The Easy Guide to the Business Model Canvas

Got a new business idea, but don’t know how to put it to work? Want to
improve your existing business model? Overwhelmed by writing your
business plan? There is a one-page technique that can provide you the
solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the business model canvas explained, along with
steps on how to create one. All business model canvas examples in the
post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to
make money. It explains who your customer base is and how you deliver
value to them and the related details of financing. And the business model
canvas lets you define these different components on a single page.

The business model canvas is a strategic management tool that lets you
visualize and assess your business idea or concept. It’s a one-page
document containing nine boxes that represent different fundamental
elements of a business.

The business model canvas beats the traditional business plan that spans
across several pages, by offering a much easier way to understand the
different core elements of a business.

The right side of the canvas focuses on the customer or the market
(external factors that are not under your control) while the left side of the
canvas focuses on the business (internal factors that are mostly under your
control). In the middle, you get the value propositions that represent the
exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder

and Yves Pigneur and introduced in their book ‘Business Model
Generation’ as a visual framework for planning, developing and testing the
business model(s) of an organization.
Business Model Canvas

Why You Need a Business Model Canvas

• The BMC provides a quick overview of the business model and is
devoid of the unnecessary details compared to the traditional
business plan.
• The visual nature of the business model canvas makes it easier to
refer to and understand by anyone.
• It’s easier to edit and it can be easily shared with employees and
stakeholders.
• The business model canvas can be used by large corporations as
well as startups with just a few employees.
• It clarifies how different aspects of the business are related to each
other.
• You can use a BMC template to guide a brainstorming session on
defining your business model effectively.
How to Make a Business Model Canvas
There are nine building blocks in the business model canvas and they are
customer value proposition, customer segments, channels, customer
relationships, revenue streams, key resources, key partners, key activities,
and cost structure.

When filling out a business model canvas, you will brainstorm and conduct
research on each of these elements. The data you collect can be placed in
each relevant section of the canvas. So have a business model canvas
ready when you start the exercise.

Business Model Canvas Template

What are the 9 Components of the Business Model
Canvas?
1. Customer Segments
2. Customer Relationships
3. Channels
4. Revenue Streams
5. Key Activities
6. Key Resources
7. Key Partners
8. Cost Structure
9. Value Proposition

Let’s look into what the 9 components of the BMC are in more detail.

Customer segments
These are the groups of people or companies that you are trying to target
and sell your product or service to.

Segmenting your customers based on similarities such as geographical

area, gender, age, behaviors, interests, etc. gives you the opportunity to
better serve their needs, specifically by customizing the solution you are
providing them.

After a thorough analysis of your customer segments, you can determine

who you should serve and ignore. Then create customer personas for each
of the selected customer segments.
Customer Persona Template
There are different customer segments a business model can target and
they are;

• Mass market: A business model that focuses on mass markets

doesn’t group its customers into segments. Instead, it focuses on the
general population or a large group of people with similar needs. For
example, a product like a phone.
• Niche market: Here the focus is centered on a specific group of
people with unique needs and traits. Here the value propositions,
distribution channels, and customer relationships should be
customized to meet their specific requirements. An example would be
buyers of sports shoes.
• Segmented: Based on slightly different needs, there could be
different groups within the main customer segment. Accordingly, you
can create different value propositions, distribution channels, etc. to
meet the different needs of these segments.
• Diversified: A diversified market segment includes customers with
very different needs.
 • Multi-sided markets: this includes interdependent customer
segments. For example, a credit card company caters to both their
credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing
ideal marketing campaigns

Customer relationships
In this section, you need to establish the type of relationship you will have
with each of your customer segments or how you will interact with them
throughout their journey with your company.

