Business owners and entrepreneurs need all the tools they can get. At Digital Leadership, we believe the most powerful tool you can use is a Business Model Canvas. With it, you can solidify business plans and identify opportunities before investing potentially wasteful time and resources. A Business Model Canvas solidifies your business strategy and helps identify gaps in your intended activities. It’s more detailed than a value proposition canvas and is more likely to grant useful insights.
In this article, we discuss the various elements of the Business Model Canvas and explore why it can be such a useful tool for recognizing innovation and getting the most out of your resources.
What is a Business Model Canvas?
A Business Model Canvas is a tool used to create a visual depiction of a business model’s key elements. Decision-makers use them to develop new business models or better understand existing business models.
When you design a Business Model, it is useful to lay out the assumptions or hypotheses that animate your business in a structured way. A Business Model Canvas helps you to do just that. The canvas helps you to easily understand your current Business Model, formulate business strategy and business goals, design a new Business Model, see if you have missed anything important, and compare your model to others.
The Canvas provides a framework or template for analyzing the distinct parts of your business operations. By using a Business Model Template, you ensure that you’re considering the entire way you do business.
Business Model Canvases are intended to be dynamic templates to which you can return to iterate current business plans or experiment with potential new ventures.
The History and Building Blocks of the Business Model Canvas
The tool we’ve designed for this purpose is an iterated canvas based on the original Business Model Canvas created by Alexander Osterwalder “Strategyzer” and popularized by the Lean Startup movement. The Business Model Canvas is the most commonly used tool for developing BM. It draws on Michael Porter’s Value Chain maps and Peter Drucker’s theories of the firm (among other sources).
The Business Model Canvas has become the preferred tool for both start-ups and corporations, since it allows a team to easily understand, discuss, and evaluate a Business Model, as well as to rapidly design or redesign a new one. It is attractive because it condenses years of business school knowledge and management consulting practice into a single page (with some straightforward questions to help you fill in each section).
So, once you start prototyping the product, form a parallel workstream that focuses on the business dimensions of your offering. The best way is to build a Business Model Canvas for each of the ideas and to conduct a validation of the most critical points that you identify with the help of the canvas.
These building blocks are the pieces of your business that allow it to function. One of the strengths of the Business Model Canvas is that it gives you a clear picture of which of these elements are within your control, and which are not. There’s no value judgment there—in fact, there are building blocks that, though they are essential to our success, are not part of our Core Activities and should not necessarily be under our control. Let’s take a look at these Building Blocks to better understand how they function within the broader Business Model Canvas.
A list your Key Resources, which can be categorized into physical, financial, intellectual property and unique people skill sets. Particularly focused on the core and differentiating strengths or capabilities that you may be able to leverage. One of the strangest realities of business leadership is that we often fail to recognize all of our available resources. Their placement in the Business Model Canvas ensures that we give them full consideration from multiple angles.
Consider everything you and your team do during the day, and identify which of these activities are central—vital—to the progress of your business. For example, one of your people may spend part of the day responding to customer emails instead of developing a new product. Which of these is a Key Activity, and which may be better addressed using a third party?
Your Key Activities should never be outsourced: they’re far too important. But other, tangential activities that are necessary though not at the core of your business (copy machine maintenance, for example) can be handled by contractors or other outside entities.
In an interconnected world, leveraging relationships with ecosystem partners has become increasingly important because it allows you to focus on your relative strengths. Think about the four different types of partnerships, including strategic alliances between non-competitors, coopetition (strategic partnerships between competitors), joint ventures to develop new businesses, and buyer-supplier relationships to assure reliable supplies.
Without your Key Partners, your Core Activities would be impossible. Relationships with your Key Partners, therefore, are vital to your success and should be nurtured and cared for appropriately.
For any Business Model, managing costs is critical, but some Business Models are designed entirely around low-cost structures, such as “no frills” airlines. What role do costs play in your Business Model? Are you seeking to simply optimize them, or could they play a more differentiating role?
Consider how you manage costs, and which costs are necessary and which are not. Identifying where all the resources are going will help you understand where you can best innovate.
Rarely does a company deliver its goods or services to customers without some sort of third-party distribution channels.
Because they are often beyond our control, understanding the role Distribution Channels play in how we deliver value to our customers is important to understanding the overall Business Model.
