Oct 15, 2021

Business Model Canvas Compact - Structure, Explanation and Examples

Framework
Business Model Innovation
by Business Model Ideas

The Business Model Canvas is a framework for visualizing and structuring business models. The framework was developed by the Swiss Alexander Osterwalder and the Belgian Yves Pigneur and published in 2008 in the book Business Model Generation. Since then, it has become very popular for strategic planning and development of business models.

In this article, we explain how to use the Business Model Canvas to analyze and develop your business model.

Advantages of the Business Model Canvas

The Business Model Canvas offers you a structured form for building business models. When working with the Business Model Canvas you will notice the following advantages:

  • The abstract term "business model" is given a concrete linguistic frame of reference and order.

  • The structure of the Business Model Canvas is very simple.

  • Teams can quickly work productively with the Business Model Canvas.

  • Due to its size and working with sticky notes, all participants are forced to "get to the point".

  • Your business model is laid out on a page.

  • You identify dependencies in your business model.

  • Teams gain a common understanding of the importance of individual components of your business model.

Structure of the Business Model Canvas

The Business Model Canvas divides each business model into nine building blocks.

At the core of the Business Model Canvas is the value proposition. The right side shows how value is created for customers and the company. The left side of the Business Model Canvas, on the other hand, documents what resources a company needs to successfully implement its business model. You can get a quick first overview in the 2 minute video below.

We will now introduce you to the nine building blocks of the Business Model Canvas. We will proceed in the same order and with the same questions as in my workshops on the application of the Business Model Canvas.

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Business Model Canvas regarding Alexander Osterwalder and Yves Pigneur (2008)

Value Proposition - What is your company's value proposition?

"Think of the Value Proposition as a contract between the customer and your company where the customer 'hires' your company to solve a problem." Clayton Christensen

The value proposition is the heart of the Business Model Canvas. Collect all the items that characterize your company's value proposition here. The following questions will help you describe the value proposition.

  • What unfair advantages does your company have?

  • What can you do 10 times better than others?

  • What problem do you solve for customers?

  • Why does the customer use your service?

A great method for questioning your value proposition is the jobs-to-be-done method. In addition, the Value Proposition Canvas helps you to systematically work out your value proposition.

Customer Segments - Your customers and target groups

"The purpose of a business to create a customer." Peter Drucker

On the far right side of the Business Model Canvas, you map out your customer groups. You can arrange your customer segments according to different criteria:

  • Classical: socio-demographic data and static attributes (size, age, location, etc.)

  • Purchasing frequency: In which intervals does the customer buy

  • Buying center: How does the customer's buying process work (B2B).

Depending on your business model, it may also be interesting to rank customer groups based on why they buy your product or to create customer groups based on channel preference (e.g. online vs offline). The only important thing is that you name the essential and important customer segments, discuss them and immortalize them on the Business Model Canvas with sticky notes for now. If you are a little more practiced, you can also use personas as customer groups.

Channels - What channels do you use to reach your customers?

Knowing and naming the customer is a good starting point, but knowing HOW they buy and through which channels you reach them is at least as important. A very suitable tool is Customer Journey Mapping. If you don't want to go too deep into your customer's journey yet, the following questions will help you identify relevant channels:

  • How does your customer find out about you?

  • How does the customer become aware of you?

  • How can the customer buy from you?

  • How does the service reach your customer?

Roughly speaking, in the channels you list all relevant touchpoints that stand between your value proposition and your customer. This block is of great strategic relevance, especially for companies in the course of their digital transformation, when startups or digital platforms occupy the customer access with better services.

Customer Relations - How do you maintain your customer relationship?

Winning a new customer is many times more expensive than getting an existing customer to buy again. This requires that you have successfully invested in the customer relationship. In this section of the Business Model Canvas, you will describe how your company wants to build and maintain its customer relationship. The following questions help you to answer the question of how you will maintain the customer relationship after the purchase:

  • Does the customer have a personal contact person?

  • Do you have a self-service offering?

  • Is there a support hotline?

  • What media and channels do you use to stay in touch with the customer (magazines, newsletters, etc.)?

A successful customer retention strategy is an essential component of successful business models. Here, too, digital companies often offer a better service and thus put traditional companies under pressure.

Revenue Streams - How do you make money?

Finally, in the last block on the right-hand side of the Business Model Canvas, you enter the revenue models with which you earn money. The focus here is on the main revenue streams and revenue mechanics:

  • Do you earn money from one-time product sales?

  • Do you offer additional paid services or add-ons?

  • Do you have recurring subscriptions?

  • Do you earn commissions on the resale of goods?

  • Do you have other licensing or maintenance models?

With the revenue streams, you complete the right, value-creating side of the Business Model Canvas.

Key Partnerships - On which partnerships is your business model based?

