Business model canvas
The Business Model Canvas was developed by Alexander Osterwalder and Yves Pigneur to give a bird’s-eye view of an organisation or product. This strategy tool gives a high-level summary and should be augmented with detailed documentation. It helps you evaluate new business models, improve your strategy and create alignment.
The canvas offers a strategic advantage by considering various factors that can enhance your chances of success and lower costs.
The canvas can be used for:
Generating strategy options - Map the current state and identify issues and opportunities.
New products - Structure and optimise a new product.
Chargeable feature - The canvas is optional. It will be most helpful when your feature causes you to diverge away from your current business model. If it doesn’t, you should still go through the canvas and consider the sections.
It is also useful for alignment:
Explain your business model to investors or partners.
Onboard new employees.
The canvas can be created at a number of levels. In the example below, you could have up to three canvases:
Business Model Canvas
Several additional canvases are provided, which give structure to specific sections. These canvases offer a great deal more depth and guidance. This will ultimately result in a competitive advantage. Links for these are provided in the canvas section instructions below the picture.
Feel free to recreate the canvas in a tool of your choice.
Creating Strategy Options
This section is applicable when using the canvas to create high-impact Strategy Items ready for prioritisation. It is not required for new products. Start by mapping the current state, then look for opportunities. Here, we can see an example. Note that the Strategy Item begins with the problem, not the solution. Quantify the problem to determine the solution’s potential impact. If it isn’t significant enough, don’t add the item. You may split this activity between the person conducting the problem analysis and the person focusing on solutions. You should review the full instructions for creating Strategy Items here before you begin.
The “Work purpose” on the Strategy Item maps to one of the following:
Mandatory work - Keep the lights on, legal and compliance.
Reduce operational costs - Remain competitive, increase profitability. These aspects are more focussed on your organisation but can have secondary benefits. For example, you improve a feature, leading to higher customer satisfaction and lower support costs.
Protect market position - Reduce customer churn, sales loss. For example, if a key feature is not useful enough to customers. You must know the reasons before you create Strategy Items mapped to this.
Increase market share - Sell more of your current product to your Ideal Customer Persona (ICP). For example, you see that a number of features are seeing very high usage and decide to do more of them.
New markets/products - Market development (new target customer group), new product development and diversification (both new market and product).
The Strategic Direction process within the Commercial Agile Framework contains guidance on which of these areas you should prioritise, including how to gather the data, such as reasons for customer churn and sales loss. This canvas is one of a number of strategic inputs. With a strategic priority, you can now apply it to each canvas section. For example, “How do I reduce operational costs by leveraging partnerships?”. Here are some examples:
| Business Model Canvas | |
|---|---|
| Mandatory Work | Where your business model is impacted by new legal and regulatory requirements. For example, a new European quality standard. Only map to this when it is the primary work purpose. For example, if you pivoted to a customer segment in another country, this may require new mandatory work but would be mapped under New Markets/Products. |
| Reduce Operational Costs | Start with identifying opportunities in your Cost Structure, then look across the canvas. For example, you look at Key Partners and decide to leverage a new partner to reduce the cost of selling your product. |
| Protect Market Position | Dependent on why you are seeing sales loss, high churn rates or experiencing major churn risk. For example, where a Key Activity of data migration is impacting customer satisfaction and causing high churn rates. |
| Increase Market Share | Where you can create new differentiators using the canvas section. For example, by creating a new AI tool to improve customer relationships. |
| New Markets/Products | Create or remodel the canvas based on these factors. For example, pivot your customer segment to target another country. |
Canvas sections
The following instructions will help you create the canvas. It can be tempting to add a great deal of detail, but this will make it hard to understand. The canvas should be at a high level and succinct. There are links to additional canvases that give a lot more structure to some sections.
Value Proposition
Without a good value proposition that resonates with customers, your whole business model is pointless.
New Product Generator Canvas - Maps to Value Propositions and Channels. Start with this canvas when you are creating a new product.
Market Positioning Canvas - This is used for an existing product.
Key Partners
These are the partners that are essential to your business model. For example, in a software training business, partnerships may exist with the software companies. Non-essential partnerships should not be listed. For example, just because you use some accounting or HR software, this does not mean your business model would fail without them. There are several types of partnerships that you can leverage for strategic advantage:
Joint ventures - Where partners develop a new product together.
Strategic alliance - A partnership between non-competitors.
Coopetition - Where there is a strategic partnership between competitors.
Buyer-supplier relationships - To provide a reliable supply of products or services to customers.
Licensing partnerships - Where an organisation allows another to use its technology, brand, product or intellectual property for a fee.
Franchise partnerships - Where the franchisor licenses its business model, operations and brand to others.
Technology/Platform partnerships - Where an organisation builds on or integrates with another organisation's platform.
Distribution/Channel Partnership - Where an organisation helps you reach customers more effectively. This includes resellers and digital marketplaces.
Outsourcing partnerships - Where an organisation outsources key operational activities. For example, manufacturing and IT support.
There can be many growth and cost-reduction opportunities associated with partnerships. Use the list above to look for these.
Key Activities
These are the key activities that the organisation must do to maintain its business model. Don’t list generic activities like HR. This may include how an organisation operates its Channels, maintains Customer Relationships, and earns Revenue. For example, if you are a taxi hire business, Key Activities will be to hire good drivers and get to customers quickly. Here are some other made up examples:
Creating the highest-quality hardware devices.
Creating the best user experience by combining hardware and software into a seamless experience.
McKinsey Consulting:
Conducting high-level industry and competitor research.
Building and deploying high-impact proprietary consulting frameworks.
Attracting the highest-skilled talent.
Maintaining strong relationships with c-suite executives in large organisations.
