Here's Your Intro to the Business Model Canvas

Do you feel overwhelmed at the prospect of writing (or re-writing) a business plan?

A business plan is typically at least a detailed 10-page document that can take some serious time and energy to complete. If you’re a solopreneur or a small business owner juggling a hundred other tasks, actually writing a business plan might sound… well, daunting.

I get it. I have three kids and a growing business. Careful use of time and energy is important to me. So I’m happy to tell you that there’s an alternative to a business plan. 

And it’s just one page long. Yes, a single page.

Personally, given a choice between filling out one page and typing up ten, I will take the single-page assignment.

Through Prosper Women Entrepreneurs' Mastermind Growth Group a few years ago, I had the pleasure of attending a deep-dive workshop on this one-page alternative: the Business Model Canvas. 

This is the first article in my series on the Business Model Canvas (“BMC”). I’ll be rolling out a six-step framework for completing the BMC next.

For now, we’ll be touching on the following:

1. What is the Business Model Canvas?

2. The Basic Structure of the BMC

3. Why Use a Business Model Canvas?

Let’s get started.

What is the Business Model Canvas?

For those who are unfamiliar with it, the Business Model Canvas (“BMC”) is a one-page template used to carefully vet new or existing business ideas.

Alexander Osterwalder and Yves Pigneur invented the Business Model Canvas in 2005, so this concept has been around for a while. Alexander co-founded the consultancy firm Strategyzer in 2010, which has tons of information on the Business Model Canvas. 

Strategyzer’s articles for each section of the BMC are very succinct but pack a lot of information in a small space. My goal for this series is to provide a quick-start framework and articles that act like troubleshooter guides and give more concrete examples.

If you’re a Canva user, just search “Business Model Canvas.” Choose the template you want, and customize it.

The beauty of this template is that you can see the big picture at a glance. You (and your team members, if you have them) can also express ideas in a format that makes sense to you. This is especially helpful for highly visual people who would rather summarize a concept in a single image than a wordy phrase.

Depending on your needs, you could use bullet points for each section, use images, or both! 

Now we’ll break down the template piece by piece.

Basic Structure of the Business Model Canvas

Think of the BMC as your blueprint for how you will deliver value and make money. All of the building blocks of a successful business are there. According to Strategyzer, those blocks can be divided into three main areas: desirability, viability, and feasibility.

Each of these areas covers an overarching question:

1. Desirability - Do people need my product/service and want to pay for it?

2. Viability - Is my business going to earn money with this offer?

3. Feasibility - What and who does my business need in order to continue running?

As you can see in the image above, the template is divided into nine blocks. From the right to the left of the page, they are:

1. Customer segments

2. Customer relationships

3. Channels

4. Revenue streams

5. Value propositions

6. Cost structure

7. Key activities

8. Key resources

9. Key partnerships

Customer Segments, Customer Relationships, Value Propositions, and Channels all fall under the “Desirability” category.

Revenue Streams and Cost Structure fall under “Viability.”

Finally, Key Activities, Key Resources, and Key Partnerships fall under “Feasibility.”

I’m not going to go into every little detail about each of these blocks, but I will give a quick overview of each. 

Value Proposition

Essential question: what is your business’s unique offer that solves a problem or fills a need of your target Customer Segment(s)?

I use the word unique because if your offer is too similar to your competitors, your business is unlikely to be successful. Differentiating your business starts with the Value Proposition. 

This is the area that describes the products/services that will create value for a specific Customer Segment. 

Customer Segments

Essential question: who are the groups of people your business aims to serve with its products/services?

It’s practically a rule in business (and in life) that if you try to serve everyone, you end up serving no one. In the Customer Segments block, you’re defining exactly who your customers are.

A business only stays open if it has customers. So it’s critical to figure out what type of person (or organization) is going to buy from you. Understanding your Customer Segments is critical for marketing as well as innovating new products or offering new services.

Customer relationships

Essential question: what type of relationship do you want with each Customer Segment?

There are many different types of relationships a business can have with customers.

For example, a gas station’s customer relationships will typically be transactional. Customers are there to make a purchase and get back on the road. They’re not looking for a more personal experience.

For a service-based business, such as a spa or a salon, the aim is to develop a long-term relationship with customers. Many people who get regular massages or have particular preferences about their hairstyle are looking for a long-term relationship with a service provider. 

More recently, businesses are experimenting with creating communities or inviting customers into a co-creating relationship (think YouTube).

Your Customer Relationships will inform how you interact with potential or existing customers via your Channels.

Channels

Essential question: how will your business reach each Customer Segment?

Channels include every touch point through which you communicate, distribute, and sell to your Customer Segments. This would include things like your social media, website, store, or office.

Your Channels are meant to create a certain experience for your customer every step of the way. From evaluating your Value Proposition all the way to post-purchase support, you are creating and selling not only a product or service but a specific experience.

Certain Channels will be the means for revenue to come into your business, whether it’s your website or a checkout point in a store.

Revenue Streams 

Essential question: what are customers willing to pay for the value your business provides?

There are several types of Revenue Streams, and each Customer Segment might generate a different type of Revenue Stream. 

You may, for example, have a clothing retail business where customers can make one-off purchases or purchase a monthly subscription of curated pieces. 

If you run a bed and breakfast, you would charge a “usage fee” for the guests’ stay in one of your rooms. You could also rent out event space for parties, weddings, and meetings. Notice that these two types of revenue streams come from different Customer Segments.

