Business Model Canvas Explained – The Business Model Canvas (BMC) is a strategic management tool to quickly and easily define and communicate a business idea or concept.
This is a one-page document that works through the fundamental elements of a business or product, structuring the idea in a coherent way.
Business Model Canvas Explained
The right side of the BMC focuses on the customer (external), while the left side of the canvas focuses on the business (internal).
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Both external and internal factors meet around the value proposition, which is the exchange of value between your business and your customer/customers.
Generally, value from a customer is exchanged for money when a problem is solved or a pain is alleviated for them by your business.
A good way to approach this for users/customers is to look at your customer segments and figure out where your product/service solves your customer’s problem based on Maslow’s Hierarchy of Needs.
If you sell your product or service to another business, you are their key partner in achieving their value proposition for their customers.
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It is important to have context around the goals the company is trying to achieve for their Customer segments and where your business/product/service fits in the value chain.
Customer segmentation is the practice of dividing a customer base into groups of individuals who are similar in certain ways, such as age, gender, interests, and spending habits.
Another thing to measure and understand is the size of your market and how many people are in your Customer Segment. This will help you understand your market from a micro and macro perspective.
A great place to understand your customer is to create customer personas for each of your Customer Segments.
Why Use The Business Model Canvas
A good place to start understanding your customer is to create customer personas for each of your customer segments.
OK, so we know our value proposition and have developed Personas to better understand our Customer segments or “customers”, but what is our relationship with our customers?
So do you meet them in person? Or by phone? Or is your business primarily online, so relationships will be online as well?
A really useful step is to create a user journey map of your customers as they interact with your business.
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This helps clarify the points of engagement between you and your customer and the ways you interact with your customers.
This will also help you begin to define your operation as a business and will also help you identify opportunities for automation.
Channels are defined as the ways in which your customer interacts with your business and becomes part of your sales cycle.
Your business/product core activities are the actions your business takes to achieve the value proposition for your customers.
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Next, you need to think about what practical resources are needed to achieve the main business activity(ies).
Key partners are a list of other external companies/suppliers/parties that you may need to achieve your core business and deliver value to the customer.
This shifts to “if my business can’t achieve the value proposition alone, who else should I rely on to do it?”
An example of this is “if I sell groceries to customers, I might need a local baker to supply my store with fresh bread.”
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Revenue streams are defined as the way your business converts your Value Proposition or solution to a customer problem into financial gain.
It’s also important to understand how to price your business in terms of the pain of buying versus the pain of solving a problem for your customer.
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It’s a powerful business ideation, modeling and strategic planning tool that helps you discover how your business will operate and make money. It can be used to manage your existing business. Startup founders can also use it to validate their business idea and minimize the risk of failure before launching their business.
A business model canvas (BMC) is a strategic management template used to organize and visualize the key elements that make a business model work.
A business model canvas is a conceptual framework that supports the viability of a business and explains who the business serves, what it offers, how it offers it, and how it achieves its goals.
It’s an important business development and strategy tool that helps you validate your business idea before spending too much time and effort on it.
Using The Business Canvas Model Explained And Template
Conceptualized by Professor Alex Osterwalder, a business model canvas is a template used to represent the various components of running a business.
Originally published in the Business Model Design book, entrepreneurs and startups have used the Business Model Canvas to help them visualize the broad overview of their business.
The Business Model Canvas template has nine main components (or sections), and each section helps answer the questions of what, how, and who your business operations are;
To download this business model canvas template, right click on the image above and select “save image as” or you can click here to get a printable PDF version of the same.
Business Model Canvas Examples
The right side of the business model canvas focuses on the customer and the left on the business. Both parties come together at the center of the value proposition to signify the exchange of value between your business and customers.
Think of the components of the business model canvas as a common language that helps you describe your business in a structured way. This common language makes it easy for anyone to understand how your business works, what its assumptions and dependencies are, and more.
Customer segments are groups of target prospects with similar needs and characteristics. They are identified based on factors such as demographics, psychographics, behavioral patterns, etc.
Your entire business model revolves around your customer. Therefore, it is very important to understand your customer’s needs and how you are going to provide value for them. This will also help you identify your key areas.
The Business Model Canvas Explained: Customer Relationships
People living in a particular geographic location (customer segment) will have different needs and wants than people living in another part of the country.
If your target market is high-income women, your value proposition, marketing and positioning strategy, etc. will be very different from the middle class customer market.
Think of it as the promise of tangible benefits your customers will get from consuming or experiencing the offering.
Starbucks offers an experience in the form of a coffee shop environment that allows customers to enjoy premium coffee. Customers buy Starbucks because it helps them relax, socialize and spend quality time in their busy lives.
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A value proposition is critical to mapping your business model canvas because it helps you understand your company’s competitive advantage, what sets your company apart from the competition in the eyes of customers.
Channels refer to the path a business takes to communicate and deliver its offering to the end consumer.
If you run a small coffee shop near a college campus, the best way to connect with students and prospective customers is through word of mouth and social media. Your distribution and sales channels may include dine-in, takeout, UberEats, and more.
However, if you open a coffee cart in a busy part of town, your distribution channels will be different. You should focus on spots frequented by office goers or working professionals, perhaps even vending machines or company canteens.
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Customer relationship defines the degree of intimacy or intensity of involvement between a brand and a customer, including frequency of purchase, loyalty, etc.
Starbucks builds strong customer relationships by communicating directly with its customers through email. They also offer rewards for frequent customers in the form of free coffee, discounts, and more.
Customer relationships are critical to the success of your business because through these relationships you will deliver value to your customers. When done right, customer relations can lead to customer referrals and word of mouth marketing at no cost to you.
In other words, it is the way the company makes money through its offering. It includes both primary and secondary income.
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Example – Starbucks generates its primary revenue through regular customers who specifically choose Starbucks over the competition because of their value proposition and customer experience. Their secondary source of income includes selling coffee beans or products on their online store, etc.
Key activities refer to activities that help you deliver your value proposition. Planning, organizing, staffing, controlling, and more, these activities will keep your business running efficiently.
They are the most important activities that enable your business to run smoothly and deliver its value proposition.
For example, the main activities of a Coffee-shop would include roasting coffee beans, making coffee, managing servers, taking orders, delivering the order to the customer.
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For a PC manufacturer, the main activities will be the design of PCs, the supply of PC components, and the production
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