How the Business Model Canvas works
A business model is a brief breakdown of the strengths, vulnerabilities, and development opportunities of a company. The framework helps you perform an analysis for a company of any size and age: from a startup to a long-standing large business.
Business Model Canvas is a table with 9 cells where each refers to a particular component of the startup, and if you fill out the table, you can visualize your business model.
👉Let’s take a closer look at each element:
1. Key partners. Here you should list all counterparties and also specify how you cooperate. For example, identify who is the key supplier and who is the information partner. This will help you understand what support your business can expect and what partners are missing.
2. Key activities. In this cell, write down activities the company performs to retain old customers and partners, attract new ones, and increase revenue.
3. Key resources. Here you need to write down resources that will help the company increase revenue and attract customers. These can be financial, reputational, informational, and human resources.
4. Value proposition. When filling out the BMC model, make sure to include the problem that you help your client solve. What will they get from interacting with your company? How will your product meet their needs? Perhaps you offer the best price, or you have the friendliest staff and customers are very pleased to contact you. Or maybe your product and service are not particularly different from the competitor’s but your company is eco-friendly or does charity work. All these details will form the value proposition of your startup.
5. Customer segments. Here you need to segment your target audience: describe who you work for and which of your customer segments are a priority.
6. Customer relationships. This section focuses on how the company interacts with its clients. Maybe you have a personalized customer service or offer self-service? Do you sell a finished product or work together with the client? Make sure you consider and describe these details.
7. Channels. How do you communicate with current and potential customers? Maybe it’s social networks, in-app advertising, or support service? How can people purchase your products and services?
8. Cost structure. Determine what your biggest expenses are. Then, decide which of them are key for your business, and which ones you can do without.
9. Revenue streams. What revenue streams does your business have? It could be sales, paid subscriptions, or rent. We recommend mentioning the main sources and criteria for pricing.
Business Model Canvas is a useful tool for building a comprehensive strategy at any stage of your business: it helps to define the future development direction. You can benefit from filling out the table even at the startup stage, when the business is just starting or has not launched yet. This will help you assess your product or service, as well as identify the weaknesses and strengths of your business or idea and correct them on the go. Now let’s go over some of the use cases of the Business Model Canvas.
What are the best uses of the Business Model Canvas?
As we’ve mentioned before, the Business Model Canvas is an effective tool for managing any business. Thanks to its versatility, it can be applied in many business scenarios, from creating a startup to refining a business model. Here are some of the most common use cases of the Business Model Canvas tool:
Planning a business strategy
The Business Model Canvas provides a convenient way of examining every component of your business without overcomplicating the process. The framework was designed to be as flexible as possible — any company can use it to create an effective business strategy. It’s popular both among startups seeking to enter the market and among established businesses. In some cases, it’s even possible to use the same Canvas for different companies, provided that they share similarities in their customer segments and products. There is also a simplified variant of the BMC called Lean Canvas, developed specifically for startups. The Lean Canvas framework allows startups to quickly iterate on their business strategies without getting bogged down in the details.
Improving on a business model
The Business Model Canvas allows you to identify the strengths and weaknesses of a business, find solutions for increasing its revenue, and improve on the existing business model. It has also proven to be invaluable for optimizing cost structure, exploring new possibilities for innovation, and quickly prototyping and testing new ideas. The BMC can also be used to create a completely new business model.
Developing products and services
Because of its compartmentalized nature, the Business Model Canvas allows for streamlined product development. If you’ve already outlined your value propositions, customer segment, and cost structure, it’ll be much easier to develop products and services. Product development will become context-driven, so you won’t lose track of the main goals of your business in the process.
Pitching to potential investors
Presenting your ideas to potential investors requires a lot of preparation. You can use the Business Model Canvas to improve your pitch. Thanks to its simplicity, it can serve as an effective visual outline of your entire business model.
Now let’s examine a specific case of creating a Business Model Canvas for a startup.
Example: How to create a Business Model Canvas for a Meditation app
Let’s look at an actual case: building a business model for a startup meditation app. The platform will provide short online lessons with breathing practices, and meditation sessions that you can take at any time from any location. Let’s imagine that we are at the stage of searching for a software development partner and we are creating a Canvas.
We have a completely blank canvas and 9 blocks to fill out, so let’s go over each of them:
1. Key partners
This block should contain information about the key partners, which are most often other businesses. Identifying your partners early on will help you better allocate resources and optimize the cost structure of your business. It will also allow you to make use of services outside of the scope of your business, like hiring programmers for app development.
In the case of our meditation app, the key partner at the startup stage is the software development team. They will participate in testing hypotheses, improving, and developing the application. Secondary partners are bloggers promoting a healthy lifestyle who will promote the app to their subscribers.
2. Key activities
The key activities block lists the actions you need to take in order to launch or maintain your business. These activities should align with your chosen business strategy and should take into account your budget and the number of employees. When filling out the key activities, it’s best to take a customer-oriented approach, since the main focus of your business will be providing value to clients. If you’re launching a startup, it makes sense to keep the list short and to the point. In the case of our meditation startup, our overall goal is to launch the app, so our list of key activities won’t be too complicated.
