Business Model Canvas is a strategic management and lean startup template for developing new or documenting existing business models. It is a visual chart with elements describing a firm’s or product’s value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.
The nine “building blocks” of the business model design template that came to be called the Business Model Canvas were initially proposed in 2005 by Alexander Osterwalder based on his earlier work on business model ontology. Since the release of Osterwalder’s work around 2008, new canvases for specific niches have appeared.
Formal descriptions of the business become the building blocks for its activities. Many different business conceptualizations exist; Osterwalder’s 2004 thesis and coauthored 2010 book propose a single reference model based on the similarities of a wide range of business model conceptualizations. With his business model design template, an enterprise can easily describe its business model. Osterwalder’s canvas has nine boxes; the name of each is given in bold below. Descriptions below are based largely on the 2010 book Business Model Generation.
Key Activities: The most important activities in executing a company’s value proposition. An example for Bic, the pen manufacturer, would be creating an efficient supply chain to drive down costs.
Key Resources: The resources that are necessary to create value for the customer. They are considered assets to a company that are needed to sustain and support the business. These resources could be human, financial, physical and intellectual.
Partner Network: In order to optimize operations and reduce risks of a business model, organizations usually cultivate buyer-supplier relationships so they can focus on their core activity. Complementary business alliances also can be considered through joint ventures or strategic alliances between competitors or non-competitors.
Value Propositions: The collection of products and services a business offers to meet the needs of its customers. According to Osterwalder (2004), a company’s value proposition is what distinguishes it from its competitors. The value proposition provides value through various elements such as newness, performance, customization, “getting the job done”, design, brand/status, price, cost reduction, risk reduction, accessibility, and convenience/usability.
The value propositions may be:
Quantitative – price and efficiency
Qualitative – overall customer experience and outcome
Customer Segments: To build an effective business model, a company must identify which customers it tries to serve. Various sets of customers can be segmented based on their different needs and attributes to ensure appropriate implementation of corporate strategy to meet the characteristics of selected groups of clients. The different types of customer segments include:
Mass Market: There is no specific segmentation for a company that follows the Mass Market element as the organization displays a wide view of potential clients. e.g. Car
Niche Market: Customer segmentation based on specialized needs and characteristics of its clients. e.g. Rolex
Segmented: A company applies additional segmentation within existing customer segment. In the segmented situation, the business may further distinguish its clients based on gender, age, and/or income.
Diversify: A business serves multiple customer segments with different needs and characteristics.
Multi-Sided Platform / Market: For a smooth day-to-day business operation, some companies will serve mutually dependent customer segments. A credit card company will provide services to credit card holders while simultaneously assisting merchants who accept those credit cards.
Channels: A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost-effective. An organization can reach its clients through its own channels (store front), partner channels (major distributors), or a combination of both.
Customer Relationships: To ensure the survival and success of any businesses, companies must identify the type of relationship they want to create with their customer segments. That element should address three critical steps on a customers relationship: How the business will get new customers, how the business will keep customers purchasing or using its services and how the business will grow its revenue from its current customers. Various forms of customer relationships include:
Personal Assistance: Assistance in a form of employee-customer interaction. Such assistance is performed during sales and/or after sales.
Dedicated Personal Assistance: The most intimate and hands-on personal assistance in which a sales representative is assigned to handle all the needs and questions of a special set of clients.
Self Service: The type of relationship that translates from the indirect interaction between the company and the clients. Here, an organization provides the tools needed for the customers to serve themselves easily and effectively.
Automated Services: A system similar to self-service but more personalized as it has the ability to identify individual customers and their preferences. An example of this would be Amazon.com making book suggestions based on the characteristics of previous book purchases.
Communities: Creating a community allows for direct interactions among different clients and the company. The community platform produces a scenario where knowledge can be shared and problems are solved between different clients.
Co-creation: A personal relationship is created through the customer’s direct input to the final outcome of the company’s products/services.
Cost Structure: This describes the most important monetary consequences while operating under different business models. A company’s DOC.
Classes of Business Structures:
Cost-Driven – This business model focuses on minimizing all costs and having no frills. e.g. Low-cost airlines
Value-Driven – Less concerned with cost, this business model focuses on creating value for products and services. e.g. Louis Vuitton, Rolex
Characteristics of Cost Structures:
Fixed Costs – Costs are unchanged across different applications. e.g. salary, rent
Variable Costs – Costs vary depending on the amount of production of goods or services. e.g. music festivals
Economies of Scale – Costs go down as the amount of goods are ordered or produced.
Economies of Scope – Costs go down due to incorporating other businesses which have a direct relation to the original product.
Revenue Streams: The way a company makes income from each customer segment. Several ways to generate a revenue stream:
Asset Sale – (the most common type) Selling ownership rights to a physical good. e.g. retail corporations
Usage Fee – Money generated from the use of a particular service. e.g. UPS
Subscription Fees – Revenue generated by selling access to a continuous service. e.g. Netflix
Lending/Leasing/Renting – Giving exclusive right to an asset for a particular period of time. e.g. Leasing a Car
Licensing – Revenue generated from charging for the use of a protected intellectual property.
Brokerage Fees – Revenue generated from an intermediate service between 2 parties. e.g. Broker selling a house for commission
Advertising – Revenue generated from charging fees for product advertising.
