Business model canvas

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Business Model Canvas - one of the most popular business model templates was created by Alexander Osterwalder. It is a visual card showing nine elements that make up the business model of the company. It helps to create or improve the business model of the company. According to A. Osterwalder, the business model consists of 9 basic areas that are part of the organization's earning money process. They relate to four main areas of business activity: customer, offer, infrastructure and finance (A. Osterwalder, Y. Pigneur, p. 14-15).

Elements of Bussines Model Canvas

Alexander Osterwalder distinguished nine folding elements on the business model:

  • Customer Segment is the area of the business model containing various groups of people and organizations to which the company wants to direct its actions. To better function, a company can divide customers into segments by matching them based on common characteristics or behaviors. Customers segments contain among other mass markets and niche markets. In the first case, the company focuses on one fairly large group of clients who in theory share common needs and problems. In the second option, however, the company targets a specific group,
  • Value Proposition is the element in which the company offers its clients a certain value, i.e. products and services that matter to the client. Any value proposed to clients that does not fit their needs is a waste. There are a lot of elements creating customer value, for example new, price, brand, individualization, improvement of product quality, ease of use (A. Osterwalder, Y. Pigneur, G. Bernarda, A. Smith 2014),
  • Channels are the way a company provides its value proposition to the customer. There are communication, distribution and sales channels. They show places where the customer meets the company. These places have a significant impact on the final impression that the customer will get,
  • Customer Relationship concerns the characteristics of relationships that a company establishes when presenting value propositions. The task of the company is to determine the type of relationship between it and the clients. It can be a personal relationship, but also a fully automated relationship. When building relationships with clients, a company can aim to acquire or retain clients, and multiply the products or services it sells,
  • Revenue Streams is part of the business model showing how the product developed by the company will earn. Providing clients with an adequate value proposition should generate a revenue stream. The company must think about how much it can sell its products and how much money it will charge for the product. What's more, the company must shape its revenue model,
  • Key Resources can be divided into physical, intellectual, human and financial resources. A company needs resources to deliver value to customers. Thanks to resources, the company can also reach specific markets, maintain customer relationships and generate revenue. For one company, resources will be people, for other production materials and machines, for the third, a combination of all these resources (M. Trapp 2013, p. 82),
  • Key Activities is the element in which the company indicates the most important activities that will translate into creating and offering value propositions to clients. The personality of key activities will vary depending on the business model. Using automotive companies such as Tesla, creating electric cars will be a key activity. The key activity of Amazon will be the constant development and maintenance of its platform, i.e. amazon.com,
  • Key Partners are companies, organizations, associates whose products or services are important to offer value to customers. We can distinguish four zones of partnership: strategic alliances, cooperation between competitors, joint actions aimed at acquiring new clients, relations with key suppliers,
  • Cost Structure is an element covering all expenses that a company incurs because it uses a given business model. Continuous customer relationship, building and improving products, and generating revenue are activities that create costs. Fixed costs, variable costs, economies of scale and scope - have an impact on the cost structure (A. Osterwalder, Y. Pigneur, p. 16-44).

Busines Model Canvas form

Key Partners Key Activities Value Propositions Customer Relationships Customer Segments
Key Resources Channels
Cost Structure Revenue Streams

To properly complete the business model canvas there is a need to answer some important questions to each element:

  • Customer Segment:
    • Who is the client?
    • Who is the product built for?
  • Value Proposition:
    • What customers problems will be solved?
    • What is the value for customers?
    • What will they pay for?
  • Channels:
    • What channels will be used to contact the customers?
    • How will the customers find out about products?
  • Customer Relationship:
    • What relationships do customers expect?
    • Do customers expect automatic service or personal support?
  • Revenue Streams:
    • What can customers pay for?
    • Which elements of the product will be free and which will be paid?
  • Key Resources:
    • What resources are needed for the proposed value to interest and reach the recipients?
  • Key Activities:
    • What actions should be taken to provide value to clients?
  • Key Partners:
    • Who is the key partner?
    • What external companies are necessary to operate?
  • Cost Structure:
    • What costs does the business model generate? (A. Osterwalder, Y. Pigneur, p. 16-41)

Examples of Business model canvas

Customer Segment:

  • Netflix uses the Customer Segment to identify its target audience. Netflix focuses on providing streaming services to a wide range of customers, such as those who are looking for movies and TV shows, those who enjoy documentaries, and those who prefer to watch their favorite shows on their mobile devices.

