We live in an innovation-driven world, where every individual seems to have a great idea to start a venture or improve a business. But the real challenge lies in converting that fragment of imagination into a well-structured and scalable model. Most entrepreneurs give up at this point- they delay the execution because they lack the necessary tools to implement their vision. This is where the Business Model Canvas (BMC) comes into play. It is still unknown to many, but it is an excellent method to devise a strategy, bring clarity, and foster clear execution.
Let us understand more about the Business Model Canvas in this article.
What is a Business Model Canvas?
Developed by Alexander Osterwalder, a Business Model Canvas (BMC) is a tool organizations use to design, map, and analyze their business models. The canvas consists of nine individual building blocks that connect important aspects of a business with each other. Unlike traditional business plans, the BMC is a one-page model that provides a comprehensive overview. It showcases a bird’s-eye view of the entire organization and enables teams to align with each other.
The BMC is often used by entrepreneurs and executives while starting their ventures and reorganizing and restructuring them. This visual chart allows departments and teams to make strategic decisions, focus on what is important, and help the business grow in the right direction.
Importance of a Business Model Canvas
1. Brings Clarity and Focus
The BMC brings your entire business onto a single paper, providing clarity and instant focus. Instead of sifting through lengthy documents, you can see the core pillars of your business at a glance. It saves much time and effort and helps redirect energy towards important business functions.
2. Better Team Alignment
The most overlooked challenge in growing a business is internal misalignment. It means team members have different visions and do not align towards a single objective for the venture. Such gaps can be bridged with a Business Model Canvas.
It provides transparency and even allows cross-functional departments such as marketing and sales, finance, and accountancy, etc., to stay on the same page. It makes the execution and planning process smoother and flawless.
Thus, the BMC not only fosters a sense of unity but also prevents any quarrels or internal issues.
3. Identifying Opportunities and Threats
The BMC is an incredible tool for finding blind spots and missed opportunities. The canvas showcases it all – undervalued customer segments, overlooked revenue streams, or even a weak cost structure.
Thus, the canvas also becomes a launchpad for creative thinking. Once the opportunities and threats are identified, entrepreneurs can work towards fixing and executing them. The ability to see what is missing fosters strategy and allows a 360-degree growth thinking.
4. Allows Customer-Centric Thinking
Great businesses are not made with products – they are created with happy and satisfied customers. The BMC focuses on prioritizing customer segments and understanding their needs, demands, and wants. It ensures that each part of the business starts and ends according to the customer’s demands.
Therefore, this customer-centric approach not only allows businesses to gain a competitive advantage over others but also allows them to create a base of loyal and retaining customers.
5. Efficient Resource Allocation
Resource allocation is one of the most critical tasks for every business. Successful businesses usually allocate resources in such a way that they make every hour and every penny count.
It is where the BMC can be of great help – it allows you to isolate the key resources that actually move the needle. This clarity helps deploy the right resources at the right places and boosts productivity.
6. Risk Mitigation
Every business has inherent risks – be it physical, environmental, financial, or operational. With its nine blocks, the Business Model Canvas displays the interdependencies of your business. It helps identify related risks and create strategies to mitigate them.
For example, if a key partnership falls through, it may hinder your delivery channels and other core activities, which directly impact customer satisfaction and revenue. By depicting these relationships visually, the BMC enables proactive planning. This early detection of weak links also allows businesses to create risk management plans.
Nine Building Blocks of BMC
1. Customer Segments
Customer segment defines the different groups of customers that your business wants to serve. It can be differentiated segments, highly-targeted, mass audience, or even niche clients. Defining the segments allows you to understand your customers’ characteristics, buying behavior, motives, and even triggers.
2. Value Proposition
Every business thrives on a few unique propositions that set its venture apart from the crowd. It can be anything – a lower price, better quality, innovative technology, ease of use, or better customer experience. Value propositions are usually the pain points of the audience that your business is solving. Thus, when you understand these points well, you can focus on creating a better service or product.
3. Channels
Channel refers to how your organization sells its product or service to the consumer. It can be through online platforms such as the company’s website or e-commerce platforms, physical stores, sales teams, door-to-door delivery, etc.
Choosing the right channel is extremely vital as it directly impacts customer experience. In an era of quick commerce where products are delivered in a few minutes, the distribution channels should be strong and cost-efficient.
4. Customer Relation
Every organization wants to build great relationships with its customers, so that it can retain them. This section of the canvas conveys the strategies used to maintain these relations. It can include aspects of customer service such as personal assistance, email and chat support, and automated query resolution.
Further, this part also includes various programs and strategies used to attract consumers, such as loyalty programs, bonus points, memberships, etc.
5. Revenue Streams
Revenue streams showcase how your business makes money from its products and customers. It includes information about which platform generates the most revenue, what the fees and taxes are, third-party applications used for the flow of funds, and much more.
6. Key Resources
This section includes the essentials required to run your business. It can be physical, human, capital, or even intellectual resources. They are the core of a business, and without them, an organization cannot survive.
For instance, for a creative agency, human talent and brand equity may be the main resources. While for a car manufacturer, physical labor and capital might be more important. Thus, by understanding the key resources, you can create reserves for them and find ways to sustain them for the long run.
7. Key Activities
Key activities are the critical tasks your company performs to deliver value, reach customers, and generate revenue. It can include product testing, marketing, software development, supply chain management, etc. It enlists all the main functions of your organization.
