Business Model Canvas: What it is and how to create a business model canvas
Have you ever felt that it is difficult to communicate and set strategic objectives in your company? This is a common issue and depending on the nature of the problem there may be different solutions. The truth is that the easier it is to understand what your business and each of its units do, the easier it will be to convey your ideas to your employees, partners, and investors, so it will not be so difficult for them to understand you and you can count on everyone's collaboration to set more precise and robust goals.
Therefore, I bring you an extremely useful and compact tool to achieve that clarity when explaining to the world what you do. Today we are going to learn how to build a Business Model Canvas (BMC) step by step. Stay and read this blog to discover what this tool is, what it is for and how to build it step by step.
If you want to know what a business model is, I invite you to visit this blog that explains it in detail: What is a Business Model? Business Models Explained
What is a Business Model Canvas?
A business model is made up of nine building blocks, which are the most important pillars that every company should identify to understand how to organize its resources and plan its strategic objectives. A BMC is nothing more than a one-page canvas that helps you synthesize and visualize the logic of your business model in a clear and orderly way. It is the best way to understand and explain what your company does to generate value.
The building blocks that make it up are:
To learn in much more detail about what each of these blocks contains, I recommend reading the book "Business Model Generation" by Yves Pigneur and Alexander Osterwalder. Anyway, in the last section of this blog we summarize what you need to know about each one to build your canvas.
If you want to see more details about these blocks, this article will help you to quickly review them: What is a business model?
What is it for?
For Yves Pigneur and Alexander Osterwalder, a business model portrays the logic by which a company generates and delivers value, and a canvas is a visual summary of this definition. Separating the different building blocks allows you to see the overall structure of your value proposition and everything you need to support it. Perhaps the most notable advantage is that it gives you the ability to set strategic objectives based on the performance of each block, but it also gives you the clarity to understand it in a simpler way and therefore also to communicate and explain your business to anyone, but it doesn't stop there.
In addition to helping you plan, there are other uses that companies have found for it, here are three additional applications.
Para medir tus objetivos
Strategyzer mentions that he has seen companies rely on the blocks of the canvas to make dashboards. This makes a lot of sense, once you have identified the pillars of your organization you can propose objectives and goals for each one, determine the indicators with which you are going to measure results and performance and finally document relevant information to measure them. In any case, there are continuous improvement philosophies such as DMAIC of the Six Sigma methodology that you could use to make the most of the processes involved in each block once you have defined your business model.
To analyze your competitors
Once you understand how to build a canvas, you can venture into exploring your competitors' business models. You may have to invest extra time to build it yourself, but you will be able to understand their strengths and weaknesses, as well as their limits and opportunities (which you may well be able to exploit). Although there are other tools or methodologies to do this, the Business Model Canvas can be done quickly and easily. If you build several canvases and place them side by side, you can quickly make comparisons and see what is out there, as well as identify new ways to generate added value that differentiates you from your competitors.
To design and test new business models
Just as I mentioned in the previous point, you can build exploratory canvases without a lot of detail, which can help you to come up with new value propositions and prototype the whole business model around this idea. Seen in this way, the canvas is a kind of template for idea generation. Remember that a company can have several business models, in essence, you will need one for each value proposition.
I also recommend you read this article on the types of business models to get an idea of the wide variety of options you have to innovate: 50 Types of Business Models (2021) – The Best Examples of Companies Using It
How to do it step by step?
As mentioned before, a business model consists of nine blocks, so you should gather the information you will put in each of them. To do this, you should first put together a cross-functional team, so that different departments of your company collaborate, as they know their environment best and will surely bring valuable perspectives to your canvas. You can include, for example, staff representing marketing, technology, engineering, purchasing, logistics, accounting, among others.
Once you have your team in place, you should document the information. Since the canvas is a tool to do this quickly, you could start by using it as a skeleton and later go into more detail in a formal document.
One good thing about building a BMC is that you don't have to start from scratch, there are several websites like Strategyzer and Canvanizer that will give you an online template. Here you can also find a template for you to fill in with us.
Here is a step-by-step guide on how to fill it in, as well as some images with examples of the BMCs of some famous companies to give you an idea of how to fill in the fields.
Define your market segment
Customers are the key to a successful business. Therefore, you must know who you are targeting with your value proposition. You can have several market segments, the important thing is to identify them through needs, behaviors, and attributes they have in common. Now, who do you want to sell to?
