What is a Business Model Canvas?
A business model canvas is a planning tool typically consisting of a single page that outlines the essential building blocks necessary to bring a business (or a product or service) to market.
A strategic management template, a business model canvas easily and efficiently communicates a business idea or concept, and it’s used for both new business ideas as well as for documenting the fundamentals of an existing business, product, or service.
Definition of a business model canvas
Swiss business theorist and entrepreneur Alexander Osterwalder introduced the original concept of a business model canvas based on “Business Model Ontology,” a book he published in 2004. Osterwalder’s business model canvas template consists of nine fundamental building blocks that create a visual chart to communicate a company’s value proposition, market, finances, and infrastructure. Several iterations designed for specific niches and use cases now exist based on the original business model canvas concept.
It’s simpler than a complete business plan. Startups use the business model canvas to evaluate business models and identify the best business model to bring their products or services to market. Established companies use it to manage their strategies or explore opportunities to expand to new products, service lines, or markets.
Key elements of a business model canvas
There are nine elements in a standard business model canvas. The categories are customizable to meet specific needs or unique circumstances. The nine primary categories in a business model canvas include:
- The value proposition — The value proposition is a description of the customer needs the product, service, or business satisfies and the core value it delivers to the customer.
- Customer segments — The customer segments section describes the target customer or the consumer whose problem you’re solving as referenced in the value proposition section.
- Key partners and suppliers — This section includes details on the company’s key partners and suppliers as well as the motivations for the partnerships.
- Key activities — Key activities include the steps the business must take in order to deliver on the value proposition.
- Key resources — This section details the resources required to deliver on the value proposition and satisfy the customer’s need.
- Customer relationships — This section outlines the relationship the customer expects and how the company will support its target market or customer base.
- Channels — The channels category includes details about how customers want to be reached, how the business communicates with its customers, and the distribution channels used to deliver products or services.
- Cost structure — This section describes the costs to develop and produce a product or service (the cost of the activities and resources required). Business model canvases used to explore and compare opportunities or strategies may also include opportunity cost in this section.
- Revenue streams — This section details how the company earns revenue such as fee for service, subscription, fixed rate, etc. It can also include information on what customers prefer to pay for the product or service and any products or services offered free. There may be several revenue streams.
How to use a business model canvas
Companies use the business model canvas for several purposes. A business can map competitors on a business model canvas for competitive analysis or as a means to uncover untapped opportunities in the market. Companies also use the business model canvas to ensure alignment between the company’s partnerships, activities, and value proposition and to ensure that it’s meeting customer needs.
The business model canvas is an especially useful tool for exploring potential business opportunities or developing new business ideas. For instance, an entrepreneur can use the business model canvas to map out the various resources, partners, activities, and costs involved in bringing an idea to market. Investors can use the business model canvas to explore the viability of a business concept. Founders can use it to plan a business model that effectively addresses a need in the market by mapping and connecting the fundamental building blocks.
The business model canvas is a useful tool for entrepreneurs, startups, and established businesses. Offering a standard template that provides a high-level view of a business concept, product, or service, the business model canvas has many practical and strategic uses.