Cost Structure

Essential question: what are all of the important costs associated with my business?

Cost Structure usually falls in a spectrum between two types: Cost-Driven and Value-Driven.

On the Cost-Driven end of the spectrum, businesses try to minimize costs as much as possible. There are plenty of online-only businesses that do this.

On the Value-Driven side, businesses focus more on value creation than cost-minimization. Take, for instance, a luxury spa with state-of-the-art lighting, exclusive services, and high-end product lines. The focus is mainly on the value of the experience for the customer.

Most businesses fall somewhere in between these two extremes. 

A business’s Cost Structure can have a few different attributes, depending on the business. The terms for these attributes are:

• Fixed costs

• Variable costs

• Economies of scale

• Economies of scope
  
  

Key Activities

Essential question: what are the activities that are required to keep the business going?

Your business’s Key Activities are all of the actions that must be performed in order for your business to continue to operate and sustain itself. Key Activities will differ depending on the type of business you have.

A gourmet food retail business’s Key Activities are not going to be quite the same as those of a subscription meal planning service because their business models are very different.

Service-based businesses may have some similarities, but certainly not identical Key Activities. Hair salons and wealth management firms tend to have long-term client relationships, but their Key Activities are going to differ as much as their services do.

Ask yourself what Key Activities will help you…

• Create and offer your Value Proposition.

• Reach your Customer Segments.

• Maintain Customer Relationships.

• Earn revenues.

Now, in order to engage in some of your Key Activities, you’ll need certain Key Resources.

Key Resources

Essential question: what are the resources necessary to keep the business running?

Your Key Resources can be…

• Material

• Intellectual

• Financial

• Human

No matter what your business is, you’ll require something from each of the above categories. 

However, depending on your business model, you may need more of one or the other resource. For example, a manufacturing business will depend quite heavily on material resources, whereas a medical practice is going to lean more on human resources.

Some of these Key Resources, such as materials to create a product or even the products you sell, must be acquired from Key Partnerships.

Key Partnerships

Essential question: who are the people and organizations that are necessary to keep the business running?

Businesses are increasingly partnering with other businesses in order to reduce risks, acquire resources, and optimize their business models.

Here are a few examples of Key Partnerships a business may have:

• Accounting firm

• Law firm

• Manufacturer

• Software developer

• Website designer

• Brand consultancy

• SEO agency

Most likely, many of your Key Partnerships are necessary for obtaining Key Resources and/or performing Key Activities. The importance of understanding who your Key Partnerships are is vital to running a sustainable business.

This brings us to why a Business Model Canvas is a critical tool for entrepreneurs. 

Why Use a Business Model Canvas?

The workshop I attended opened my eyes to the benefits of the Business Model Canvas. Honestly, I believe every small business should complete the BMC at least once. Here are five reasons why:

1. Gives you the big picture of your business at a glance
   
   Imagine you’re building a house (bear with me, I promise this is going somewhere). You meet with builders who have a few different models to choose from. Would you rather read a detailed description of what the house will look like or see the blueprint first?
   
   You’ll probably want to see the blueprint! Think of the Business Model Canvas as a blueprint. You are able to see all the connections between different aspects of the business on a single page.
   
   I’m not saying there’s no place for a business plan. If you are looking to onboard certain partners to your business, then a business plan is great!
   
   But for you, the business owner specifically, it is critical that your business model’s reference document is easy to navigate and present to key internal stakeholders. The BMC serves that purpose.
   

2. Easier to adjust and edit
   
   Is it easier to change an entire paragraph or a one-sentence bullet point?
   
   Exactly my point. Because it’s a short-form method of business modeling, the BMC is much more easily adjusted when you see that something isn’t working.
   
   And when you need your team’s input, you can…
   

3. Easily share it with a team
   
   Whether you meet in person, over Zoom, or create a shared Google document and hop on a team call, the single-page BMC is much easier to share with your team.
   
   Your team members won’t have to read a long document in order to contribute to the conversation. The BMC has the business model’s information at-a-glance, so your busy team members can quickly give feedback.
   

4. Saves time and energy
   
   Which do you think would be more time-consuming: filling out a one-page BMC template… or writing up 10 - 15 pages about your business?
   
   Most of us can’t just whip out 10 pages in a couple of hours (well, thoughtfully). But a BMC template? Probably not going to take as long.
   
   The great thing about the BMC is that filling one out also…
   

5. Helps you write a business plan!
   
   Business plans are not bad. They just don’t do the same thing as a BMC. Depending on your business, you may need to write a business plan for an outside investor or in securing a loan. In that case, filling out a BMC template will make it so much easier to write that document.
   
   You’ll have your business model on a single page with all of the components sketched out. With the business plan, all you’ll need to do is elaborate.

Ready to Give the Business Model Canvas a Try? 

I hope this overview of the Business Model Canvas has been useful and empowering as you navigate the sometimes wild world of being a small business owner!

This tool has been so helpful for my business WorthyNest®, and I simply wanted to share it with other entrepreneurs.

If the BMC sounds appealing to you, you can check out my next post in this series! I’ll be providing a six-step framework for filling out a Business Model Canvas template.

As I said earlier, you can find the template on Canva or download it from Strategyzer. You could also simply draw the template yourself on a big piece of paper if so inclined.