To attract new customers, our startup conducts advertising campaigns on social networks and offers a free version of the app. To retain existing customers, we ensure the smooth operation of the app and regularly publish useful content relating to a healthy lifestyle.
3. Key resources
It’s vital for any business to efficiently manage resources and predict potential risks; otherwise, the company won’t be able to deliver value to its customer base. The BMC framework provides a convenient way to refine resource management strategies, resulting in a more profitable business. It can also be helpful in case your business is going through a big change and you’re in need of a more fitting resource allocation model. The Business Model Canvas framework is very flexible and can adapt to this a scenario.
Our meditation startup has a small budget for development in the first six months and a well-organized team of 5 professionals. Among them are well-known experts in breathing practices, so they are also a reputable resource.
4. Value proposition
Next on the list is coming up with attractive value propositions for your prospective customers. We recommend focusing on the benefits of your products or services and outlining how they differ from the products offered by your competitors. When making value propositions, first think of your customers’ needs and problems, and then try to provide a solution. For example, if your potential customers are frequent online shoppers, you could provide them with a convenient marketplace app or a delivery service. To make your app stand out from the crowd, you can offer your customers unique discounts or memberships, making your value propositions more appealing.
Our meditation app is relevant to residents of big cities who are regularly stressed. They don’t always have the time and opportunity to attend face-to-face yoga and meditation classes. The app allows you to get grounded with just a few minutes of breathing practices, anywhere you need. What sets us apart from our competitors is the quality of the experts recording our video and audio tutorials.
5. Customer segments
After you’ve filled out the value proposition canvas, the next step is to outline your customer segment. A lot will depend on the type of clients you’ll be serving, from product development and marketing to communication. When filling out this block of the BMC, it makes sense to gather as much information about your clients as possible. To start with, find out their age, demographic, and income level. Then, try to define their interests, how they make a living, what motivates them, and so on. The more information about them you’re able to gather, the less chance of missing crucial details when it comes to the needs of your customer base.
In the case of our meditation app, we’ve come to the conclusion that young people between the ages of 20 and 35 with medium and high incomes are interested in the app. There are two key segments of the target audience. The first group of users is people who are subject to nervous tension and are looking for new ways to cope with stress. The second segment includes people who are already interested in breathing practices, yoga, and meditation, and who want to study online. The third secondary segment of the audience is young people who just love to try everything new.
6. Customer relationships
This block is crucial for building a loyal client base. Here, you’ll determine the strategies for maintaining stable relationships with your customers. This includes things like customer support, feedback, loyalty programs, and other methods of engagement. These methods may differ depending on the specific customer segment. For example, if you have a wide target demographic, then you may need to divide this block into subsections to better represent each customer segment. This will help you come up with unique strategies for approaching each category of clients.
In the case of our meditation startup, communication mostly takes place in the app: everything is clear, understandable, and convenient.
This block will determine how you’ll be delivering value to the customers. Your business will use channels to communicate with your clients and follow up on your value propositions. When you already have information about your customers’ needs, it shouldn’t be a problem to find out what communication channels best fit your client base. If your business caters to younger clients, social networks will be your most important communication channel.
This is exactly the case with our meditation app. Communication with customers takes place through social networks and the email newsletter, and our startup provides services through the application that users can download from the App Store and Google Play.
8. Cost structure
This section should include a list of costs that your business needs in order to operate. Organizing an efficient cost structure is crucial, as it will help you manage risks, control your budget, and increase the overall revenue of your business. Larger companies usually have many types of expenses, including operational and technical costs, which makes resource management more complicated. Smaller companies are more flexible, as they don’t need to maintain a massive infrastructure, so coming up with a cost structure for a small startup is a simpler process.
In the case of our meditation startup, the biggest expense item is app development and maintenance. The second is content: shooting video tutorials and recording audio tutorials inviting various speakers and trainers. The third expense item is advertising. And finally, employees’ salaries.
9. Revenue streams
Planning revenue streams is important for any business, and the Business Model Canvas is meant to simplify that process. All the other blocks of the BMC help to approach revenue streams with a customer-oriented mindset. For example, if you have more than one customer segment, it makes sense to establish a new revenue stream for each segment. Different categories of clients provide access to different revenue streams. For instance, younger people are used to subscription models and app store purchases, whereas older demographics tend to prefer offline interactions. If you have a good understanding of your clients’ preferences and an effective value proposition, you’ll find it easier to fill out this block of the BMC.
The list of revenue sources for our meditation startup includes a paid subscription to the premium version of the app, and income from the ads shown in the free version.
Business Model Canvas shows that with a limited budget and app monetization, you need to invest in improving the app and creating high-quality video and audio tutorials. The budget for advertising in these conditions can be reduced by expanding the list of barter partnerships with bloggers: they advertise our product on social networks, and we invite them to our broadcasts so that our audience can learn about them. Since the product is still new to the market, most users will not commit to a paid subscription right away; they need to understand the value of the product. So at first, you should also focus on the app’s advertising monetization model.
We worked on a similar project: back at the beginning of the pandemic, developing an application for online meditation classes. We can’t say if the client created a Business Model Canvas template, but it would definitely be helpful. We managed to develop the app in 5 months.