What type of customer relationship do you have? Think about options such as self-service, personal assistance, communities or Single Point of Contact.
Different businesses have different relationships with their customers, but they should never be positioned in opposition to each other. As much as you can, find ways to ensure that your business and your customers are on the same team. That’s what customers expect, and they’ll reward businesses that find ways to operate in this manner.
The clearest way of ensuring proper attention is paid to Customer Relationships is through the Jobs to be Done framework, which is a major segment of the UNITE eXtended Business Model Canvas, as we’ll soon discuss.
For whom are you creating value? For which segments and representative (data-driven) Personas? Who is your most important customer?
To dig into your Customer Segments, work with data-driven Personas. Our book, How to Create Innovation, discusses Personas at length. It’s a system that builds examples, of customers, based on the information you’ve gathered about their habits and identities. Personas help you understand who your customers are as people within their broad segments so you can better reach them and bring them value.
Revenue Streams outline how you earn money. What price is each of your Customer Segments truly willing to pay? Identify each possible Revenue Stream per Customer Segment. Think hard about the possible pricing mechanisms per Revenue Stream.
Surprisingly, pricing can often be a source of differentiation! Pricing mechanisms can include auctioning, bargaining, fixed-list prices, market- or volume-dependent prices, or yield management.
A Business Model can also involve transactional revenues resulting from one-time customer payments (e.g., a sale) or recurring payments (e.g., a subscription).
(9) Value Proposition
It helps to project, test and build the business Value Proposition in a more structured and reflective way, just as the Business Model Canvas helps you do so during the process of designing a Business Model.
Traditionally, a value proposition canvas was used as a way of developing a business plan, but modern entrepreneurs have found those canvases can be incomplete, with blind spots. They often ignore Jobs to be Done, for example.
Including the Value Proposition as an element of the more extensive Business Model Canvas helps give you full visibility into your plans. It’s more than worth the added effort.
The UNITE eXtended Business Model Canvas
The UNITE eXtended Business Model Canvas marries classic Business Model thinking with the latest understanding of what drives innovation. By highlighting a company’s successes and refining its aim, decision-makers can properly affect lasting change to more fully realize the business’s potential for growing the value it brings to customers. It’s a powerful tool to employ when considering your overall business strategy, from day one, through years and years of business success.
We believe the UNITE eXended Business Model Canvas is the natural development of modern theories of business and innovation. While the ideas that form its underpinnings are complex, putting the Canvas to work for you is surprisingly easy. As such, no matter how much experience you have in business or innovation, you’ll be able to use the Canvas to expand your understanding of your business and its position in the world.
Understanding the Differences Between the Business Model Canvas and the Extended Version
The UNITE core Business Model Canvas describes how an organization creates, delivers, and captures value. But because it’s valuable to understand a Business Model using a wider view, the eXtended Business Model Canvas includes extra elements.
The UNITE eXtended Business Model Canvas contextualizes an organization’s Business Model by describing its underlying drivers: the customers’ needs, and the business’s team, including their structures, values, and culture. These are often under-considered by people close to the business. (It’s rather like being so close to a mountain that you don’t understand the mountain as a whole.)
Additionally, the eXtended Business Model Canvas helps you understand and articulate your Unfair Advantage, which is admittedly not part of a Business Model but is useful to help you enhance your competitive advantage. This approach is in not like different business models which fail to offer a truly comprehensive, contextualized view of all your concerns and key activities.
How Does the Extended Business Model Canvas Work?
Like other Business Model Canvases, the eXtended Business Model Canvas template is a visual representation of a complete business. By completing each of the template’s pieces, you’ll gain a better understanding of the total Business Model you’re using, with a special focus on identifying and acting upon your organization’s unfair advantage in the marketplace. The template is positioned in a way that clarifies the relationships between each of your business’s pieces.
Indeed, the simple process of completing an eXtended Business Model Canvas is a valuable experience. For existing businesses, the Canvases can reveal opportunities for innovation and competitive advantage that managers may have not otherwise noticed.
Why Should Every Business Use the Business Model Canvas?
We believe in the efficacy of the Business Model Canvas and the process of completing canvases. There are many good reasons why every business should use the Business Model Canvas.
