Starting a business begins with one great idea, but requires a long process of planning, strategising, and expanding your concept into a model for success. Your business plan will quickly become complicated and messy if you're not careful. That's why learning about the business model canvas is your best chance at an organised and controlled process.
Whether you're starting from scratch or you already have an existing business model, the business model canvas can help you design and manage your business model ideas.
But what is the business model canvas and how do you use it? Use this guide to the business model canvas to set your new business up for success.
What is the Business Model Canvas?
Simply, the business model canvas is a one-page chart designed to help you map out your business model. If you have an existing business model, it helps you to divide different aspects of your business into sections that you can evaluate. If you haven't started your business yet, you can use the chart to ask yourself the right questions and build all the important pillars of your business model.
The business model canvas originated from a bestselling management book by Alex Osterwalder and Yves Pigneur in 2009. Since then, it has been wildly successful and used across the globe for several different applications. For the sake of this article, we will focus on small and medium-sized businesses that are looking to build a solid business model.
Alex Osterwalder now works at Strategyzer and continues to offer great resources for business leaders. Many of these resources will require you to handle the process on your own, but you can reach out to a business consultant that will help guide you through the exercise and apply the model you've created.
Benefits of Using the Business Model Canvas
There are many reasons why using a business model canvas is a great idea for your small or medium-sized business. One of the biggest advantages is that you'll be starting off on the right foot with a much better chance of survival.
According to Gallup, half of the businesses started by entrepreneurs fail within five years. Starting a business is certainly risky, no matter how prepared you are. There are some common reasons, however, that these businesses never get up off the ground.
- The owner isn't open to different ideas or adapting
- The business concept wasn't fully explored to find gaps and flaws
- Buyer personas weren't discussed to identify target consumers
- The owner couldn't ever fully express the business idea to lenders, investors, or partners
When you are risking your livelihood to start a business, you want to be certain you've tried every avenue and put in all your effort. Completing a business model canvas exercise will help you avoid all these common mistakes. You'll be able to:
- Fully explore your business concept, strategy, and target consumer
- See your business model as a whole to identify areas that need work
- Invite collaboration and creativity from partners
- Easily adjust as you go because you can see the structure of your business at a quick glance
- Effectively share your plan and ideas with lenders and pitch to investors using the canvas
In conclusion, the business model canvas is an amazing way to get your business started on solid ground. It will also always be there to reference even after you've started expanding on your ideas.
How to Use the Business Model Canvas
Many business owners spend time writing out a business plan, which is a much more detailed expression regarding business goals and strategies. Experts recommend that business plans be as long as 30 to 50 pages, but you can condense this process down to a single page. The business model canvas allows you to look at the bare bones of your business with a much simpler and quicker exercise.
As you're checking out the business model canvas, think of it as a formula you can use to build your hypothesis. In theory, your business will be successful as long as you follow the plan on the page.
On the one-page chart, there are 9 boxes dedicated to different aspects of your business model. As you consider each box, think of it both as an individual aspect and as a team-player with the other boxes. If you're just now starting to expand on your business idea, it's okay to go through a few drafts of this exercise before you finalise it.
The business model canvas helps you get down your business ideas on paper by separating its aspects into key elements:
- Value Proposition
- Customer relationships
- Customer and market segments
- Key partners
- Key activities
- Key resources
- Cost structure
- Revenue streams and pricing model
Being able to express both simply and in detail how your business model fills in these categories is helpful for many reasons. First, you'll need to understand these elements fully to successfully implement your model. Second, potential lenders and investors will want to understand these elements of your business before they make a decision about investing in you.
Fill in the Boxes
Filling out the business model canvas should only take about 30 minutes if you have a full understanding of your business. Follow the boxes in order from value proposition to revenue streams, which will help your business model go from theoretical to practical and concrete. By the time you are done, you should be able to visualise the entire picture of your business.
Test Your Hypothesis
Once you've filled in the chart completely, go back and evaluate how all the pieces fit together. Make sure that all the boxes have strong plans, and try to narrow down any phrasing or concepts that are too broad and undefined.
After you finalise your business model canvas, begin implementing the plan. If you already have a running business, this is as easy as using the chart to alter your current systems. You don't need to completely start over, however. Try to experiment with your new model by running tests like A/B testing.
For example, if you've decided to change your pricing model, you could try offering both the original and new pricing model to customers to build data on both models. Then, evaluate which pricing model got better feedback and made you more profitable.