The Business Model Canvas can be printed out on a large surface so groups of people can jointly start sketching and discussing business model elements with post-it note notes or board markers. It is a hands-on tool that fosters understanding, discussion, creativity, and analysis. It is distributed under a Creative Commons license from Strategyzer AG and can be used without any restrictions for modeling businesses.
The Business Model Canvas is also available in web-based software format.
The Business Model Canvas has been used and adapted to suit specific business scenarios and applications. Examples include:
Lean startup § Lean Canvas
The Business Model Canvas has been characterized as static because it does not capture changes in strategy or the evolution of the model nor much detail about the interaction between the components and how this makes the model work. Some limits of the template are its focus on organizations and its consequent conceptual isolation from its environment, whether this is related to the industry structure or to stakeholders such as society and natural environment.
Barquet, Ana Paula B., et al. “Business model elements for product-service system”. Functional Thinking for Value Creation. Springer Berlin Heidelberg, 2011. 332–337: They stated that “The Canvas business model was applied and tested in many organizations (eg IBM and Ericsson), being successfully used to easily describe and manipulate business models to create new strategic alternatives.”
De Reuver, Mark, Harry Bouwman, and Timber Haaker. “Business model roadmapping: A practical approach to come from an existing to a desired business model”. International Journal of Innovation Management 17.01 (2013): They described the business model canvas as the “Most prominent… popular tool that makes it simple for practitioners to design business models in a creative session.”
Osterwalder, Alexander; Pigneur, Yves; Clark, Tim (2010). Business Model Generation: A Handbook For Visionaries, Game Changers, and Challengers. Strategyzer series. Hoboken, NJ: John Wiley & Sons. ISBN 9780470876411. OCLC 648031756. With contributions from 470 practitioners from 45 countries.
Osterwalder, Alexander (2005-11-05). “What is a business model?”. business-model-design.blogspot.com. Archived from the original on 2006-12-13. Retrieved 2019-06-19. … we could define a business model as a simplified description of how a company does business without having to go into the complex details of all its strategy, processes, units, rules, hierarchies, workflows, and systems. However, now that we know that the business model is a simplified representation of how we do business, we still have to decide which elements to describe. A synthesis of literature shows that there are mainly 9 building blocks to help us describe a business model …
Osterwalder, Alexander (2004). The Business Model Ontology: A Proposition In A Design Science Approach (PDF) (Ph.D. thesis). Lausanne: University of Lausanne. OCLC 717647749. See also: Osterwalder, Alexander; Pigneur, Yves; Tucci, Christopher L. (2005). “Clarifying business models: origins, present, and future of the concept”. Communications of the Association for Information Systems. 16 (1): 1. doi:10.17705/1CAIS.01601.
Osterwalder, Alexander (2008-07-02). “What is a business model?”. business-model-design.blogspot.com. Archived from the original on 2008-09-06. Retrieved 2018-10-17.
“Business Models: Do the right thing”. blog.bizzdesign.com. Archived from the original on 2015-04-02. Retrieved 2015-03-28.
“Can I use the Business Model Canvas or Value Proposition Canvas in my own teachings or public projects?”. support.strategyzer.com. Retrieved 2015-03-22.
“Business Model Canvas for User Experience”. grasshopperherder.com. 2012-06-19. Retrieved 2012-06-20.
“Lean Model Canvas vs. Business Model Canvas”. practicetrumpstheory.com. Archived from the original on 2014-04-26. Retrieved 2014-04-25.
“Internal Communication Canvas”. eee.do. 2016-04-28. Retrieved 2016-05-28.
Sinkovics, Noemi; Sinkovics, Rudolf R.; Yamin, Mo (2014). “The Role of Social Value Creation in Business Model Formulation at the Bottom of the Pyramid – Implications for MNEs?”. International Business Review. 23 (4): 692–707. doi:10.1016/j.ibusrev.2013.12.004.
Romero, María Camila; Sánchez, Mario; Villalobos, Jorge (2017). “Business model loom: a pattern-based approach towards the definition of business models”. In Hammoudi, Slimane; Maciaszek, Leszek A.; Missikoff, Michele M.; Camp, Olivier; Cordeiro, José (eds.). Enterprise Information Systems: 18th International Conference, ICEIS 2016, Rome, Italy, April 25–28, 2016, Revised Selected Papers. Lecture Notes in Business Information Processing. 291. Cham: Springer-Verlag. pp. 463–487. doi:10.1007/978-3-319-62386-3_21. ISBN 9783319623856. OCLC 992990130. The critical problem with current business model representations is the focus on a structural dimension (e.g., Osterwalder’s Canvas, or Gordijn’s e3-value). In particular, they leave (mostly) aside the specification of how business models components interact and behave in order to make the model work. Therefore, only a partial understanding of the business can be achieved with these business models.
Searle, Nicola; White, Gregor (2013). Towse, Ruth; Handke, Christian (eds.). “Business Models”. In Handbook on the Digital Creative Economy. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing: 45–56. doi:10.4337/9781781004876.00014. ISBN 9781781004876.
Bocken, N.M.P.; Rana, P.; Short, S.W. (2015). “Value mapping for sustainable business thinking”. Journal of Industrial and Production Engineering. 32 (1): 67–81. doi:10.1080/21681015.2014.1000399.
Sparviero, Sergio (2019). “The Case for a Socially Oriented Business Model Canvas: The Social Enterprise Model Canvas”. Journal of Social Entrepreneurship. 10 (2): 232–251. doi:10.1080/19420676.2018.1541011.