The Business Model Canvas
Creating an in-depth business plan for new, developing companies is not realistic. When I started work at Honeywell in 1968, one of my first tasks was to work on was the yearly, one, five, and twenty-five-year business plan for the commercial division. Honeywell had been in business for almost a hundred years, so they had lots of data. Today, things are changing too quickly, and for startups, just trying to get a business plan that works may take many iterations. That is why Alexander Osterwalder’s Business Model Canvas makes so much sense,
The business model canvas illustrates the nine fundamental drivers of the business model. And how they all work together to deliver value to the customer, including revenues and profits to the company. Also, because it is an illustration on one page, the entire business model is visible and defined so everyone can participate in the discussions about how best to deliver value to the customer.
We are going to look at the business model canvas in three parts. First, the nine elements that make up the model. Second the “Design” aspects or capabilities you can use to experiment with the models until you get what you think is the right strategy and composition (referred to as a hypothesis). Third, the requirement initially proposed by Steve Blank, entrepreneur, and professor at Standford on how to get out of the office and into the market so you can test and iterate your hypotheses until you achieve product-market fit.
Following is a description of the nine critical elements of the business model.
1 Value Proposition. This is, of course, your product or service, but it is why customers will buy and pay for your product or service or both.
2 Customer Segments. These are the people who will buy or use your products and services, This could be one segment or multiple customer segments. And it could be for multiple kinds of jobs, pain points or potential gains,
3 Channels. This is how you are going to sell and deliver your products and services to your customers (retail stores, internet, etc.)
4 Customer Relationships. This is how you are going to find, get, keep and grow your customers base,
5 Revenue Streams. This is how you are going to capture revenues from buyers and users of your products and services (one time sales, subscriptions, etc.)
6 Key Resources. What resources are you going to need to make and deliver your products and services (physical facilities and equipment, Intellectual Property, human resources, and financial resources)?
7 Key Activities. What key activities must be done perfectly if you are going to deliver the value proposition you promised your customers. (e.g., Ikea must continuously find well designed, contemporary furniture that can be broken down and packaged into a box for customers to take home with then from the store,
8 Partnerships. IN today’s world, we are not going to do everything ourselves, So, in addition to suppliers, who will you get to help you execute your business model.
9 Cost Structure. Knowing the eight elements above, what are your costs going to be to fulfill your business model?
These are the things you control. There are also four things not included in the canvas above, but which issues you will have to deal with when you design or modify your business model. These are the competition, the government, the industry, and the market. These issues will be dealt with here separately.