Business Model Canvas: In this article, we will talk about the meaning and definition of a business model canvas. We will also talk about its need for an entrepreneur, tools to build a lean model canvas and the main parts of it. While explaining these, we will discuss why this is important for your startup idea. Also, we will explore distinction between the canvas and a business plan with some tools to produce this canvas.
In summary, a business model canvas is a visual representation of the key areas of your business. It is one of the simplest ways to show the core components of your business and the connected parts.
What is a business model canvas?
Business model canvas definition: The Business Model Canvas is a one-page visual representation of your idea. It is a standard template to give a bird’s eye view of the business to the investors, entrepreneurs and use as a foundation for a business plan. The lean canvas has 9 main parts to define the value proposition. It simply gives you an effective way to identify the broad building blocks of your business.
At the heart of your lean model canvas is your value proposition, partnerships, revenue streams etc. Each of these segments is important to convey the full picture of your business.
FAQ: Why do I need a business model canvas as an entrepreneur?
For a new entrepreneur or business founder, I would recommend starting off with a business model canvas. It gives you a great opportunity to look at the business as a whole. Most entrepreneurs I’ve spoken to are so passionate about their idea. But they miss some elements such as commercialisation, go-to-market strategies etc. This canvas makes sure that you have covered all aspects that can impact your idea at a high level.
If you’re going to seek funding for your startup, the investors will expect you to generate a good business plan. A business plan is a detailed document explaining your vision with details including forecasting, product pricing etc.
Business model canvas vs. business plan
The business model canvas and the business plan are startups’ most commonly used tools. While they serve distinct purposes, they complement each other to provide a comprehensive picture.
The business model canvas is a visual framework that depicts the key elements of a business model. It offers a holistic view of how a company creates, delivers, and captures value. The canvas is flexible, and dynamic, and encourages a focus on the interconnections between various business components.
A business plan is a detailed document that outlines the overall strategy, goals, and operational aspects of a business. It includes an executive summary, market analysis, competitive analysis, marketing and sales strategy, organizational structure, financial projections, and more. A business plan provides a comprehensive roadmap for the business, including detailed financial projections and a timeline for execution.
Difference between business model canvas and business plan
The business model canvas provides a concise overview of the business model. The business plan dives deeper into the specifics and operational details. The canvas helps entrepreneurs validate and iterate their business model quickly. A business plan offers a more formal and comprehensive document often required for external stakeholders, the board and investors.
In summary, the business model canvas and the business plan are complementary tools that serve different purposes. The canvas is ideal for early-stage ideation and rapid testing of business models. It enables entrepreneurs to visualize and communicate their value proposition effectively. The business plan provides a detailed roadmap and financial analysis, crucial for long-term planning, funding, and external communication. Both tools play a vital role in developing a successful and sustainable business.
Business model canvas tools/software
The simplest tool to generate a lean business model canvas is using a pen and paper. A simple google search will give you the standard template to build from. However, I’ve found that using an online tool like Stratagyzer can give you a major benefit. For a startup without funds, this software gives you an opportunity to create the canvas for free.
Business Model Canvas tools and software are designed to facilitate the creation, analysis, and visualization of business models using the Business Model Canvas framework. They provide a digital platform for entrepreneurs, founders to develop, refine, and communicate their business models more effectively.
They offer features such as drag-and-drop functionality, pre-built templates, and interactive interfaces that allow users to modify easily. Additionally, some tools provide collaboration capabilities, allowing multiple team members to work together on the canvas in real time.
Business Model Canvas tools/software help explore different scenarios, test assumptions, and simulate the impact of changes to the business model. They can also generate reports, presentations, and visualizations that help stakeholders better understand and engage with the business model. Overall, these tools enhance the process of business model development. They enable businesses to make more informed decisions for sustainable growth and success.
Popular tools for entrepreneurs
Strategyzer: Strategyzer offers a web-based platform called “Business Model Canvas” that allows users to create, collaborate, and iterate on their business models. It provides a user-friendly interface, pre-built canvas templates, and features for testing assumptions and exploring different scenarios.
Canvanizer: Canvanizer is an online tool that provides a virtual canvas for creating and sharing business models. It offers a drag-and-drop interface, customization options, and the ability to collaborate with team members in real-time.
Lean Canvas: Lean Canvas is a popular one-page business model template that helps entrepreneurs and startups define their business model in a concise and focused manner. It is widely used for its simplicity and ability to capture key elements of a business model.
Creately: Creately is a visual collaboration platform that offers a range of templates, including the Business Model Canvas, to help users create and collaborate on various diagrams and models. It provides a user-friendly interface, drag-and-drop functionality, and real-time collaboration features.
Miro: Miro is an online collaborative whiteboard platform that supports the creation of various visual models, including the Business Model Canvas. It offers a range of tools and features for brainstorming, organizing ideas, and collaborating with team members.
Components Business Model Canvas
Business model canvas key elements
The Business Model Canvas is a strategic tool that helps businesses visualize and analyze their business model. It consists of nine key elements that capture the fundamental aspects of a business. These elements include customer segments, value propositions, channels, customer relationships, revenue streams, key activities, key resources, key partnerships, and cost structure.