Those reasons include:
Easy to Use
Most of the sections of the Business Model Canvas can be completed with little-to-no additional work. When the person completing the Canvas doesn’t have the necessary information on hand, it should be a simple matter to collect.
If the information isn’t available, that’s a signal that you have some important holes in your business visibility.
Covers All Aspects of your Business
The Business Model Canvas is extensive but simple. The Canvas reaches into all corners of your Business Model, including areas we don’t often consider for innovation opportunities.
Helps Communicate Your Business Model
A business’s operations can be opaque. The Canvas helps shed a light on all the business’s shadowed places.
Because of the Canvas’s visual nature, it’s extremely useful for communicating your Business Model. That’s helpful any time you’re courting additional investment or deciding which direction to take your innovation.
The Business Model Canvas and The UNITE Models: A Complementary Approach for Innovation and Transformation
The Value Proposition Canvas is a part of the larger Business Model Canvas. It helps to project, test and build the business Value Proposition in a more structured and reflective way, just as the Business Model Canvas helps you do so during the process of designing a Business Model.
The Value Model is central to the Business Model because it summarizes your core Value Proposition(s) and related offerings as part of the overall Product System.
The Value Proposition Canvas is a fairly simple tool that allows you to establish a logical starting point for building and testing a product or service.
The canvas allows for managing and enhancing existing Value Propositions, as well as for creating new ones. The great strength of the tool is that it will encourage you to empathize with your customers and translate customer needs into a product or solution which solves an important but underserved Job to be Done.
We created the Organizational Culture Canvas in collaboration with more than 30 experts from academia and industry to identify and map the key aspects of an organization’s culture. When we set out to understand, describe, discuss, question, shape, and renew our organizational culture, we need a tool that will render culture understandable, tangible, and actionable.
The Culture Canvas is such a tool. It enables a group to immediately understand the most important factors and how they interact. Although we will focus on applying the Organizational Culture Canvas to the field of innovation, you can apply this canvas to any type of organization.
Use the UNITE Culture Canvas to establish values, principles, rules, and rituals that support your team in developing this habit.
If we as marketers, decision-makers, or product developers want to improve business results, we have to understand the jobs that arise in the life of our customers, for which they hire certain solutions. Understanding who these people are in the wrong unit of analysis.
What we really want to know is what they are trying to get done. Unsurprisingly, the underlying theory behind this is called Jobs to be Done (JTBD). At the center of the theory is the “job”: a “job” is the fundamental problem a customer needs to resolve in a given situation.
The JTBD concept is the revolution in how we think about business. Instead of conceiving of a product or service and then stalking an audience, we look at customers first and build a business around their needs. While no investment is ever guaranteed, developing business models in this way at least has, at its core, a customer that might be looking for a problem’s solution already. We can build our success around customers’ motivation to relieve their pain points.
Jobs to be Done offers two key insights:
- A mental model and a structured approach to understanding the needs of your customers (looking good instead of weight management, good entertainment instead of TV, leisure instead of a sailboat, etc.) and which criteria they use to measure the outcome.
- A methodology to identify the most important but underserved customer needs in a quantifiable and verifiable way. Basically, it helps you understand what outcomes customers truly value, but are not yet able to achieve.
JTBD takes the guesswork out of innovation by offering a precise understanding of where you can innovate to solve a big unmet need and your progress towards a successful outcome.
Most innovations fail since they try to solve an unknown problem for an unknown customer. Through Jobs to be Done, you can eliminate bias and data noise, and instead precisely focus on needs that are unmet, innovative potential that already has a prospective audience.
Frequently Asked Questions
What are the 9 components of the business model canvas?
The nine components of the Business Model Canvas are:
- Customer Segments
- Value Propositions
- Customer Relationships
- Revenue Streams
- Key Resources
- Key Activities
- Key Partners
- Cost Structure
What are the 4 types of business models?
The four types of Business Models are:
What makes up a good business model canvas?
A good Business Model Canvas offers a complete view of your overall business strategy, identifies weaknesses in how you intend to deliver value, and points to opportunities for innovation and growth.
How do the Business Model Canvas and UNITE Models complement each other?
By building on each other, the Business Model Canvas and the UNITE Models offer a complete view of your operations to remove blind spots and highlight opportunities for continued growth.