Business Model Canvas

The Business Model Canvas is a tool that helps businesses understand and organize the key elements of their business plan.

There are 9 building blocks that represent the different aspects of the Business Model Canvas, including:

• Value proposition
• Customer segments
• Channels
• Customer relationships
• Revenue streams
• Key resources
• Key activities
• Key partners
• Cost structure

All building blocks are related to each other, meaning that changes to one block will affect the others.^[1] For example, if you change the value proposition, you may have to change the key resources or activities that are needed to deliver your product or service. The BMC helps businesses think about their business model as a whole and how each part fits together. It's a popular tool used by entrepreneurs, startups, and established businesses because it's simple and effective at identifying important aspects of a business model.

Typically, a BMC is created by drawing a template of nine building blocks on a large sheet of paper or a whiteboard, filling in each building block with post-it notes that represent the key components of your business model, iterating and refining the BMC, and testing it with stakeholders to gather feedback.^[2]

The value proposition in the Business Model Canvas (BMC) describes the unique benefit that a product or service provides to its customers. It's a statement that summarizes the value a business creates for its customers and how it differentiates itself from its competitors. Creating a good value proposition involves understanding the needs and desires of your target customers and aligning your product or service with those needs.

To create a good value proposition, ask yourself the following:

• Who are your target customers? What are their needs and desires?
• What tasks or problems are your customers trying to solve?
• What are the pain points your customers experience when trying to complete their tasks?
• How can your product or service meet the needs of your customers?
• What are the key features of your product or service that help address the pain points and meet the needs of your customers?
• What are the benefits that your product or service provides to your customers?
• What makes your product or service unique compared to your competitors?
• What evidence do you have to support your claims about the benefits and features of your product or service?

Apple Inc. is an example of a brand with a well-defined value proposition. It is centered around its brand promise to deliver innovative and intuitive products that enrich the lives of its customers. The brand strives to create beautifully designed, easy-to-use products, and seamlessly integrated into users' lives.

Customer segments refer to the different groups of customers that a business targets with its products or services. This building block helps businesses better understand their customers' needs, behaviors, and preferences and tailor their offerings to meet those needs effectively.

To better understand a business’s customer segments, you can make use of:

• Personas. Personas are fictional characters that represent different customer archetypes. For example, a technology company targeting small business owners may create personas to represent different customer segments. One persona may be a small business owner who values ease of use and convenience in technology products. Another persona may be a small business owner who values flexibility and customization options.
• System maps. System maps are diagrams that visualize the various touchpoints that customers have with a company. For example, a healthcare provider may use a system map to identify the different stages of the patient journey — from initial contact to post-treatment follow-up. By doing this, the healthcare provider can identify areas for improvement, such as long wait times or unclear communication.

Channels are the different ways customers interact with a company throughout the entire customer journey, from awareness to purchase and post-purchase support. These channels can be online or offline and include methods of communication and distribution. For example, a clothing company may have an online store as well as physical retail stores. The online store may use channels such as email, social media, and live chat for communication with customers. Physical retail stores may use channels such as in-store displays and sales associates for customer interaction.

Journey maps are a useful tool to connect the channel block with other blocks in the BMC. They can be particularly useful for identifying which channels customers use and potential alternatives.^[3] For example, a ride-sharing company may use a journey map to visualize the different channels that customers use to request a ride. This could be through the company's mobile app, SMS, or phone call. The map can also identify areas for improvement, such as offering new channels like voice assistants or integration with popular messaging platforms.

The customer relationships part of the BMC describes the type of relationship a company has with its customers. This can be influenced by a company's culture, tone of voice, and history. For example, a software company that offers a subscription service may have a very hands-off relationship with customers. They may rely on automated emails and online resources to provide support and updates to customers. In contrast, a high-end fashion retailer may have a more personal and intimate relationship with their customers, with frequent one-on-one interactions in-store or via personalized emails.

To better understand the customer relationships block, companies can:

• Use system maps to see how different departments and stakeholders interact with customers
• Use journey maps to track the quality of customer relationships, including the frequency of contact and whether the interaction is automated or personal
• Create prototypes to test the tone of voice used to communicate with customers. This could include creating sample emails or chat messages that are representative of the company's approach to customer communication

Key activities highlight the behind-the-scenes processes that a company needs to execute in order to offer its value proposition. This could include manufacturing, marketing, distribution, or customer support. For example, a food delivery service may have key activities such as sourcing ingredients, preparing meals, and delivering them to customers. These activities are essential to the service's value proposition of providing convenient and delicious meals to busy customers.

To better understand the key activities a business needs to provide, use service blueprints to map out the connections between front-end customer experiences and back-end processes. Journey maps can also be used to track which internal stakeholders are involved in each step of the customer journey. Prototypes can help identify and test internal processes, as well as interactions between the company and its users at different levels.

Key resources include what a company needs to sustain and support its business, such as physical assets, intellectual property, human resources, or financial assets. For example, a software company's key resources might include a team of skilled developers, advanced computer hardware and software, and intellectual property rights for their software, among many other things. The availability (or lack) of these resources can greatly influence the entire business model.

System maps and service blueprints usually contain detailed information on all stakeholders involved and resources available in the entire service ecosystem. Use journey maps to identify which internal stakeholders are involved in each step of the customer journey. This can, in turn, help identify key resources needed for each step.^[4] For example, a journey map for a food delivery service may identify the key resource of a fleet of delivery drivers for the delivery step of the journey.

Key partners include other businesses or entities that a company needs to collaborate with to operate effectively and achieve its goals. For example, a restaurant’s key partners might include food suppliers, equipment vendors, and marketing agencies. By collaborating with these partners, the restaurant can ensure a steady supply of quality ingredients, maintain its equipment, and promote its brand to customers.

To identify key partners, make use of system maps and service blueprints. System maps can show the relationships between a company and its external stakeholders, including potential key partners. Service blueprints can provide more detailed information on the involvement of external stakeholders in the company's service delivery process.

Cost structure refers to the expenses that a company bears while operating its business model. It includes all the costs that the company has to pay to create and deliver its value proposition to the customers.

Cost structure can include various types of costs, including:

• Fixed costs like rent, salaries, and equipment
• Variable costs like raw materials and shipping costs
• Other expenses like marketing, research, and development

The cost structure of any company will depend entirely on the rest of the building blocks of the Business Model Canvas. For example, if a company chooses to prioritize offering a premium product or service, the cost structure will include higher expenses for high-quality materials, top-tier talent, and specialized equipment, while other expenses like advertising and promotions may be lower in order to maintain a higher profit margin.

Expenses like taxes are also generally not detailed in the BMC as the model focuses more on the operational, production, and direct costs associated with delivering the business's value proposition.

Revenue streams are the different ways a company generates income from each customer segment. It involves understanding how much each customer is willing to pay, appropriate pricing strategies, and the most effective revenue streams for the business model.

Some common types of revenue streams include:

• Sales revenue from selling products or services
• Subscription revenue from offering ongoing services or access to content
• Advertising revenue from selling space for advertisements on a website or in a publication
• Commission revenue from earning a percentage of sales made through a platform or marketplace
• Licensing revenue from granting permission for others to use a company's intellectual property

The revenue streams of a company are influenced by all the aforementioned building blocks of the BMC. By understanding where revenue comes from and how it is generated, a company can better allocate resources and make strategic decisions to grow its business.