Each element plays a crucial role in shaping the overall business model and determining how value is created, delivered, and captured. By examining these key elements, businesses can gain a comprehensive understanding of their operations, identify areas for improvement, and develop innovative strategies to stay competitive in the market. The Business Model Canvas serves as a powerful framework for entrepreneurs, startups, and established companies alike to effectively design, assess, and refine their business models.
Value proposition
The value proposition clearly explains why a customer needs to pay for your product. The value you generate might be in the form of reducing complexity, saving time or even saving money. Your business might create value such as making people happy. In the value proposition, you must articulate clearly a few reasons why a customer would want to pay for your product or service.
It also addresses an important question of – what does your product do that no one else can. The value proposition must influence defining your unique selling point. Once you start writing your business plan, you’ll notice that the USP will take a major part of both your startup pitch and pricing strategy.
Key Partners
This section is to identify the core partnerships with your business model. Your partners can extend from product development, marketing/sales and perhaps even operational such as financing etc. Make sure that you map out the most important people to be able to run your business.
Ideally as the startup grows, you must publish the key partners so that all employees are aware of acccount management relationships and continue to provide good service.
Key Activities
What do your key activities include? Remember, as a startup, you may decide to outsource some of your activities. But if you perform product development, this is a key activity even if it is outsoured. The key activities section of the business model canvas is to remind you of the main things that your business stands for.
It is also a very good reminder to ensure that you keep focusing on your strenghts and USP. Since early revenues are hard, startups tend to pivot early and lose focus. You can see that this is one of the most common reasons why startups fail early. The key activities ensure that you don’t lose the focus.
Key Resources
What is required for your business to run? The key resources indicate main parts of your supply chain to operate as a business. Your key resources are important because investors will want to know what constitutes as the main parts of your lean operating model. They may want you to rethink the business model, outsource certain components etc.
For these conversations, a map of your key resources will help you argue a case to define the business strategy around these resources. Examples of key resources are – supply chain for your raw materials, main distributors of your product etc. You can also use this to produce a risk map to identify weak links in your business plan.
Customer Relationships
Well, this is the core part of any business isn’t it? Whether it is a tech company or a service based one – your customers define whether you’ll stay alive. If you have poor customer service, the business will need to close down soon. In this section, you’ll need to identify the core customer relationships.
The best way to use this section is to define Tiers of customers based on either revenue or future business opportunity. Make sure that you have some space in your business plan for account management. This will ensure that you maintain good quality of service for your most valuable customers.
Channels
Channels indicate the key parts of your business in the supply chain. A business model canvas is incomplete wihthout identifying the complete journey map required for your sustenance. Also, it exposes key risks in case some of your channels aren’t strong. For instance, over reliance on outsourcing might be a risk. You can build a mitigation plan to bring some aspects in house with time to give solace to your investors and refine the product strategy. Remember, the more you know about your business, the better chance you have at securing investment.
Customer Segments
It refers to specific people groups that you can target. In a product world, you’ll call this personas who are reflective of a type or group of people. This will help you define both the product development and sales strategy. The same message will not work with all type of users. For some users, you may want to take data led approach. For some others, you might want to define a higher level approach.
Ultimately your business model will cater to not just one type of customer. Although your product journey is based on a certain few assumptions, it will change when in front of users. The segments helps you prepare your communication and approach to adapt your product/business approach.
Cost Structure
This is super important to define your financial projections as a startup. Your investors will want to understand how and when the business will achieve self sustenance. Although upfront investment helps us develop a product, we will need paying customers to ensure longevity of your business model.
The cost structure helps you identify how to target customers. Answer questions such as – whether you want to have a free and premium version of your product. Also, you’ll need to define whether your services will have a human element to it. If you’re able to create clarity, an investor will be able to introduce you to the right type of people in their network
Revenue streams
And finally revenue streams. What are the various channels through which you make money? Your product might have a direct user subscription model. But you might also have additional opportunities such as advertising or cross promoting of partner’s products. While doing this, make sure that you don’t compromise user experience. The moment a user starts feeling that you’re all about money, they will start losing interest and loyalty in your business approach.
Well, these are the high level brackets of a business model canvas. Good luck with yours and if you have any questions or want to double check – please ping below.
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A handy guide to the key points an entrepreneur needs to focus on. Thank you for this article, Vinay. I think, close observation is important to notice any change and theory gives a systematic insight of what is going on in the business.
Thanks Sindhu, I didn’t want to be too prescriptive. The business model canvas is a very good element to have at any stage of a business. It can be a great starting point, expansion point or refining point. It can also be great when you want to have a team together so that each team member knows the importance of moving parts of the business. In short, it is a great one pager to have and a very good starting point for the business plan. I hope to complete a post about that soon covering the main elements of a business plan. Hopefully in a few days soon :)
Though it seems longer, I guess, it would have been a challenging task like fitting a complete book into a pocket guide 😃
I thought the same, such clear business model canvas can guide anyone in the team at any point of time. Thanks for sharing 😃
Ha ha thanks Sindhu, appreciate you saying that. As long as it helps, I would consider the effort and time well spent on crafting this one. This was one article which took a fair bit of time to develop and put together. I am looking forward to a few more of these frameworks I have learnt in the recent past. I have found them very useful in developing business processes. They do bring an element of planning into action which helps in keeping track of the broader goals.
Thanks again for sharing your knowledge 🙂🙏