Every startup founder should be able to clearly outline their business model. Learn how to create a business model canvass in this step-by-step guide.
A business model canvas is a method for determining a company’s business model in a visual, straightforward way. It can be used to develop new business ideas or to sketch out the business model for an existing business. It was developed by Alexander Osterwalder in 2008 and is part of the lean startup methodology.
Every company needs to be able to clearly and concisely outline their business model. Not only does it serve as a guide for moving the company forward, it also helps when approaching investors and partners. However, figuring out a business model can be tricky, especially for first time founders. And that’s where Osterwalder’s business model canvas comes in.
The business model canvas can be printed out in large scale, so that an entire team can work on it together. Consider using post-it notes so that ideas can be added, subtracted, and moved around as you work collaboratively toward developing a clear business model for your startup.
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Business model canvas framework
The business model canvas framework contains nine sections. Let’s take a closer look at each one.
1. Key Partners
For the key partners section, you’re trying to determine who else you need in order for your startup to be successful. Who’s going along for this ride with you and your team?
✓ Who are our key partners?
✓ Who are your suppliers, if relevant?
✓ Who are your investors, if relevant?
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2. Key Activities
What’s the most important thing your company has to do in order to be successful? The answer to this is often the product or service you’re delivering to the end customer.
✓ What’s the most important action your startup needs to take in order to be successful? You must settle on one.
3. Key Resources
In order to be successful, your startup needs a variety of resources. “Resources” doesn’t just mean money, though, although that type of resource is certainly important. Resources refers to everything your startup needs to succeed.
✓ What financial resources do we need?
✓ What human resources do we need?
✓ What physical resources do we need?
✓ What intellectual resources do we need?
4. Value Proposition
Your startup’s value proposition is the promise you make to customers about the services or goods you’re going to deliver. It’s can also be thought of as the value your customers find in your product.
✓ What value do we bring to our customers?
✓ What problem are we solving?
✓ What makes us different from our competitors?
✓ What’s new about our startup?
5. Customer Segments
No product can survive without customers, which makes it essential to determine what your customer segments are. The business model canvas has five customer segments: mass market, niche market, segmented, diversified, and multi-sided platform/market.
Mass market means your product or service appeals to the widest possible range of people. Think of a product like dishwashing soap. Pretty much everyone uses it.
Niche market means your product or services appeals to a specific group of customers, based on their particular needs. For example, only new parents are going to be interested in purchasing a Baby Bjorn.
Many companies have multiple markets within their main market. This is called a segmented market. So, for example, you may need to segment out your market based on demographic characteristics like age, gender, or location.
A company that serves more than one market segment has a diversified market.
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Some companies have two or more markets that they’re serving simultaneously, with the same business. For example, if your company is a go-between for vendors and buyers — like Amazon is — then you have a multi-sided platform.
✓ Who are our most important customers?
✓ Who were our very first customers?
✓ Who gets the most out of our value proposition?
6. Customer Relationships
Startup founders know that customer service is the key to success. Customer relationships can take the form of personal assistance, dedicated personal assistance, self service, automated service, communities, and co-creation. But whichever method you choose, just make sure it’s excellent.
✓How is my company going to interact with customers?
✓ How am you going to provide that key support and build an ongoing relationship with them?
✓ How will customers be able to reach us if they need support with our product
✓ What’s the most cost effective way to still provide great customer service?
7. Channels to reach customers
Your company won’t survive if you can’t reach your customers — so how are you going to get your product or service to them?
✓Are we going to reach our customers directly, through our own channels?
✓ Are we going to to reach our customers through partner channels, like Amazon or a podcast network or other major distributors?
✓ Or are we going to use a combination of both?
In this section, you’re going to explore the different costs and monetary consequences of your model.
✓ Is your company cost-drive or value-driven?
✓ What are your fixed costs?
✓ What are the most important costs for your startup?
✓ Which Key Resources are most expensive?
✓ Which Key Activities are most expensive?
✓ What are your variable costs?
✓ What are your economies of scale?
✓ What are your economies of scope?
9. Revenue Streams
Your revenue streams are how you actually make money — and how much money you make. Your startup may have one or many revenue streams, but this is where you’ll identify them.
✓ What are your customers currently paying for similar products?
✓ How are they paying for those products?
✓ Do they like that payment method? Would they prefer a different one?
✓ How much are they willing to pay you?
✓ How much does each individual revenue stream contribute to overall revenue of the company?
How is a business model canvas different from a traditional business plan?
A traditional business plan can takes months to compose and can run to as many as 100 pages. It’s about mapping out all of the possible contingencies for your business, from your five-year profit forecast to your cash flow, cap table, market size, product, solution… You get the idea. It’s a static document that’s meant to reassure both entrepreneurs and investors that a company will succeed.
A business model canvas, on the other hand, can be created in a day. It’s meant to be a dynamic document that help provide some structure to a startup, with the understanding that it’s just a starting point. It fits neatly into the lean startup model because it’s all about getting a model created quickly so that entrepreneurs can start testing their assumptions and hypothesis. Lean startup focuses on moving quickly and pivoting often if necessary, which a traditional business model simply doesn’t allow you to do.
Tools to build a business model canvas
If you’re looking to build your own business model canvas, the best place to go is Strategyzer, which is Alex Osterwalder’s company. There you’ll find not only the format of the business model canvas, but also a range of tips and sheets and information on how to best utilize it. For those of you who want to go really deep, they even offer a full business model online course.
But, don’t get too stuck in your head about it! The beauty of the business model canvas lies in its quick execution and flexibility. So what are you waiting for?
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