What is a Business Model Canvas?
The Business Model Canvas (BMC) is a strategic management tool that simplifies the process of developing new business models and mapping out existing ones.
Created by Alexander Osterwalder as part of his PhD research, the Business Model Canvas helps individuals and teams visualise business models by breaking them down into nine building blocks within an easy-to-read one-page template.
Whether you’re interested in understanding the current state of an enterprise, need to strategically plan for the future, or want to enhance your commercial skills and knowledge, the BMC template is a useful tool to help you understand the key components of a business at any point in time.
What are the Business Model Canvas building blocks?
The nine building blocks of a BMC are: (1) customer segments, (2) value propositions, (3) channels, (4) customer relationships, (5) revenue streams, (6) key resources, (7) key activities, (8) key partnerships, and (9) cost structure. These nine elements provide the framework for developing a comprehensive business model, allowing entrepreneurs and professionals to identify and evaluate potential business opportunities.
In order for you to fill in your own canvas, let’s take a look at each of the BMC components in more detail.
Customer segments
The customer segments section of the BMC is where you would write the groups of people that the business is targeting with its products and services. This could include demographics such as age, gender, and location, or even psychographics such as interests and lifestyle. Understanding the customer segments allows the value proposition, channels, customer relationships, and other aspects of the business model to be adjusted to best suit these segments.
Value proposition
The value proposition section is situated front and centre of the BMC. Value proposition is the unique value that the business is providing to the customer segments. It is also the reason why customers should choose the business over its competitors. This could include unique products or services, better prices, superior customer service, or any other factor that sets the business apart from the competition.
Channels
Channels is a smaller section between customer segments and the value proposition on the Business Model Canvas. This section should outline the communication methods the business is going to use in order to reach and interact with its customers. Channels could include physical locations, websites, social media, and other methods of communication.
Customer relationships
The customer relationships component sits right above the Channels section of the BMC and refers to the different types of relationships the business will have with its customers. In particular, the ‘how’ behind how these relationships will be formed and maintained. Examples of the types of relationships are: transactional, long-term, self service, automated, and personal.
Revenue streams
Revenue streams sits at the bottom of the Business Model Canvas and should include all the ways in which the business earns money. This could include sales of products and services, advertising, subscriptions, or any other source of income.
Key resources
Key resources sit to the left of the value proposition within the Business Model Canvas. The key resources are the physical, financial, and human resources that are used to create and deliver the products and services of the business. This could include things like office or factory space, employees or contractors with specialist skills, and IT equipment.
Key activities
What steps does the business need to take in order to deliver the value proposition to the customer segments? This is the question the key activities section asks you to answer within the Business Model Canvas. Ultimately, key activities are the tasks that must be performed in order to produce and deliver the products and services to your customers. This section sits directly above key resources within the Business Model Canvas template.
Key partners
The key partners section sits on the opposite side of the Business Model Canvas to the customer segments. This is the section within the Business Model Canvas where you need to consider the outside organisations and individuals that the business relies on to help it achieve its goals. This could include suppliers, distributors, and other businesses.
Cost structure
Situated along the bottom line of the Business Model Canvas right next to the revenue component is ‘Cost structure’. The cost structure component of the BMC covers the expenses associated with running the business. This could include personnel, rent, and materials.
What is the Business Model Canvas used for?
While the Business Model Canvas was designed for visualising business models, it is also used for:
- Planning, communicating and testing startup ideas
- Mapping out existing businesses to understand how they operate
- Analysing business models (existing or brand new) in order to identify areas for improvement
- Determining how a new product or service might be introduced to an existing business
Whilst widely used by entrepreneurs and business executives to effectively plan and execute a successful business strategy, the BMC has also become a highly popular tool used for teaching business, entrepreneurship, and enterprise in further and higher education institutions.
The BMC is also commonly used in extracurricular programmes and by startup support agencies to help aspiring entrepreneurs think through and communicate their business ideas. Let’s look at how the BMC might help an aspiring entrepreneur validate a business model before launching their startup.
How to validate a business model with a BMC
While the Business Model Canvas was developed as a simple and easy tool to use, it can be helpful to look at the BMC template through a design thinking lens.
As explained by IDEO, Design Thinking brings together “what is desirable from a human point of view with what is technologically feasible and economically viable”.
Similarly, the three components – feasibility, viability and desirability – are required in order for a business model to be successful.
As such, the Business Model Canvas can also be grouped into these three areas as shown in the below image.
The left-hand side of the Business Model Canvas covers feasibility of the business. This area of the BMC template includes key partners, key activities, and key resources.
The right side of the Business Model Canvas covers the desirability of the business, which is essentially all of the customer-focused sections. The BMC components include the value proposition, customer segments, channels, and customer relationships.
Lastly, the bottom of the BMC template consists of the costs and revenue, which is linked to the viability of the business model.
While, the Business Model Canvas can help you to consider these three factors – desirability, viability, and feasibility – ultimately, a completed BMC (in particular for a brand new startup idea) will be based on a series of assumptions. Therefore, to ensure the business model is valid, it is vital to identify and test these assumptions.
Still feeling a little stuck?
We hope this post has helped build your understanding of the Business Model Canvas, however if you are still feeling a little stuck, we highly recommend taking a look at our online entrepreneurial tool, SimVenture Validate.
SimVenture Validate supports educators to teach the Business Model Canvas, along with identifying and testing assumptions to students in an engaging and meaningful way. It is also available to individuals who would like to ideate, plan, and test their own business ideas.
With SimVenture Validate by your side, you’ll understand the components of a Business Model Canvas in no time!
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