6 reasons to create Business Model Canvas for a startup
You can start creating Business Model Canvas, even when your business idea is fresh and you don’t know the market well. This is useful for a startup for several reasons:
1. You will get a clear vision
It’s useful to have the info about target audience segments, UVP, and monetization options written down, not just stored in your head. Putting everything on paper or in a Word document is much more efficient.
2. Simplified communication
The defined business model will make it easier to communicate with colleagues, partners, and investors. You won’t have to explain your own thoughts in a confusing way — you’ll be able to show clear theses and facts. The framework is an easy way to introduce your business to people.
3. Canvas will help you find weaknesses
Canvas will help you find the weaknesses even before creating a product. When working with a framework, you bump into questions that you might not have thought about at the start. For example, who your key partners are, and how your customer relationships will be built.
4. It’s a dynamic framework
Canvas is a dynamic framework, so you don’t have to fill it out once and for all and put it in a frame. Indicate, for example, that there are few partners and they are unreliable — this will show that you need to urgently look for new ones. And when you find them, add them to the table.
5. Useful for new companies
There are many more risks when your company is just starting, and you need to calculate every step carefully. Some well-known large organizations that have established themselves in the market may not need Business Model Canvas as much as a startup does.
6. Helps you choose the right monetization strategy
Describing a business model in the framework at the startup stage is a good way to define a key element — the essence of your business model. With that, you will understand how best to monetize your product.
What the BMC doesn’t cover and why it shouldn’t be a concern
It’s clear that the BMC is a flexible tool for managing your business, but like every tool, it has some limitations. After all, this framework can’t solve every problem in a business and is meant to be used in conjunction with other management tools. However, it’s important to be aware of what the BMC doesn’t cover, so here’s a brief list:
- Not the most detailed representation of your business.
The BMC was designed to provide a comprehensive overview of a business, so it’s not supposed to be extremely detailed. The concise nature of the BMC allows you to get a good grip on the most important aspects of a business without being overwhelmed by all the details.
- Cannot account for market research.
The BMC is meant to be used by any type of business, so it cannot account for the specifics of every market niche. If the model were tailored to a specific market segment, it wouldn’t be so flexible or accessible. Instead, it leaves the task of market research to you, giving you room to experiment.
- Cannot predict financial risks.
While the BMC is used for organizing a cost structure and outlining key resources, it cannot accurately predict financial risks on its own. That’s because such risks are usually connected to external factors — industrial, environmental, and political, to name just a few. No framework is able to take all of that into account, so it’s best to conduct a thorough financial analysis before filling out the BMC.
- Cannot account for legal compliance.
Every country has its own unique set of regulations to be followed, depending on the industry. As is the case with market research and risk prediction, the BMC wasn’t tailored to any specific country. It’s meant to be used globally, which is why it doesn’t address industry regulations.
Software for making a Business Model Canvas
Creating a Business Model Canvas from scratch can be an intimidating task. Thankfully, there are a lot of applications that can make the process much easier. Using templates provided by these apps, you can make a brand new BMC by yourself or with a team. To help you get started with Business Model Canvas software, we made a list of our top 3 picks:
When it comes to creating a Business Model Canvas, Strategyzer is the most often mentioned name. That’s no surprise, as Strategyzer was co-founded by none other than the creator of the BMC himself — Alex Osterwalder, who also serves as the company’s CEO. Focusing on “designing, testing, and validating business ideas,” Strategyzer also provides a platform for making a Business Model Canvas and a Value Proposition Canvas. It allows you to work on canvases in collaboration with other team members and offers a suite of additional, more advanced features.
Another good option for making a Business Model Canvas is Canvanizer. This web app offers free and premium plans to its clients and provides a free demo for creating a BMC. Using Canvanizer is easy thanks to its simple and comprehensive user interface. The app stores all your canvases in the cloud, so there’s no risk of losing hours of work. The premium version of Canvanizer offers many convenient features, such as real-time team collaboration, filters, and the ability to export PDF files. The free version provides only the most basic canvas templates and does not allow collaboration.
Our third and final pick is an online platform called Miro, which describes itself as a “visual workspace”. The main feature of Miro is an interactive whiteboard on which you can add various canvas templates, including a Business Model Canvas template. The platform can be used by multiple team members to collaborate on projects and even has video conferencing functionality. Miro also allows users to create their own custom templates and apply them to their whiteboards. The app offers four plans, each with its own set of features: free, starter, business, and enterprise. The free plan gives access to 3 editable boards and community templates, and allows you to connect third-party apps like Zoom and Google Drive. All in all, the free version of Miro has a decent feature range, so try it out if you’re interested in experimenting with their whiteboard.
What should I do next?
Filling out the Canvas template for building a business model is the first thing a startup needs to do to better understand their product or service. Then the fun begins — detailed market research, working on the product in detail, software development, and MVP testing. If you have already defined your business model in Canvas and have an idea of the direction you want to take, get in touch with us! We already have 140 experts on board who work with full-cycle development. You can come to us with an idea at any stage, and we will bring the project to life and provide any support you need.