Many companies end up reinventing the wheel when it comes to business planning. They either create convoluted business plans that are hard to read or try to map out their business models in various ways.
There is one tool that companies can use to clearly communicate a plan to investors, stakeholders and employees: the business model canvas. This is a unified method in which to flesh out ideas so everyone can understand them. The best part is that it can be used in established Fortune 500 companies or small startups operating out of the basement.
Read on to learn more about the business model canvas and how you can use it in your business.
What is a Business Model Canvas?
The business model canvas was invented by Alex Osterwalder, cofounder of Strategyzer. You can access the Strategyzer site to download templates and tutorials of the business model canvas and then adapt them to your own goals and needs. Osterwalder developed the business model canvas to address nine elements within an organization:
Key partners. Who are the most important people involved?
Key activities. What activities drive the most value?
Key resources. What resources are needed to create value?
Value proposition. What key problems do your products or services solve?
Customer relationships. What do your customer segments expect from you?
Channels. How does your value proposition reach your customers?
Customer segments. Who are you creating value for?
Cost structure. What are the essential costs within your business?
Revenue streams. How do customers reward you for the value you provide?
When a business model canvas is filled out correctly, almost anyone can understand your business and its functions. They can see why customers love your business (or will love it) and how it is profitable.
Public relations consultant Jackson Carpenter describes a business model canvas as “an easy-to-digest one-page document that succinctly summarizes a testable hypothesis of how your business should work based on the best information you currently have.”
He used this model when he and his wife started to develop their side business. They looked at the templates for traditional business plans and realized they would have to write a 30-50 page document to complete the process. Conversely, the business model canvas helped them jot down ideas and flesh out concepts in one detailed page.
Once you have a developed business model canvas, your entire company can reference it in their work, explains product manager Aryo Shokohiazar. “Whenever you feel like you don’t know what you need to do for your business, looking at your canvas is going to give you a sense of focus and help you figure out the next steps to take.”
Every idea, project or goal can tie back to your business model canvas, keeping your entire company aligned with one mission.
How to Fill Out Your Business Model Canvas
Understanding the various sections involved in the business model canvas is important, but it also helps to have some context into why Osterwalder designed the layout the way he did and what his goals were for the people using it.
Business consultant Isaac Jeffries explains that the business canvas model is essentially broken into three parts:
Desirability. Companies need to understand their customers, what they want and how best to connect with them.
Feasibility. Companies need a process and structure built with the right team, resources and ideas.
Viability. Companies need a process that makes financial sense if they want to succeed.
Businesses that lack a balance between these three concepts don’t succeed. There are plenty of well-run startups that don’t connect with customers, creating a lack of desirability. Others have customers who want to buy their products, but have such expensive overhead that the company is not viable.
Another way to look at the business model canvas is to compare it to a stage in a theater. Agile coach Matthias Orgler explains that the right half of the model represents the front of the stage — or everything the customer sees and interacts with. The left half is backstage, or everything the business has to do in order to make the right half happen.
Orgler highly encourages people to start with the right half of the chart and then work left to see what the business needs to do in order to make the right happen. For example, in order for your product to reach customers at the desired price (revenue stream), what does your cost structure need to look like in order for the business to be viable?
Another tip is to always start with the value proposition section of your business model canvas. This is the core of your business and everything you add to your canvas will tie back to it.
“After you’ve established the value proposition of your idea, the rest is left up to priority,” writes the team at story mapping tool Cardboard. “Tackle what you deem to be the most important aspects of the business model. As you go through the exercise, connect the blocks.”
By doing this, you can use your canvas to troubleshoot issues and identify parts of your business model that need to be further developed.
How Companies Use the Business Model Canvas
Startups like the one Jack Carpenter developed use the business model canvas to explain their business plans and flesh out ideas. The model is much easier than writing a whole business plan. “There are two extreme ends of the business planning spectrum to be avoided: doctored pitch decks that are pretty to look at with little substance, or highly technical pitch decks that completely confuse most investors,” says senior business analyst Astrid F. Kowlessar.
The business canvas model serves as a happy medium. It presents a plan in a skimmable, but valuable, manner. It also presents the information uniformly, so someone reviewing multiple departments or businesses can compare and contrast the different sections.
However, the business model canvas isn’t just used for new businesses. Agencies and contractors can use it as a form of market research. For example, the team at accounting firm Ashton McGill says they use the business model canvas to get to know their customers before they start working with them. The modeling format allows them to take a deep dive into the brands they will be working with so they can create comprehensive solutions that will be effective.
Andy Jack, cofounder of Candle Digital, says his company uses the business model canvas to help clients flesh out new ideas. They can take a partly developed plan and turn it into something that can be executed.
“We’ve found that the Business Model Canvas allows us to easily riff on business ideas, giving our partners an early chance to spot the strengths and challenges,” he says. “Often, working through the canvas poses questions that might not have been considered yet and gives an early sense of the viability of the business plan as a whole.”
Of course, a business model canvas can also be used internally for teams to review their own performance and perceptions and can also be used by project managers and business analysts within an organization to better understand how specific teams function.
How to Hold An Effective Business Model Canvas Meeting
Most companies work with groups of employees or even the entire team to fill out the business model canvas. The goal is to bring in everyone’s feedback to create a hub of collective knowledge.
The first step is to focus on filling in the information that you have while identifying gaps in your knowledge. This is the information you need. “All of the stuff included is essential to your business, but it’s okay if you don’t have all of the best answers right away,” explains the team at digital product design and development studio Uppercut.
You can create assignments for teams to find the information and return to the project, or tie up loose ends that could make some answers dependent on various external factors. This is meant to be a learning and development exercise.
“This uncertainty comes from having to actually go out there and look to see if you are actually addressing the concerns you think your business is addressing,” writes Hasan Bilgen at McGill University’s Dobson Chronicles. “You can’t take your business’s structure for granted and you can’t assume everyone on you team is really on the same page.”
As you start to fill in the segments and confirm data, ask a series of “why” questions that are developed to challenge your beliefs about your plan. You want these questions to affirm that your plan is sound and there aren’t any gaps in the information you need.
Strategy designer Justin Lokitz says these questions should be asked in 10-15 second intervals with participants immediately jotting down their answers. The goal isn’t to come up with an answer that the boss likes, but to address any concerns that hover in the back of your mind.
You should be able to fill in the business canvas model in about an hour, but may want to set aside more time to come back with information and review the final product.
Business Model Canvas Resources
There are plenty of tools available to startup founders and project managers who want to work with the business model canvas.
Check out the workbook developed by Park Place Business Improvement Strategies. They provide clear steps you can follow, especially if you are trying to mold your current business plan to fit this process. They also recommend reviewing your business canvas model whenever there are changes within your business structure or at least once a year to account for any changes and updates. If nothing has changed, you can use this review as a way to keep everyone on your team on track with your mission.
The team at Canvanizer created a tutorial for developing a business model canvas with their software. Their tools are free and fairly easy to use, so you can test out this mapping concept on your own before expanding the use of business model canvases to the rest of the team, department or company.
And if you want to see the business model canvas in action, engineer Murat Uenlue, Ph.D. at Innovation Tactics created a series of posts that apply this modeling format to different companies. You can see what the business model canvas looks like for brands like Expedia, TripAdvisor, Yelp and Uber. He also explains how he found information for certain segments and why he added it. You can start to see that even though this looks like a simple chart, it can take more than an hour and several resources to fill everything in.
The next time your company is struggling to flesh out an idea or if you need to pitch a plan to an executive or client, use the business model canvas to organize your thoughts and create a solid argument.