers to deliver the value. Channels are how businesses communicate with and market to their customers. Understanding how to reach your customers is crucial to your business. This includes distribution channels for getting goods or services to a customer. Channels can be owned by the business, such as a company website or storefront, or may be owned by partners or third parties, such as retailers or partners who stock the business’s product and even word-of-mouth marketing. Channels are defined as the avenues through which your customer comes into contact with your business and becomes part of your sales cycle. Here are some questions to consider:
- How does your company reach customers?
- How are you going to tell your customer segment about your value proposition?
- Where are your customers located? Which communication, distribution and sales channels do they use?
- Are they on social media?
- Are they driving their car and listening to the radio?
- Are they at an event or conference?
- Do they watch TV at 7pm on a Friday night?
- How are channels integrated into the business concept?
- How do the customer segments expect to be reached?
- Which ones work best?
- Which channels are most cost-efficient?
- How are the channels integrated into the customer segment routines?
- Customer Relationships – This building block involves defining the customer’s relationship to the business and examining the customer experience. Some businesses require personal assistance, while others are self-service. A really helpful step is to create a buyer journey map of your customers as they interact with your business. This helps clarify the points of engagement between you and your customer and the modes used to relate to your customers. This will also help you start to define your operations as a business and also help you identify opportunities for automation. Okay, so you know the Value Proposition and have developed Personas to better understand your Customer Segments or ‘customers’, but what is the relationship you have with your customers? Customer Relationships is defined as how a business interacts with its customers. Relationships can vary from manual to automated system. Here are some questions to consider:
- How personal is the relationship with the customer? Do you meet with them in person or over the phone or through a third party contractor or is your business predominantly run online so the relationship is online also?
- What type of relationship does each customer segment expect to be established & maintained?
- How does this show up and how do you maintain the relationship?
- Which relationships have been established?
- How are the relationships to be integrated into the business model?
- How costly are the relationships?
- Revenue Streams – Describe how the company generates revenues. A company’s revenue streams are the ways that the business makes money. This could be through single transactions, like selling assets, or through recurring sales, such as monthly subscription fees. Revenue Streams are defined as the way by which your business converts your Value Proposition or solution to the customer’s problem into financial gain. It is also important to understand pricing your business accordingly to pain of purchase in exchange for the pain of solving the problem for your customer. Here are some questions to consider:
- For what are the customers willing to pay?
- For what are the customers currently paying?
- How do customers prefer to pay?
- How does each revenue stream contribute to the overall revenues?
- Key Resources – Determine the primary assets you will need to complete your key activities. This could include employees, finances, equipment, or intellectual property (brand patents, copyrights, data) resources. Here are some questions to consider:
- What resources are needed to create the value propositions or revenue streams?
- What resources are needed to organize the distribution channels?
- What resources are needed to maintain customer relationships?
- Key Activities – Define all of the tasks and responsibilities that need to be done in order to make the business model work, including its revenue streams. This might include production tasks, marketing or networking activities, and problem-solving. Here are some questions to consider:
- What do you do every day to run your business model?
- What activities are needed to maintain customer relationships?
- What activities are needed to generate the value propositions and revenue streams?
- What is needed to organize the distribution channels?
- Key Partnerships – List the external companies/suppliers/parties you may need to achieve your key activities and deliver value to the customer. A business’s key partnerships include stakeholders, joint ventures, and strategic alliances that will help the business carry out its objectives. Here are some questions to consider:
- Who are your key partners and suppliers?
- Which key resources are acquired from them?
- Which activities do partners perform?
- Cost Structure – Determine the most important costs inherent in your business model. The cost structure defines all the costs the business will incur during operation, including variable costs and fixed costs. Consider the costs of starting a new business along with the daily costs of maintaining an existing business. Your business cost structure is defined as the monetary cost of operating as a business. Here are some questions to consider:
- How much does it cost to achieve my businesses key activities? Which are the most expensive?