8. Key Partnerships
No ventures are run in vacuum, they all require partnerships and collaborations to move forward quickly. This section communicates the same – any external partners, outsourcing agencies, strategic alliances, or even joint ventures.
When you have information about all such partnerships on the same page, you can identify which ones are working well and which need to be terminated.
9. Cost Structure
Cost structure outlines all the costs involved in running your business. It can comprise fixed costs such as salaries, rent, lease, and variable ones like shipping, manufacturing expense, etc.
It is essential to know your cost structure from its roots. Understanding where and how much of your capital goes periodically is crucial. It can help cut unwanted costs, optimize processes, and improve overall profitability.
Steps to Build a Business Model Canvas
(i). Collect Necessary Information
Before you start filling the canvas, take some time to collect all necessary information beforehand. It means conducting thorough research about your environment, competitors, target consumers, revenue measures, etc. You can gather this data from your company’s database and dig through the internet for external sources.
(ii). Define Objectives and Purpose
Defining the purpose of your canvas is important for filling it correctly. Thus, take a moment to understand your objective. Are you validating a new startup idea? Do you wish to refine an existing organization? Are you pitching to investors? Your objectives define the depth and content of your canvas.
(iii). Select a Template
Designing the entire canvas from scratch can be a task, especially when you are loaded with the pressure of finding the right content for it. Thus, we recommend using expert-designed templates that can be simply edited and tailored according to your needs.
Remember, your template should be visually appealing and clear to understand. The colors, fonts, and other elements should align with your company’s branding and vision.
(iv). Fill in the Information With Your Team
The next step is to fill in the information with your team. It is crucial to understand that the BMC is not a solo task. Rather, it is a model that thrives on diverse perspectives and ideas. Therefore, include your team in the process, seek their opinion, and turn the task into a collaborative and creative process.
Having debates, differences of opinion, and discussions is quite normal in such circumstances. Therefore, look at the bigger picture, where each such spark can allow a wider and broader vision.
For example, if your sales lead questions the revenue model, you have a chance to re-evaluate. Similarly, if your designer challenges the value proposition, you can gain insights into a more intuitive strategy.
(v). Analyze and Evaluate
Once the canvas is filled, the real work begins – evaluating how well all parts align and identifying areas that need refinement. Start by questioning the canvas and interrogating each segment properly.
For instance, you can create a list of questions for every building block. Are the customer segments well-targeted? Does the brand’s value proposition compete well with others? Are there any weak links or threats?
By finding answers and evaluating each part, you can fix your problems before they arise and remain competent and unbreakable.
Things to Avoid While Making a BMC
1. Being Vague or Unclear
Clarity is the key to a successful business model canvas. Being vague or ambiguous with phrases like ‘good customer service’ or ‘effective social media campaigns’ can lead to miscommunication. Therefore, be extremely concise and clear. You can use precise language for the same.
Here is an example – instead of writing your target audience as ‘young women,’ consider being direct. Write ‘women aged between 18-30 years, living in tier-1 and tier-2 cities.’ This language reflects your precision in thinking, making your canvas more efficient and impressive.
2. Overcomplicating the Canvas
The canvas is designed to simplify the workflow, not complicate it. The main aim of a one-page BMC is to provide a minimal overview of the organization. Thus, avoid the urge to cram excess information onto your canvas. You should also refrain from using complicated jargon, long sentences, difficult-to-understand words, and unnecessary information.
3. Using Old and Outdated Data
Building your canvas on old data is like preparing for the weather on last year’s reports. In an ever-evolving world, markets change, customer segments transform, product USPs rise and fall, and many more aspects flip. Therefore, using accurate and up-to-date data is a must.
4. Rushing towards Checklists
Many a time, we treat the BMC as a ‘checklist’ to complete, rather than a genuine strategic tool. Such a mindset causes us to overlook the actual importance of the canvas, which is to challenge obstacles, foresee opportunities, and build foundational growth.
Each block of the BMC requires deep evaluation. What might seem like a good idea today might not fit well into the market in a month or so. Thus, instead of rushing to just fill the boxes, it is important to carefully analyze and then jot down our points.
Why Your Team Needs to Know About BMC
By reading this article until here, you probably know why a Business Model Canvas is vital for your organization. But, is it important for your team as well to understand its nuances? If yes, then why? Let us understand with an analogy.
Consider you are an architect, building a house with your team. The BMC here is the house’s blueprint. If only you know about the blueprint and everyone else guesses where the walls, doors, or plumbing should go, the result will be sheer confusion, wasted resources, and constant rework. But if the entire team has the same blueprint, they can coordinate better, avoid costly mistakes, and build something strong and functional.
Similarly, for teams to work flawlessly towards shared objectives, they must know the depths of their business. They need to understand each aspect of their organization properly. This way, they can understand the customers, markets, value, cost structure, revenue, and much more.
Note – You can use a pre-designed, professional-looking Business Model Canvas presentation template to educate the audience about this canvas and help them make informed decisions.
Conclusion
Consider the BMC not as a planning tool, but as a thinking tool, as it encourages and pushes organizations to think beyond their imaginations and push boundaries to explore more about themselves. By mapping out various interconnections and analysing them extensively, ventures can develop a strategic foresight and conquer the markets. Such skills are vital in our competitive era.
