Entrepreneurs starting a new venture need to answer a basic question: what is your business model, how will you earn money? Answering this question requires a framework for describing a business. A good recent definition of a business model is a description of “how an organization creates, delivers and captures value” (Osterwalder & Pigneur). An organization can be a single entity or a collection of entities working together to deliver a product or service that creates value for a customer.
The Business Model Canvas is a convenient visual framework for talking about a business model. It is a poster format chart that enables 9 elements of a business model to be captured and discussed by a group of people working together. The nine elements are visualised in the cartoon at the right. They are:
- Customer segments: for whom do we aim to create value? Who are our most important customers?
- Value Propositions: what do we offer to whom? What value do we deliver to a customer in a given segment? What needs do we satisfy?
- Channels: how do we reach each customer segment? What is easiest for the customer?
- Customer Relationships: how do we build and maintain these? How do they fit effectively in both the customer’s world and our own?
- Revenue Streams: for what will our customers pay? How much? How would they prefer to pay?
- Key Resources: what resources are essential to deliver our Value Propositions through the Channels and maintain our Customer Relationships?
- Key Activities: what are the most important things you must do to make your business work?
- Key Partnerships: who are our Key Partners and why? What Key Resources do they provide and what Key Activities do they carry out? What’s in it for them? What relationship should we have?
- Cost Structure: what costs are implied by our Business Model? Which are largest? What is fixed and what is variable? What drives them?
A completed Canvas will cover each of these areas. The video below gives a 2 minute explanation.
The Business Model Canvas is used under a Creative Commons licence. See http://www.businessmodelgeneration.com/canvas for details.