- What are the cost of my key resources and key partnerships? Which are the most expensive?
- How much does it cost to achieve the value proposition for my customers/users?
- Are there any additional costs to running a business?
- Legal?
- Insurance?
- It is important also to place a monetary value on your time as a cost. How much would it cost you to hire you?
- What is the opportunity cost of running your business?
- Is the business concept more: Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing) or Value Driven (focused on value creation, premium value proposition).
The BMC technique has limitations. First, the BMC technique really starts at the point where you have a product in mind and understand how you are going to produce the product. So I usually see it more as a sales and marketing tool than a general business model tool for startups. Second, it does not give equal weight to pricing, metrics and business administration. Third, I tend to see a business as three separate but linked activities, product and production, sales, marketing and customer retention, and financials and operations. These activities are not clearly laid out. Besides the lack of focus on: Competitors; Market analysis; Brand mission; Key operational priorities, there are some other limitations:
- It seems to be out of order. We read left to right so starting with “partners” makes absolutely no sense.
- It does not show any interconnections. The order of the strategic decisions made matters because some variables will strongly impact others.
- Strategy is not taken into account. BMC will define how a start-up creates and captures value for itself and its stakeholders, but does nothing to define and describe an entrepreneur’s goals, dreams and ambitions;
- Aspects of the growth strategy, as well as the sustainability strategy, can hardly be imaged.
- Competition is not considered. No company is born in a vacuum. Business models exist only in relation to an industry, its historical context, and a multitude of other external factors. To be honest, it isn’t rare for those external factors to have more of an impact on business model definition than any other conscious decision from executives.
- End customers (customers of customers) are not taken into account. The BMC is the solution (value proposition) focused rather than the target market pain (problem) discovery, learning, and elimination focused. The BMC is driven by the Value Proposition, which assumes that a stated Value Proposition is the desired solution to the pain of the stated targeted customer. In short, the BMC is not a direct tool for comprehensive pain (problem) discovery, learning, and solving. It also lacks inherent focus on a process for experimentation, prototyping, and execution of projects. does not acknowledge the company’s role within its ecosystem.
- There can be more to profits than costs and revenues. A time dimension, for example; by having revenues come in faster than costs are paid, a virtuous circle is created wherein a company has more money in hand in reality than in theory, allowing for larger investments, and more advantageous bank loans. does not show any interconnections.
- Level of information differs in this simplified model in comparison to classic business plan.
- No consideration of trends.
- The BMC only concentrates on the company and the customer, not on other stakeholders and not even competition.
Yes, it may be possible to tweak the canvas to cover these weaknesses. Mainly, it helps to put a problem/solution on the left hand side of the chart and action items on the right. But, you still tend to bounce all over the chart, for example, strengths, resources and partnerships are different when you are talking production versus marketing or even sales versus marketing. There also can be more to profits than costs and revenues … a time dimension, for example; by having revenues come in faster than costs are paid, a circle is created wherein a company has more money in hand in reality than in theory, allowing for larger investments, and more advantageous bank loans but does not show any interconnections. I will call this the Time Aspect of the Profit Mechanism. Here is an example of a “tweaked” BMC:
Entrepreneurship is hard. If my many years starting successful businesses and mentoring have taught me anything, it’s that frameworks can be key to approaching challenges head-on, in a logical manner. The BMC technique is one visualize framework that can help derive solutions to the problems businesses face.
For more on startup visualization and planning, be sure to read “Small Business Thoughts Real-Time Strategic Planning” or watch the free video entitled “Roadmap For Starting Your Business”.
If you are planning to start a business or are thinking about scaling an existing one, be sure to read the ebook “Customer Centric Business Planning: A Guide to Optimizing Your Business for Maximum Success”. It is an essential book for business owners, managers, and entrepreneurs looking to leverage real-time insight to start and improve their business operations. Learn how proper customer centric business planning can assess risk and opportunity, and create an actionable roadmap for success.
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