Key Resources
These are the essential assets that support your product. They can include:
Human resources - The people essential to delivering your product.
Physical resources - Used in production or service delivery.
Intellectual resources - Including patents and copyrights.
Financial resources - Where the capital comes from to support growth, innovation or operations.
For example, McKinsey Consulting:
A globally distributed talent pool of high-quality people.
Proprietary consulting frameworks that can provide a competitive advantage to clients.
Publicly available material that demonstrates experience, domain knowledge and proof of outcomes.
Note that the consulting frameworks are included in both key activities and key resources McKinsey examples. This is because both a strategically critical. Where this is not the case, avoid unnecessary repetition.
Customer Segments
It is vital to identify your target customer before filling in the relationships and channels sections. These canvases help you to segment your target customer group to maximise success:
B2C - Customer Persona Canvas - This helps you define the customer group to service and target.
B2B - Company Profile Canvas - This helps you define organisations to target in a business-to-business environment.
B2B - Buyer Persona Canvas - This helps you understand the needs of the different people involved in the buying process in a business-to-business environment.
New Markets/Products - The “new markets” strategy means selling an existing product to a new customer group. For example, you sell in the UK and now wish to expand to France. When creating Strategy Items, consider recreating these in full where your new segment differs significantly.
Customer Relationships
This is the relationship the customer wants with you. For example, when selling Rolls Royce cars, you would expect a highly personalised face-to-face experience.
Cost considerations
There will be a balance between costs and expectations. For example, customers may want a face-to-face experience with Microsoft, but the cost of support may be too high for them to achieve this. Premium support offerings can be made available to high-value customers or those who are willing to pay extra.
Channels
These are the channels used for customer awareness (where they find out about you), purchase and delivery. Once we have identified our customers, we must decide how to interact with them. Below are some considerations.
Awareness
How do they find out about the product?
Online marketing - For example, social media, working with influencers and websites.
Advertising - For example, Television, radio and Google Ads.
Public relations - For example, media coverage and industry events.
Partnerships - Working with complementary organisations.
Referral programs - For example, affiliate marketing and cash back for referring friends.
If your brand is new, you should consider following the comprehensive advice in the Marketing Positioning Canvas.
Purchase
How do they buy/acquire your product?
Subscription model - For example, pay for usage and tiered subscription pricing.
Freemium model - Where you offer a free product, and they can upgrade to a paid one. Avoid this where set-up and run costs are high.
Product trials - Where you offer a free trial period.
E-commerce - Payment via online marketplaces such as Amazon.
Direct sales - Sales team outreach.
Delivery
How do you deliver the product to them?
Physical products - Shipping or pick-up.
Digital products - Download, streaming or access on the cloud.
Services - Face-to-face or remote consulting.
Cost structure
This isn’t very cost incurred by an organisation. It is those directly linked to delivering your value proposition. Begin with the costs associated with Key Partners, Activities and Resources. For example, the cost of using a Key Partner to resell your product. Pay particular attention to costs where your profit margin is low. This means you will have little ability to respond if competitors cut prices. You may be using a low-cost strategy to compete in the market. This page describes this further. Costs can be either:
Fixed - Static costs, such as licenses for development tools and the cost of the development teams.
Variable - Change depending on the amount of production.
Example cost categories:
Operational costs - Day-to-day activities required to support your product.
People costs - Overall, the people developing and supporting the product.
Technology costs - For example, licenses and data storage. Technology can also act as an enabler to reduce costs.
Marketing and sales costs - This can include advertising, influencers and marketing campaigns.
Supply chain costs - These are the costs associated with delivering a product or service to your customers.
When filling in the canvas, avoid listing too many items. Instead, consider creating summary definitions such as “Technology and infrastructure costs”. You can create external documentation for their breakdown. Only split them when they are very important to consider separately or are very different.
Overall costs and cost strategy
It can also be helpful to consider the cost per unit, e.g. £5 cost per month per user. Here is the calculation:
This gives helps you:
See how efficient you are. If you track changes over time, you can find issues quickly.
Set a profitable price.
Compare across different products.
Predict total cost based on production volume. This can include reduced costs from economies of scale.
Reducing costs via economies
Economies of scale - Where higher volumes lead to reduced costs. You can achieve this by:
Buying similar organisations.
Negotiate lower supplier costs as you grow.
Internal functions:
Create shared services across your organisation.
Standardise processes and tools to reduce training and support costs. For example, a standardised project management tool that is deployed to all departments gives a volume discount.
Outsourcing non-core services such as IT support.
Economise of scope - Where similar products can share resources, lowering the costs. For example, having the same organisation supporting them. This is a strong reason for releasing similar types of products.
Be careful not to impact customer satisfaction when reducing costs. Consider solutions that create a win-win. For example, an expensive manual process is automated, leading to faster resolution times and lower costs.
Revenue streams
A revenue stream can be defined as a distinct source of income for an organisation. There are many ways to make money. For example:
Product sales
Subscription-based revenue model
Usage-based fees (can be combined with subscriptions)
Commission fees
Advertising
Licensing
Lending or leasing
Revenue can come from different places, such as customers and advertisers. If this is the case, make it clear on the canvas. When optimising, consider:
Revenue stream value - How much each revenue stream brings in. This should be based on trends.
Value may be linked to pricing. For example, you increase prices by 10%, cause churn, and see product sales reduce.
Consider the cost of maintaining each revenue stream. For example, a stream costs £100k a year to support, and you only have one customer paying £50k.
Payment methods - How customers would like to pay. You may not support the methods that they want.
Strategic risk - Do you have too much risk based on just a few clients or revenue streams?
Pricing strategy
The price point and how it is determined. The New Product Generator Canvas contains a pricing section.