The Extended Business Model Canvas
The extended business model canvas is an entrepreneurial and strategic management tool that allows you to design, describe, invent, challenge and pivot your business model. It breaks your business model down into easily understood sections: key resources, key activities, key partners, channels, revenue streams, cost structure, customer relationships, and value prepositions.
By digging deep into these segments of your organization, you can identify and act on critical areas for improvement. Extended business model canvas also reveals clear paths on which to build your digital innovation strategy. Gaining a better understanding of your business is never a bad idea. It will help you better communicate your goals to your team who help you achieve the business goals.
THe business model canvas also helps you attract your target audience and effectively communicate to them the reasons to do business with you. So it’s an excellent tool for both startups and established businesses alike.
Let’s dive into it and see why is it so essential for a successful business!
What is Extended Business Model Canvas?
The extended BM canvas is an invaluable tool that helps you present your business ideas and create a business model. It will challenge you to answer difficult questions about your business that will make you more equipped to kickstart your business.
Nonetheless, the extended business model canvas should come before your business plan. Though most business leaders refer to it as a one-page business plan, it should in no way replace your business plan. Instead, it should be the foundational basis of your business plan. Whether you’re starting a new business, presenting your business idea to investors, or looking for funds to start to improve your business, the extended business model canvas is your best friend.
Key Sections of the Extended Business Model Canvas
There are nine key sections of the extended business model canvas. These include:
- Cost structure
- Key partners
- Key resources
- Key activities
- Customer relationships
- Revenue streams
- Value proposition
- Customer sector
Let’s take a look at each section concisely.
1. What Makes You Better Than Others? Value Preposition
The value proposition is considered one of the most essential components of any business idea. Therefore, you need to pay more attention to this area. This is where you will challenge yourself more and come up with something unique that will make your business stand out. To be profitable and successful in business, your target customers need to prefer your products and services to others. What could possibly make this happen? Obviously, it can’t just be price, because there are companies that will offer lower prices than you.
For this section, the first thing to do as a startup is to identify your industry’s key decision-making features. For instance, if you’re offering services similar to uber, your drivers should be more professional, and your app should be user-friendlier than Uber’s. Whatever industry you’re operating in, be ready to offer better products and services than the leading competitors in the industry.
The criteria may differ based on your industry and business, but the idea remains the same: you need to be better than your competitors in all ramifications. You should link your value proposition to your customer segment. Therefore, if you have, say, four customer segments, then you should have four different value prepositions.
2. How Will You Communicate Your Value Proposition? Channels
This section talks about your marketing tools. What specific social channels do you intend to leverage to attract your target market? Facebook ads, Google ads, print advertising, distribution channels, video promotions, etc.
3. Who is Your Customer? Customer Segments
One of the most frustrating things that can happen to you as a business owner is trying to market your products and services to people who do not need them, hence the need to identify your target market. Identifying your target market is one of the first things you need to consider as a lean startup. It helps you understand the kind of products and services to come up with that they will be willing to pay for.
You need to identify your target customers and group them by their demographics, pain points, buyer behavior, and other relevant criteria.
4. How Will You Interact with Customers and Make Them Loyal to Your Brand? Customer Relationships
The success of every business depends on the number of sales generated continuously. This can only be achieved when you have loyal and dedicated customers. You need to have a good customer relationship to attract customers and keep them loyal. The highest psychological need of every customer is the need to feel loved, valued, and appreciated. Therefore, you need to communicate these three virtues in your marketing strategies.
Additionally, create a system that makes it easy for your customers to contact you easily 24/7.
Let’s consider a more practical example. If you operate an online business, your leads will probably search online, then go to your website to find more information. This means you need to make your online business visible. Make it easy for customers to find you. Invest heavily in making your website visible and ranking on the first page of search engine research pages (SERPs).
Moreover, even physical businesses need an online presence because the majority of buyers start their buying journeys through Google search.
5. How Will You Make Money? Revenue Streams
The goal of every business is to make a profit. Therefore, it is not out of place to consider how you will make money in your business before starting. In this section, you will consider every possible option that can generate more income for your business.
