The Business Model Canvas is more of a framework than a design method. Developed by Alexander Osterwalder, the Business Model Canvas is a framework that helps business modelers, strategists, entrepreneurs as well as managers determine how a business creates, delivers and captures values. This framework guides efforts in two ways –
- One can develop prototype models for the business and test to check whether the business actually creates, delivers and captures value as intended
- One can understand, design and collaboratively innovate the business concept with all the stakeholders
The Business Model Canvas framework is a visual representation of the important aspects or parts to consider when designing a Business Model, these are
- Customer segments – There may be several distinct groups of individuals or organizations that a business aims to reach, serve and create value for.
- Value proposition – The value that the business creates for the customer segments including the products and services that deliver that value.
- Channels – The means and ways through which a business reaches its customer segments to deliver its value proposition.
- Customer Relationships – The nature of relationships that a business needs to establish with its customer segments.
- Revenue streams – The sources through which the money flows into the business.
- Cost structure – The costs incurred by a business to run.
- Key resources – The physical, financial, intellectual and human assets or resources required by a business to run.
- Key activities – The most important things that a business must do to run and create value.
- Key partners – The network of suppliers, distributors or another type of partners who will support in running the business and creating value.
Mapping the above-mentioned aspects together helps one understand and innovate around each aspect as well as figure out how each aspect interacts with another.
Starting a new enterprise or evaluating the business model of an existing one can start with the modeling team to identify or validate the gaps in the market or need of specific customer segments to deduce the value proposition of the business. The team can then further evaluate the various products and services available in the market intended to fill the gaps or address the needs of the customer segments under consideration. This exercise also involves understanding the context of different customer segments and either contextualizing an existing value proposition or creating a new value proposition entirely. Similarly, other elements of the Business Model Canvas are discussed and defined to arrive at different business model prototypes. These prototypes are then tested and validated with perceived target segments by employing design research methods such as surveys, interviews or focus groups. After the evaluation and validation of the different prototypes, one or at the most two best-fit models are picked to create a business plan. The plan represents a roadmap to implement the business concept, together with the identified key partners and resources within a stipulated timeline.
Advantages of Business Model Canvas
Business Model Canvas is a collaborative framework, which helps to bring in the different partners and business owners in sync. The quality and number of ideas getting generated are also high.
02 Framework to think through and test
This framework allows business owners, strategists and managers to think through business ideas as well as test concepts which would otherwise get tested with potential customers before big bucks get invested.
Business Model Canvas is human-centered and user/ customer-centered as the key customer segments, key relationships, key activities, value proposition are all elements that focus on creating, delivering and capturing value for customer segments.
04 Rich Data Collection
Depending on the kind of team that ideates and innovates using the Business Model Canvas, the process facilitates the collection of rich data.
05 Time & Cost Effective
As the Business Model Canvas helps ideate, innovate and test concepts before investing big bucks into an actual business that may or may not work – it saves both time and money for business owners as well as allows them to choose a business model which has a higher chance of success.
Disadvantages of Business Model Canvas
01 Experienced researcher
Facilitating ideation and innovation is not for a novice researcher, but can be accomplished by an experienced and strategic researcher.
02 Unclear Vision
If the team involved in developing the business model isn’t strategic or doesn’t have clear goals or vision for the business, then the canvas development could be a time-consuming activity which may not give insightful findings at the end.
Think Design recommendation
Business Model Canvas is a powerful tool that defines your business during foundational stages. It can also be used when we want to relook at our business to improve or transform it. This is a very involving and time-consuming exercise that needs undivided attention of decision makers (usually the founding or foundational teams).
This should be treated as a semi-structured brainstorming/ workshop session and not a formalized board room meeting, in order to achieve the best outcome. You do not want the Business Model Canvas to give you an outcome you will not use or something that is too obvious; use this to innovate/ reinvent your business model creatively.