Clarify your business model with the Business Model Canvas

In our fast-changing world, it has become both commonplace and essential to constantly challenge your business model to either leverage or counter disruptive forces. There are many effective models to use as support, models that help you map drivers while evaluating how the different parts interact. One of the most widely used is the Business Model Canvas. Here we thought we'd give you an idea of how it works and how best to use it.

What is a business model?

In business economics, a business model is a theoretical description of how a company, or a business activity, is supposed to work. It is a conceptual tool with components that describe interrelationships so that the business logic of a particular activity can be concretely described. The business model includes elements such as a revenue model that describes how revenue is earned, a production model that describes how goods and services are produced, and a delivery model that describes how goods or services are delivered to the customer.

What is the Business Model Canvas?

The Business Model Canvas is a tool developed by Dr. Alexander Osterwalder and Dr. Yves Pigneur and has become a standard for working with business models and business model innovation. This tool describes the business in a comprehensive way based on nine building blocks that together form the main areas of a business; customers, offering, infrastructure and financial viability:

1. Customer segment
2. Value proposition
3. Channels
4. Customer relations
5. Revenue streams
6. Key resources
7. Key activities
8. Key partners
9. Cost structure

How does the Business Model Canvas work?

The Business Model Canvas is a visual map that describes a company's offer, infrastructure, customers and finances. It can be printed in large format so that several participants in a group can work on filling it in together. For example, using post-it notes in step one and filling in the boxes on the canvas in step two. This type of worksheets are concrete and proven tools that facilitate understanding, discussion and analysis. The worksheets allow you to reflect on each part of your business model with a systematic approach, so you can map each part to the whole. Some advantages over traditional business strategy models are that you can:

• Focus better on what drives your business and clarify the benefits
• Be flexible and 'tweak' each part as you see it overall on a page
• Create understanding of your vision and thoughts as you need to keep it short on one page
• Facilitate decisions because you can always connect to the strategy you described on the canvas

How do you use the Business Model Canvas?

1. Start by thinking about who you want to involve in the strategy process. It should not be too many and those involved need to be able to add real value to the discussions and implementation.
2. Set aside enough time to discuss all the elements in detail but also to formulate concise and understandable descriptions for each box. Preferably one or two half-days with time for reflection and room for innovation.
3. Start by giving a background and explaining the purpose and ambition of the exercise. Also give a good introduction to the concept and approach of the Business Model Canvas.
4. Use a whiteboard to draw the model with all the boxes so that you can use it to reflect, prioritize, build consensus and describe your conclusions. Better still, use a large-scale printout of the model in A1 or A2 format to gather around. Start the work in each box with a brainstorming session where each participant writes down their thoughts on post-it notes and puts them in the box.
5. Go through the proposals. Discuss and prioritize to reach consensus and find a clear concise description that makes it easy to understand the meaning.
6. Then move on to the next box and work through the whole model.
7. Once all the boxes are filled in, it is time to photograph the whiteboard and/or compile the worksheet and finalize it in a format that is easy to distribute and get further feedback on or implement in the organization.

What issues are important?

As described earlier, the Business Model Canvas normally consists of nine building blocks and the canvas itself consequently consists of nine fields, one for each building block. Here we have compiled a number of questions per building block that may be important to ask to drive the discussion forward.

1st customer segment

Defines the different groups of people or businesses an organization aims to reach and serve.

• For whom do we create value?
• What are our key segments?
• Who are our main customers in each segment?
• Who are the decision-makers and influencers in each segment?

2. customer relations

Describes the type of relationship the organization establishes with the different customer segments.

• What kind of relationships do customers from each segment expect us to establish and maintain with them?
• What kind of relationships do we have today?
• How are they integrated into our business model?
• How costly are they?

3. Value proposition

Describes the combination of services and products that create value for a specific customer segment.

• What value do we deliver to our customers?
• Which of our customers' problems do we help solve?
• What solutions in terms of products and services do we deliver to each customer segment?
• Which of our customers' needs do we meet?

4. channels

Describes how an organization communicates with and reaches the selected customer segments to deliver the value proposition.

• Through which channels do our different customer segments want to be reached?
• How do we reach them now?
• How do our channels interact?
• Which ones work best?
• Which are the most cost-effective?
• How do we integrate them with our customer procedures?

5. revenue streams

Describes the revenue streams an organization generates from each customer segment.

• What are our customers prepared to pay for?
• What are they paying for today?
• How do they pay today?
• How much are they willing to pay?
• How much does each of our revenue streams account for?

6. Key resources

They describe the assets and resources needed to make the business model work.

• What key resources are required to manage our value proposition?
• Our distribution channels?
• Our customer relations?
• Our revenue streams?

7. Key activities

Describes what activities the organization must perform for the business model to work.

• Which key activities require our value proposition?
• Our distribution channels?
• Our customer relations?
• Our revenue streams?

8. Key partners

Describes the network of suppliers and partners that enables the business model to work.

• Who are our key partners?
• Who are our key suppliers?
• Which of our key resources do we buy from partners?
• Which of our key activities do our partners carry out?

9. cost structure

Describes the costs that the business model generates for the organization.

• What is the biggest cost driver in our business model?
• Which of our key resources are most costly?
• Which of our key activities are most costly?

A clear model that many understand

Of course, there are a whole host of different business models that different companies use. The Business Model Canvas is just one of many, but of course there is always an advantage to using a model that many people know and that is easy to explain...