Comprehensively explain what your primary, secondary, and tertiary revenue sources will be in your business. Will you have add-on services? Will you have brick & mortar store? Will you have an e-commerce website? To achieve all of these, you can link your revenue streams to your customer segments and value proposition. You may want to consider offering customized products and services to specific customer segments.
6. What Are the Key Activities that Will Enable You to Deliver Your Value Proposition? Key Activities
This is another important area you need to consider, just like the value proposition section. Here, you need to come up with relevant business activities that will help you deliver your value proposition. Do not be tempted to copy exactly what your competitors are doing. Instead, focus on coming up with a better way of doing the same activities for better customer fulfillment and satisfaction.
7. What is Your Cost Structure?
Your cost structure refers to your expenditure, your revenue-sucking activities. You need to identify these key areas and find ways to balance things so that your business will not run into a loss. This is also a major area you need to concentrate on. What are your major costs? Capital expenditures, cost of goods sold, and R&D. Is your business labor-intensive or business capital? Are you utilizing economies of scale? What about your variable and fixed costs? All these should be well captured in your cost structure.
8. What Are Your Key Resources?
This is where your capital (labs, machines, equipment, etc.) comes into play. Also, your hands-on experience, technical know-how, recipes, and patents are your key resources. Anything within your possession that can help your business stand out, generate more revenue is your key resource.
9. Who Are Your Key Partners?
You can’t be an island on your own. If you must taste true success, you need key partners like mentors, investors, supporting organizations, advisors, a chamber of commerce, an accountant, and a lawyer. These are all key partners you must work with to get the desired result you hope to see in your business.
Types of Extended Business Model Canvas
Now that we have a thorough understanding of what the extended business model canvas is, let’s consider some of the different types of business models. These business models can be customized based on a specific industry or company – doing this is referred to as creating a disruptive business model.
1. Bundling Extended Business Model Canvas
Just like its name, the bundling extended business model canvas involves businesses selling two or more products together as one product, usually at a lower price than buying the products separately.
This business model helps businesses generate more sales, especially for products and services that are more difficult to sell. However, you must note that the profit margin in this model is often minimal, seeing that the company is offering these products and services for a lesser price.
Examples of companies using this extended business model canvas: Burger King, Adobe Creative Suite, and AT&T, to mention but a few.
2. Subscription Extended Business Model Canvas
A subscription extended business model canvas can be applied to both online companies and traditional brick-and-mortar businesses alike. In this model, customers pay a recurring subscription fee on a monthly basis (or any other specified time frame) to access specific products and services. In other cases, customers map pays a subscription fee to access features of an app.
Examples of companies using this extended business model canvas: Disney+, HBO Go, Hulu, StitchFix, Beer Cartel, and HelloFresh, to mention but a few.
3. Razor Blades Extended Business Model Canvas
To fully understand this model, you need to closely consider what goes on in your local drugstore. You’ll discover that replacement razor blades are more expensive than razors.
Businesses offer a “cheaper razor” with the motive that you’ll continue to purchase more expensive accessories -razor blades-” in the nearest future. This is why the model is referred to as the “razor blades model.”
Most companies also use the reverse razor blades model in addition to the conventional razor blades model. In this case, they offer customers a high-priced product, then promote the sale of low-priced products that accompany the high-priced product.
A typical example of this model is seen in Macs and Apple iPhones- you purchase the high-priced Apple iPhone or Macs, and the company market other accessories that you will need for your Mac or iPhone.
Examples of companies that use this extended business model canvas: Xbox, Brita, Keruig, and printer and ink companies.
4. Freemium Extended Business Model Canvas
The Freemium extended business model canvas gained much popularity with the prevalence of SaaS businesses (Software-as-a-Service).
The strategy for this model goes like this: software companies provide proprietary tools for their customers to freely access, such as a tool suite or app. However, the company limits the use of specific features that users will regularly want to use. Users must pay a subscription fee to access those specific features.
Shopify is one of the businesses that have mastered the use of this model. You can see how it freely gives users access to its music database while popping ads in between songs. Users are forced to opt to pay recurring subscription fees for premium features so that they can stream music without any ad interruption.
Examples of companies that use this extended business model canvas: MailChimp, Skype, LinkedIn, YouTube, Spotify, Grammarly, to mention but a few.
