The business model canvas is one of the most popular tools for innovators, business designers, entrepreneurs and start-ups around the world. It provides a clear view on how a business creates value and how it plans on capturing (part of) that value. But filling the various fields of the canvas is only the first step. The canvas' true potential is to show how everything is connected. In this post, we take a step back and answer 3 key questions that you should know about if you want to take full advantage of this popular framework.
The business model canvas is arguably one of the most popular management tools in the world.
Over the past decade, It became the go to framework for entrepreneurs, intrapreneurs, students and business enthusiasts to describe existing business models and imagine new ones.
Although filling the canvas can be a valuable first step to understanding how a certain business model works, it falls short of the canvas' true potential.
In this post, we take a step back and answer 3 key questions that you should know about if you want to take full advantage of this popular framework.
1. What is a business model?
2. How to use the canvas to describe a business model?
3. How to go beyond the blocks?
In order to make it more tangible, we use Nike as an example throughout the article.
A business model describes the rationale of how an organisation creates, delivers, and captures value.
Osterwalder & Pigneur
As you will see later on, getting clear on this definition will give you a head start when working with the business model canvas.
To better understand the concept, let’s unpack Osterwalder & Pigneur’ definition in 3 parts:
A business model describes the rationale of…
...how an organization creates value…
Creating value refers to the combination of activities, resources and partners needed for a business to produce a product or service. How the business creates something.
...how an organization delivers value…
Delivering value refers to how a business serves its customers. How it enables customers to access products and services.
...how an organization captures value…
Capturing value is really about how the business makes money. How the business charges for the value that was created and delivered to customers.
Let’s see Nike’s example.
Nike creates value by producing innovative sportswear which is delivered to customers through retail stores and ecommerce platforms. Nike captures value by charging a fixed price per each unit sold.
Now that we are clear on what a business model is, we are better prepared to learn how to represent it. Introducing the business model canvas!
The business model canvas is a strategic management tool created to help anyone describing existing business models and imagine new ones.
The canvas is made of 9 building blocks which we can organize in 3 parts. The same 3 parts we have seen before: Create, Deliver and Capture.
Create value
Value Proposition
What problem are you solving? What pain are you alleviating? What product/service are you creating that someone is willing to pay for?
Examples: Affordable air travel, Fresh food delivered at your doorstep, Quick and effective communication
Key Activities
What are the actions needed to produce your value proposition? What operations need to be undertaken so that your product/service comes to live?
Examples: Sales & Marketing, Software Development, Supply chain management
Key Resources
What resources do you need in order to perform those key activities (actions)?
Examples: Brand, Platform, Talent, Fleet, Raw materials
Key Partners
Assuming you cannot do it all on your own, what are the external companies/suppliers/parties you need to achieve your key activities and deliver value to the customer?
Examples: Suppliers, Distributors, Third-party producer
Deliver value
Customer Segments
For whom are you doing it all for? Who will benefit from your products/services? Whose problems and pains are you solving?
Examples: Young parents, Kids aged 4-8, Retired military veterans, Cuisine aficionados
Channels
You identified a problem and found a solution. How do you deliver it, communicate it, sell it? How can the customer access your product/service?
Examples: Mobile App, Retail Stores, Private Clinics, Ecommerce Platform
Customer Relationship
Providing a solution to a customer means establishing a relationship. What type of relationship do you want to create, before, during and after the purchase?
Examples: Online Community, Event Sponsorship, In-person
Capture value
Cost Structure
The left side of the canvas represents the parts of your business that generate costs. It depicts how your business spends money in order to create and deliver value to customers.
Example: Fixed Costs such as warehousing, Variables Costs such as electricity
Revenue Streams
The right side of the canvas represents the parts of your business that generate revenues. It depicts how your business captures the value created and delivered in monetary terms.
Example: Monthly subscription, pay per product, referral scheme, freemium
Let’s take Nike again as an example to make sure we understood all the components of the canvas.
“Nike creates value by producing innovative & quality sportswear …
( Value Proposition / Key Activities / Key Resources / Key Partners )
Nike’s value creation is the result of seamless orchestration of resources, activities and partners at a global scale.
Nike exploits its powerful brand and talented designers, sports engineers and managers to develop and market new products which are produced, assembled, advertised and distributed through a network of partners.
… which is delivered to customers through retail stores and ecommerce platforms...
( Customer Segments / Channels / Customer Relationships )
Nike’s products are accessible to customers worldwide both onsite - Nike stores and retail stores such as Foot Locker - and online - Nike’s website and online retailers such as Amazon.
Nike maintains a close and aspirational relationship with its customers through regular presence and sponsorship in sports events, but also virtually, through its Nike+ community where it offers free sports, fitness and health tips and services, such as the Nike Running App.
… Nike captures value by charging a fixed price per each unit sold.”
( Cost Structure / Revenue Streams )
Nike sustains a profitable business model as the costs of designing, producing, marketing and distributing its products are surpassed by the revenues generated, mostly through unit sales.
Filling in the blanks is only the first step, and unfortunately this is where most people stop. The true value of the business model canvas lies when you start asking the "what if " questions.
What if X changes? How would that impact Y?
That’s what Nike did a few years ago… by asking the question what if … we could bypass retailers and sell directly to consumers?
How would that impact _______?
Channels
In order to sell directly to consumers Nike decided to create a new channel, an ecommerce proposition.
Customer Segments
Which appeals to new digital native consumers and facilitates purchase from home to existing ones.
Revenue Streams
And represents a new revenue stream, with higher profit margins.
Key Resources
But demands a new set of resources (ecommerce platform).
Key Capabilities
And a different set of capabilities (digital product management, online shipping, digital marketing...)
Cost Structure
Which ultimately have a reflexion on the cost structure.
We hope this article has proven useful to you. We would love to hear your thoughts and comments.
The Business Model Canvas presented can be originally found in the book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, by Alexander Osterwalder and Yves Pigneur
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