There are several types of customer relationships

• Personal assistance: you interact with the customer in person or by

email, through phone call or other means.
• Dedicated personal assistance: you assign a dedicated customer
representative to an individual customer.
• Self-service: here you maintain no relationship with the customer,
but provides what the customer needs to help themselves.
• Automated services: this includes automated processes or
machinery that helps customers perform services themselves.
• Communities: these include online communities where customers
can help each other solve their own problems with regard to the
product or service.
• Co-creation: here the company allows the customer to get involved
in the designing or development of the product. For example,
YouTube has given its users the opportunity to create content for its
audience.

You can understand the kind of relationship your customer has with your
company through a customer journey map. It will help you identify the
different stages your customers go through when interacting with your
company. And it will help you make sense of how to acquire, retain and
grow your customers.
Customer Journey Map

Channels
This block is to describe how your company will communicate with and
reach out to your customers. Channels are the touchpoints that let your
customers connect with your company.

Channels play a role in raising awareness of your product or service among

customers and delivering your value propositions to them. Channels can
also be used to allow customers the avenue to buy products or services
and offer post-purchase support.

There are two types of channels

• Owned channels: company website, social media sites, in-house

sales, etc.
• Partner channels: partner-owned websites, wholesale distribution,
retail, etc.
Revenue streams
Revenues streams are the sources from which a company generates
money by selling their product or service to the customers. And in this
block, you should describe how you will earn revenue from your value
propositions.

A revenue stream can belong to one of the following revenue models,

• Transaction-based revenue: made from customers who make a

one-time payment
• Recurring revenue: made from ongoing payments for continuing
services or post-sale services

There are several ways you can generate revenue from

• Asset sales: by selling the rights of ownership for a product to a

buyer
• Usage fee: by charging the customer for the use of its product or
service
• Subscription fee: by charging the customer for using its product
regularly and consistently
• Lending/ leasing/ renting: the customer pays to get exclusive rights
to use an asset for a fixed period of time
• Licensing: customer pays to get permission to use the company’s
intellectual property
• Brokerage fees: revenue generated by acting as an intermediary
between two or more parties
• Advertising: by charging the customer to advertise a product,
service or brand using company platforms

Key Activities
What are the activities/ tasks that need to be completed to fulfill your
business purpose? In this section, you should list down all the key activities
you need to do to make your business model work.
These key activities should focus on fulfilling its value proposition, reaching
customer segments and maintaining customer relationships, and
generating revenue.

There are 3 categories of key activities;

• Production: designing, manufacturing and delivering a product in

significant quantities and/ or of superior quality.
• Problem-solving: finding new solutions to individual problems faced
by customers.
• Platform/ network: Creating and maintaining platforms. For
example, Microsoft provides a reliable operating system to support
third-party software products.

Key Resources
This is where you list down which key resources or the main inputs you
need to carry out your key activities in order to create your value
proposition.

There are several types of key resources and they are

• Human (employees)
• Financial (cash, lines of credit, etc.)
• Intellectual (brand, patents, IP, copyright)
• Physical (equipment, inventory, buildings)

Key Partners
Key partners are the external companies or suppliers that will help you
carry out your key activities. These partnerships are forged in oder to
reduce risks and acquire resources.
Types of partnerships are

• Strategic alliance: partnership between non-competitors

• Coopetition: strategic partnership between partners
• Joint ventures: partners developing a new business
• Buyer-supplier relationships: ensure reliable supplies

Cost structure
In this block, you identify all the costs associated with operating your
business model.

You’ll need to focus on evaluating the cost of creating and delivering your
value propositions, creating revenue streams, and maintaining customer
relationships. And this will be easier to do so once you have defined your
key resources, activities, and partners.

Businesses can either be cost-driven (focuses on minimizing costs

whenever possible) and value-driven (focuses on providing maximum value
to the customer).

Value propositions
This is the building block that is at the heart of the business model canvas.
And it represents your unique solution (product or service) for a problem
faced by a customer segment, or that creates value for the customer
segment.

A value proposition should be unique or should be different from that of

your competitors. If you are offering a new product, it should be innovative
and disruptive. And if you are offering a product that already exists in the
market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service)

or qualitative (customer experience or design).