The Business Model Canvas is a strategic management template that helps businesses to describe, design and analyse their business models.
The canvas was invented by Alex Osterwalder, a Swiss business theorist and entrepreneur as a part of his PhD research. The Business Model Canvas was elaborated in a book called Business Model Generation co-authored with his graduate supervisor Yves Pigneur, a Belgian computer scientist. As it says on the front cover of Business Model Generation, it was also “co-created by: an amazing crowd of 470 practitioners from 45 countries". That’s an impressive collaboration.
The model is in the form of a visual chart with various elements that describe the value proposition of an organisation, its infrastructure, market and finances. The objective of the model is to assist firms to align their activities through the illustration of potential trade-offs.
This article explains the basics of the Business Model Canvas, describes why it’s useful, how to use it, and provides a downloadable template of the canvas.
The model comprises nine building blocks. They include:
Value proposition of the business
Value proposition refers to the product or service the firm intends to offer to its customers to meet their needs. It is unique to an organisation as it sets it apart from its competitors. The description may be qualitative, outlining the intended outcome and customer experience, or quantitative, describing the efficiency and price.
Shown at the left of the canvas, the organisation's infrastructure comprises three key elements. They are:
- The key activities that generate the value proposition
- The key resources it used to create value for its customers
- Its alliances or key partner networks and the things that motivate them to be part of the business model
Considered together these describe how the company delivers the value proposition.
Underneath the three infrastructure elements, at the bottom of the canvas, we put…
The cost structure section outlines all the monetary costs the business incurs while operating under the model. They could be fixed costs incurred to pay employee salaries and rent for the premises, economies of scale, variable costs and economies of scope.
On the right side of the canvas, the model analyses three aspects of the customers of the business. They include:
- Customer segments break the total market down to help identify and describe its target customers more specifically.
- Channels of delivery connect a customer segment to the value proposition. For example, an organisation can deliver value to its clients using its own channels, major distributors or both. Perhaps customers access it online, maybe they visit a store.
- The type of relationship between the business and its customers. For example, transactional, long-term, self-service, co-creation, etc.
Considered together, these describe how the customer expects to access the value proposition.
Underneath the three customer elements, at the bottom of the canvas, we detail…
This is the last of the nine components of the Business Model Canvas. It describes how the company makes money from its target market. For example, businesses can generate revenue through the sale of a physical product, selling a continuous service in the form of subscriptions, renting or leasing an asset such as a car, licensing or charging fees to advertise products.
Who can use the Business Model Canvas?
The Business Model Canvas can be used by both startups and existing businesses, including large corporations. With a little adaptation of the ideas, non-profits and social enterprises can also use the canvas.
The canvas is easy to draw on a whiteboard or a big piece of paper and you can use sticky notes to add ideas or details to each block. If you’d like to, you can grab the version of the Business Model Canvas template (redrawn by the IC) I've been referring to in this article. There are also software tools available, such as Strategyzer, that guide you through the process.
Recognising that one of the trickiest parts to get right on the canvas is the most crucial part – the value proposition at the centre – Osterwalder went on to create a second canvas tool: The Value Proposition Canvas. We’re going to profile that tool in a later article, so sign up for our newsletter or follow us on Twitter to stay tuned.