Value Proposition:

  • Amazon has a value proposition that focuses on providing customers with convenience and low prices. Amazon offers a wide selection of products, fast delivery, and easy returns. They also have a rewards program that allows customers to accumulate points that can be used for future purchases.

Channels:

  • Apple uses a variety of channels to reach customers, including its retail stores, online stores, and its "Apple Store" app. Apple also uses social media and traditional advertising channels to promote its products.

Customer Relationships:

  • Starbucks has a customer relationship that focuses on providing a personalized experience to its customers. Starbucks offers loyalty programs, rewards cards, and personalized offers to its customers. They also have trained baristas who are knowledgeable about their products and can provide advice to customers.

Revenue Streams:

  • Microsoft generates revenue streams from the sale of its software products, such as Windows and Office. Microsoft also earns revenue from the sale of hardware products, such as the Xbox and its Surface tablet. They also generate revenue from services, such as cloud storage, and from advertising.

Advantages of Business model canvas

The Business Model Canvas is a useful tool for entrepreneurs and business owners looking to create or improve their business model. It offers several advantages, including:

  • Clarity: The canvas provides a visual representation of the organization's business model, offering an easy-to-understand overview of what the business does and how it makes money.
  • Flexibility: The canvas is highly versatile, allowing users to easily customize it to their particular situation.
  • Focus: By focusing on the nine essential elements of a business model, the canvas helps to ensure that all essential aspects of the business are taken into consideration.
  • Collaboration: The canvas is designed to be used in groups, making it easier for teams to discuss and brainstorm ideas and strategies.
  • Simplicity: The canvas is easy to understand and use, eliminating the need for complex business models and lengthy documents.

Limitations of Business model canvas

  • The Business Model Canvas is a useful tool for creating a business model, however, it has certain limitations.
  • One of the limitations is that it does not provide any guidance on how to develop a successful business strategy. It can be used to help create a structure, but it does not provide any strategic direction or advice.
  • Another limitation is that the Business Model Canvas does not provide any details about the implementation of the model. It does not provide information about how to go about making the model a reality, such as implementation plans, cost estimates, and so on.
  • Additionally, the Business Model Canvas does not provide any information about the competitive landscape or market conditions. It does not provide any insights about the competitive advantage that the business model might have.
  • Finally, the Business Model Canvas does not provide any guidance on how to evaluate a business model and make improvements. It does not provide any metrics or KPIs that can be used to measure progress and determine whether the model is successful or not.

Other approaches related to Business model canvas

The Business Model Canvas is one of the most popular business model templates, but there are other approaches to creating a business model. The following list outlines some alternative approaches to developing a business model:

  • The Business Model Toolbox by Business Model Foundry - this tool provides an alternative to the Business Model Canvas, incorporating a range of methods, models and frameworks to create a comprehensive business model.
  • The Lean Canvas by Ash Maurya - this tool is designed to help entrepreneurs develop their business ideas, focusing on customer problems and solutions.
  • The Value Proposition Canvas by Alexander Osterwalder - this tool helps to create value propositions by mapping out customer needs and the product or service that meets those needs.
  • The Blue Ocean Strategy Canvas by W. Chan Kim and Renée Mauborgne - this tool helps companies to develop a business strategy that will create uncontested market space.
  • The Lean Start-up Canvas by Eric Ries - this tool is designed to help entrepreneurs create a scalable, repeatable business model.

In summary, there are a range of alternative approaches to developing a business model, each of which offers a different approach to the task. Choosing the right tool will depend on the specific needs of the business, and the objectives that the business is hoping to achieve.


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References

Author: Bartłomiej Pająk

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