5. Crowdsourcing Extended Business Model Canvas
Crowdsourcing involves receiving information, opinions, or tasks/work from different people using different social media platforms. This business model allows companies to tap into a wide network of professionals without having to hire in-house employees.
Examples of companies using the Crowdsourcing extended business model canvas: YouTube, Indiegogo, Wikipedia, and IMDB.
6. Leasing Extended Business Model Canvas Canvas
Under the leasing extended business model canvas, a company buys different products from different sellers. That company then allows other companies to use such products for a periodic fee. This model is common with big manufacturing firms, pharmaceutical, and medical equipment companies.
Examples of companies that use this extended business model canvas: Enterprise and Rent-A-Center, and U-Haul, to mention but a few
7. Franchise Extended Business Model Canvas
This is the most popular business model. We probably visit and see franchise businesses often in our daily lives.
A franchise model works like this: a franchise is a renowned and established business strategy and blueprint that is purchased and reproduced by another buyer. The original business owner (franchiser) works with the buyer (franchisee) to mentor them on business operations to ensure the business functions as it ought to. The franchiser pays the franchisee a certain percentage of the profits in return for the mentorship.
Examples of businesses that use this extended business model: Domino’s, McDonald’s, UPS Store, to mention but a few.
8. One-for-one Extended Business Model Canvas
As the name implies, the one-on-one extended business model canvas means a company makes a commitment to donate one item to a charitable organization for every item they sell. This business model appeals to the social consciousness and charitable nature of customers to allow them to pay for products and services while allowing both the customer and the business to engage in philanthropic activities.
The founder of TOMS, Blake Mycoskie, pioneered this social entrepreneurship business model.
Examples of companies using this extended business model canvas: Warby Parker, Smile Squared, Soapbox, to mention but a few.
9. Manufacturer Extended Business Model Canvas
9. Manufacturer Extended Business Model Canvas
The manufacturer extended business model is probably one of the most traditional business models. It is a model where manufacturers convert raw materials into products.
For instance, companies such as Hewlett-Packard or Dell Computers, both of which assemble computers with parts manufactured by other tech companies, are still considered manufacturers.
Examples of companies that use this extended business model canvas: LG Electronics, Black + Decker, Magic Bullet, and Intel.
10. Distribution Extended Business Model Canvas
A business operating as a distributor is responsible for making manufactured products available in the market.
For instance, Hershey’s manufactures and packages chocolates, but distributors are the agents that transport and sell the products from the factory to retailers and end-users. To make huge profits, distributors buy these products from manufactures in bulk and sell them to retailers at higher prices.
Examples of companies that use the distribution extended business model: ABC Supply Co, Cheney Brothers, Avent, and HD Supply, to mention but a few.
11. Retailer Extended Business Model Canvas
This is the last business model canvas on our list. A retailer is usually the last link in every supply chain. Retailers purchase goods from distributors and sell them directly to the final consumers at a price that will make them the desired profit. Retailers may specialize in a particular niche or offer a wide variety of products.
Examples of companies that use this extended business model canvas: Best Buy, Target, Home Depot, and Nordstrom, to mention but a few.
How To Choose The Right Extended Business Model Canvas For Your Business
With the different types of extended business model canvas available, how do small startups get to choose the best one for their operation?
Well, the truth is that there is no perfect answer to this question. Rather the extended business model canvas best suited for your business depends on the scope of your business and the running cost.
To narrow down your options, you need to ask yourself the following questions.
- How will my products and services benefit my target market?
- How will I generate sales and income for the business?
- Who is my target market?
- What startup cost do I need?
- Which expenses will be my variable and fixed costs?
- Do I need partners and investors?
Your sincere answers to the following questions will give you a better understanding of the extended business model canvas to choose for your business.
You can also understudy other renowned brands that are successfully running the type of business you want to get into. This will give you an idea of the type of business model you should adopt for your business.
Ultimately, extended business model canvas not only gives you a quick overview of your business, but it also clarifies how different sections of your business are related to each other. You can use an extended business model canvas template to guide a brainstorming session on interpreting your business model effectively. In fact, the importance of an extended business model canvas cannot be overemphasized.
We hope the information we provided in this post has given you a better understanding of what the entire concept is all about.
Feel free to leave a comment below.
Cheers to your continued success in business!