On the left side of the Business Model Canvas we start with the left block and the question on which partnerships your business model is based. Strategic partners can be e.g. suppliers, vendors, joint ventures or technology partners.

Does a partner provide you with volume or cost advantages?

  • Are there partners without whom your value proposition is not possible?

  • Are there partners that provide hard-to-find materials?

  • Which of your partners gives you an unfair advantage?

  • Which partner would you not want to do without?

  • Does a partner give you access to customers, know-how and special resources?

In the area of partnerships, it is not a matter of mentioning any and every supplier relationship, but rather of noting which partners have strategic relevance for your business model. If you can replace a supposed partner relatively easily, the company is rather not a strategic partner, but a normal supplier.

Key Resources - What resources does your business model need?

The required resources are typically quickly told and immortalized in the Business Model Canvas. Resources usually already result from the previous blocks of the business model.

  • What key employees and roles do you need to fill?

  • Do you need capital to scale or grow?

  • What intangible resources are important (brands, patents, etc.)?

  • What tangible resources are important (facilities, fleet, etc.)?

  • What technical infrastructure do you need?

The key resources are also about identifying the resources that are critical to success and gaining a common understanding of their relevance in the discussion.

Key Activities - What do you need to do every day to keep things running?

The core activities are all the operations that are particularly important for the success of your business model. Again, the point is not to capture every random activity, but to document what the particular focus needs to be on to make you better and more successful every day. Typically, the activities are also derived from other areas, so you can use all the other blocks as a guide when working out the core activities.

What specific activities do you need to deliver in order to ...

  • Improve your value proposition

  • Attract or retain customers

  • Maintain resources and partnerships

The core activities should include the most important activities without which further development of your business is not possible. This is where you are ordered with rigorous prioritization to gain a common understanding of what is truly important to the success of your business.

Cost Structures - What are the most important expenses?

As with revenue, you define the major cost blocks and cost drivers in your business. If you have completed the previous blocks with care, you can easily go through the other blocks for costs and identify the key cost drivers.

  • What variable purchasing costs underlie your value proposition?

  • How much does it cost to acquire a new customer?

  • How much money do you spend on personnel?

  • Do you incur licensing costs? Which resources cause (running) costs?

  • What other expenses significantly impact your bottom line?

The costs are not a reflection of your exact budget planning, but an overview of which costs and expenses are critical to success.

How to work with the Business Model Canvas?

Business Model Canvas using the example of airbnb

Before you plan your own business model, we recommend a "warm up". Try to fill out the Business Model Canvas for airbnb. Almost all of us know the company and can quickly and easily get into this business model. Alternatively, find one of our other analyzed business models like Nintendo Wii, Tinder, Gilette Venus, Tesla, Red Bull, etc. and use that as a warm up. Then check your elaboration or thoughts using our completed canvas.

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Business Model Canvas of AirBnB

Get Free Access to the AirBnB Canvas

The exercise will help you:

  • Understand the different blocks of the Business Model Canvas and learn to differentiate between them.

  • To experience dynamics in the business model and to realize that the Business Model Canvas is not a static tool, but a tool with which you map your business model as a system.

  • To realize that business model development is based on a recombination of existing business model patterns.

Application areas of the Business Model Canvas

  • The Business Model Canvas is a universal tool for structuring and discussing business models. It is suitable as a tool for the following exemplary tasks:

  • Discussing potentials for the development of your business

  • Plan startups and new business models

  • Organize the digital transformation of your company

  • Promote customer centricity by representing the business model of your customers in a Business Model Canvas.

The Business Model Canvas is a suitable method whenever several people in a room need a common understanding about how to build and develop a business model.

Materials and support needed

To work with the Business Model Canvas you will need the following materials:

  • Sticky notes and pens

  • A physical Canvas template in DIN A0, A1, A2 or a digital Canvas template (like the one from www.miro.com)

  • surfaces or walls to hang up the Canvas

  • 2 to 4 hours of time

If you plan to use the canvas in large groups, e.g. in a workshop, we recommend a facilitator. He or she can help you adopt new perspectives or can capture participants with a high speech rate. However, you can learn the basic mechanics of Business Model Canvas very quickly and easily by yourself.

If you wanna know more also read our blog article about business model examples.

Conclusion - The Business Model Canvas accelerates discussions about business models

The Business Model Canvas is a very powerful tool to discuss the dynamics and evolution of business models in a fast, visually appealing and concrete way. The greater added value, in my eyes, is that teams gain a common language and understanding about the importance of individual elements. In the discussion, everyone also becomes aware that your business model is a system in which all blocks build on each other and are interdependent. That's why the Business Model Canvas is also a great tool to plan the digital transformation of a company or to develop it for startups.

AirBnB, Amazon and Google Canvas for Free