Use the results you've received from all your testing to make changes to your business strategy. This might involve scratching out a box or two on your chart and replacing them with improved ideas. Or, you could save your original chart and start fresh with a new one so that you can track your evolution as you go.
If you get unexpected results from your strategies, don't be afraid to accept those results and make changes. You might be excited about that new pricing model, but if it doesn't work out for your customers, you can't hold onto it. Even if changing one box in your chart forces you to change other boxes, you'll need to trust the process to be successful.
Be Open to Revisiting Your Model As You Grow
If you've built a successful business model that has allowed you to grow your business, congratulations. This is a huge accomplishment you should be proud of. On the other hand, you can't stay partial to this original plan.
The market is continually evolving, customers change, and economic trends can alter the way your business model works. A business model that worked ten years ago will most likely need to be altered at least a little, so it's important to stay open to changing your original business model canvas.
Always check your current model against your past and present success. If you're noticing a downturn, you should reevaluate your model and find the source of the failure. Think of your business model as a living, breathing thing that should adapt to the times.
Business Model Canvas Key Elements
Don't quite understand exactly what should go in each box on the business model canvas? For a first-time business owner, these elements are certainly new and intimidating. Once you've understood each element, however, you'll be very happy you took the time to evaluate your business idea from these angles.
Strategyzer recommends that you start with the customer segments box on the business model canvas. This is a great place to start if you're building a business from scratch because it helps you identify potential target consumers and focus on the ones that promise the most revenue for your business idea. If you already have a business, use your current customers as a starting point to build out customer segments and even identify new ones that you haven't taken advantage of yet.
Customer segments include all the individuals and organisations who would find value in your business. Think about who would benefit most from the products and services you plan to offer and write them down in the box.
It's difficult to concisely narrow down our big ideas into simple statements, but you must do this to properly communicate your business idea. Your value proposition should encapsulate the mission of your business. In other words, it should express the problem that your business solves and how.
You'll need to work on it a bit, but you should be able to cover these elements in a single sentence:
- Pain points of your target consumer
- The products or services your business offers to solve the pain points
- How your business differs from the competition, or your unique selling point (USP)
You can take a huge breath after you finish drafting this sentence. Now you have the perfect answer for any time a potential lender, investor, or partner asks about your business.
The third box you should tackle is the channels box, which will help you identify how you plan to deliver the solutions in your value proposition to the customer segments you've identified. You should include all the touchpoints through which you interact with customers to deliver value, including:
- The channels through which your target customers generally spend money and time
- How you will offer your products and services through those channels
In short, this box should cover all the details on how your value will meet your target customers easily and convincingly to get conversions.
Now that you've identified your customers and their pain points, you can further explore this segment of your value proposition. Fill in this box by expressing how you wish your customer relationships will go.
- Ways you'll communicate and build connections throughout the customer journey
- Where your customers congregate and how you'll meet them there
- What your business environment will look and feel like for customers
This section of the canvas is crucial for understanding how you'll reach your target consumer and what type of atmosphere your business will create for customers.
In the revenue streams box, you should get into detail about how your customers will pay you for your products and services. This box will cover your pricing models for the specific values you offer. If you also offer things for free, you should include these here.
Once you finish, you should make sure that your pricing models and free offerings will allow you to profit while delivering value.
Your key resources box will cover exactly what resources you need to create and offer your products and services to your customers. By listing these resources, you'll be able to identify essential assets that you should focus on in your business. These resources include financial, intellectual, physical, and human resources.
In this box, you should cover exactly what processes you need to perform daily, monthly, and yearly to make sure your business runs. This will include actions required to produce and sell your products and services. If you find that you're listing actions that don't directly help you accomplish delivering value, then you should reconsider their importance to your business model.
Your key partners go hand in hand with your key resources. If you need physical labour and transportation for producing and delivering your products, then you'll need partners who can offer those resources. Think about your suppliers, distributors, and other organisations that help you in your business model.
Hit the Ground Running With Your Business
Taking the time to express your business idea in a business model canvas will be a much more effective way to build and test the success of your model rather than writing out a business plan or winging it completely. Try to complete this exercise before you begin implementing or altering business practices.
If you need further help, Lift Strategies is a trusted consulting agency that can walk you through the business model building and testing process. Whether you're a small or medium-sized business, Lift Strategies can help with anything from business strategy to digital marketing. Contact us today to get started with a free discovery session.