- If you do not distinguish between market segments, but sell to the public, you sell to a mass market (e.g., toilet paper).
- If, on the contrary, you have a specific group of customers, you sell to a niche market (e.g., running shoes).
- If you have several customer groups, because they have slightly different needs from each other, you are selling to a segmented market (e.g., a bank's financial services, which depend on the amount of credit of its customers).
- If you serve different groups of customers, because their needs are quite different, then you are selling to a diversified market (e.g., Amazon).
- If you have several interdependent customer segments you are selling to a multi-platform market (e.g., a bank serves both a company's accounts and the people who buy from them).
Define your value proposition
What is it that you are offering to your market segment? What problems are you solving with your product/service? Remember that this is the reason why your customers are looking for you, so you should try to find out what is the difference between your value proposition and that of your competitors.
- Are you offering a new product or service?
- Are you offering something that already exists, but with new features and attributes?
- Are you offering a product or service that is tailored to the tastes of your specific customers (customization)?
- Are you offering your customers an outsourcing service?
- Are you offering something intangible such as branding, insurance, or convenience?
In some cases, design is also important, as in industries such as fashion or among competing devices such as mobile phones, this can be a determining factor.
Determine communication and distribution channels
- How can your customers communicate with your business, by which means and with which tools (internet, phone call, tablet, mobile)?
- How do you get your value proposition to those customers?
- What are the best channels in terms of cost-effectiveness and efficiency?
Determine what kind of relationship you will have with your customer
In point 3 you established how your customers communicate with you, but here you need to determine how you will respond to them. What kind of relationship will you have to serve them?
- Will you give them personalized support (all customers go through this process either via email or mail, including in-store when they are served)?
- Will you give them exclusive personalized assistance? (here you are dedicated to a single customer).
- Will you give the customer the means to self-serve?
- Will you give them the means to self-service, but in an automated way?
- Will you include online communities so that your customer can be helped by other customers who are members of the community?
- Will you include collaborative content creation options such as reviews or videos to help you promote and clarify doubts about your product or service?
Identify your revenue streams
This is the cash flow that is generated when market segments purchase your product or service. What price do your customers buy from you? How do they pay? How would they like to pay? How many revenue streams do you have?
- Do you make money from selling assets?
- Do you make money by charging usage fees?
- Do you make money from selling subscriptions?
- Do you earn money from renting?
- Do you get money for licensing permits?
- Do you get money for brokering transactions?
- Do you earn money for promotion through advertising?
Know your key resources
Resources needed to create and offer your value proposition, to make it reach the market, to establish relationships with your customer segments and therefore receive money. We are talking about physical, economic, intellectual, or human resources, whether private, rented or through collaborations.
- Physical: do you need a production plant, a building, machines, vehicles, electronic devices, systems, distribution points?
- Intellectual: do you have a brand to maintain, information to analyze, do you need patents to be able to produce?
- Human: how many staff do you need, and do you have for which tasks?
- Financial: what collateral do you need, do you need credit lines, stock option portfolios?
Know your key activities
What actions you need to take to create and deliver your value proposition, to get it to the market, to establish relationships with your customer segments and therefore get paid.
There are three key activities of any business model:
- Production: do you design, manufacture, and deliver product in quantity?
- Problem solving: do you find solutions to your customers' problems? (think hospitals, banks, and consultancies).
- Platform/network: do you create and maintain platforms?
Identify your key partnerships
What partnerships could you seek to optimize your business model, reduce risk, and acquire resources?
- Do you have strategic alliances between non-competing companies?
- Do you have a partnership with a competitor?
- Do you have a joint venture with another company?
- Do you have good relationships with your suppliers?
Detail your cost structure
Once you have defined the key activities and resources, it is easy to estimate these costs.
- What are the most important costs of the business model?
- How much do the resources cost you?
- How much do the activities cost you?
- What are your fixed costs?
- What are your variable costs?
- Do you participate in economies of scale?
Whether for a new business or an existing one, you can use this tool to describe and analyze the value proposition and everything around it. You can even use this step-by-step guide to try to understand how other businesses currently operate and see why they succeed or fail. But also remember that we are looking at broad outlines and not necessarily grounded in theory, so I recommend that you be careful with the details before making big decisions.