Business Model Canvas FrameworkEstimated Reading Time: just 19 min

The Business Model Canvas (BMC) is the structure of a business plan in one single page.

Business Model Canvas Template (from Strategyzer)

There is not a unique way of applying the Business Model Canvas.

Therefore, finding the best way to fill each block is up to the organization/company that is working on the business plan.

My suggestion though is to start from the Customer Segments and then to move upstream to expose any lack of fit between the needs/pains the company is targeting and what the organization is doing.

This can be done by following the 10 steps below.

Step 1 Define Customer Segments (using Buyer Personas Model and Buyer Personas Canvas)

Customer Segments are the groups of people or organizations that a company aims to reach or serve with its products and services. This is the starting point of Canvas since every business needs profitable customers to survive.

Some questions that are useful to understand Customer Segments are

  • From whom is the company creating value?
  • Who are the most important customers?

Information to collect and test for this section are:
– Demographic Factors (for instance Age, Gender, Level of Education, Job)
– Psychographic Factors (for instance Personality, Values, Attitudes, Interests, Lifestyles)

Something to keep in mind here is that if customers are going to use a product/service, they are going to give up something else (time to use the product, switch from the current product, etc.).
So it is important to find out what it is they would be giving up and whether they are willing to do so.

Customer Segments could be built to target them with different degrees of accuracy, for instance:

  • Mass Market: the target is a large group of customers with a set of broadly similar needs and problems
  • Niche Market: the target is a very specific group of customers
  • Segmented Market: target are different groups of customers with different sets of needs and problems, the product/service provided is the same but with slightly different value propositions to meet the varying customer needs
  • Diversified Market: as for a Segmented Market target are different groups of customers with different sets of needs and the product/service provided is the same but in a Diversified Market a company uses very different value propositions to meet the varying customer needs
  • Multi-sided Markets: the target is interdependent customer segments (for instance, a bank that sells credit cards interacts with both the cardholder and the merchants who accept those cards)

There are several databases and websites available that provide useful information to build Customer Segments, for instance:

  • Digital Journey and Customer Acquisition: it is useful to check out Google Keyword Planner, Google Trends, Google Analytics, SemRush, SEO Zoom
  • UX: it is useful to check out Hotjar and Smartlook
  • Interviews: it is always important to ask your customers what they think, and this could be done using SurveyMonkey or Google Forms
  • Social Networks: every social network has its Analytics tool Facebook Audience Insights or Twitter Analytics

There are also some Frameworks that help to ease the job such as Buyer Personas Model and Buyer Personas Canvas.

BUYER PERSONAS MODEL AND BUYER PERSONAS CANVAS

A good way to represent Customer Segments is to treat them as the place where you summarize who your Buyer Personas are.

Buyer Personas are avatars of a Customer Segment and they transform the hard facts about your target audience into ‘living’ people.

Buyer Personas Model is powerful for marketing, advertising, content creation, product or service development, customer support, public relations, pricing, and sales since it put the focus on the relationship that can be created between the company and the customer.

An Example of a Buyer Persona (from xtensio.com)

A helpful tool for creating them is Buyer Personas Canvas that is based on 10 blocks

  • Buyer Persona (the archetype of our buyers)
  • Goals
  • Initiatives
  • Influencers, Stakeholders, Buying Team
  • Buying Process
  • Timing
  • Buyer Thinking
  • Channels
  • Why Buy
  • Content and Information (they rely on)

Buyer Persona Canvas Template (from tonyzambito.com)

If you want to learn more about Buyer Personas, you will find dedicated links in the FAQ at the end of the page.

If you prefer to learn more about the Buyer Persona Canvas, you will find dedicated contents at the Business Model Canvas Alternative Applications page.

Step 2 Define Value Propositions using Value Proposition Canvas

Value Propositions are how the company wants to get to the moment in which its products and services create value for a specific Customer Segment/Buyer Persona.

Some questions that are useful to better understand Value Propositions are

  • What valuer does the product/service deliver to the customer? (i.e. newness, performance, customization, “getting the job done”, design, brand/status, price, cost reduction, risk reduction, accessibility and convenience/usability)
  • Which one of our customer’s problems is the product/service helping to solve?
  • What bundles of products and services are offered by the company to each Customer Segment?
  • Which customer needs are satisfied by the company?

Since a Value Proposition is an innovation, a service or a feature intended to make a company or product attractive to customers, it is also the reason why customers choose one company over another.
At the same time, the reason why customers choose one company over another can change over time. Therefore, Value Propositions can also change due to internal and external factors as well as a better knowledge of the Customer Segments/Buyer Personas. A company will likely end up changing its value propositions several times before it arrives at its final definition.

The link between Value Propositions and Customer Segments (Product/Market Fit) is a key success factor.

There are some tools and frameworks such as Value Proposition Canvas that help to get to the Product/Market Fit.

VALUE PROPOSITIONS CANVAS

Defining Value Propositions is about

  • Identifying Customer Segments’ real needs
  • Linking them to the value that the business can offer them

Value Proposition Canvas helps:

  • Defining Value Propositions
  • Getting to the Product/Market Fit

Value Proposition Canvas Template (from Strategyzer)

Value Proposition Canvas is based on 2 sections:

  • Customer Profile (also called the Circle)
  • Value Map (also called the Square)

Inside these 2 sections there are 6 blocks:

  • Customer Jobs
  • Customer Pains
  • Customer Gains
  • Product and Services
  • Pain Relievers
  • Gain Creators

How Value Proposition Canvas fits in Business Model Canvas (from Strategyzer)

Value Proposition Canvas takes part in the Business Model Canvas by ensuring the link between Value Propositions and Customer Segments is tight.

If you want to learn more about the Value Proposition Canvas, you will find dedicated contents at the Business Model Canvas Alternative Applications page.

Step 3 Define Channels

Channels are how a company communicates with his Customer Segments and how it reaches them to deliver its Value Proposition.

Some questions that are useful to understand Channels are:

  • How is the company reaching its customers now?
  • How do Buyer Personas want to be reached?
  • How are the company’s channels integrated? How is the company integrating them with customer routines?
  • Which ones work best? Which ones are most cost-efficient?

Understanding which channel is best to reach customers is key and the main options are:

  • Own Channels (physical or digital stores)
  • Partner Channels (wholesalers and distributors)
  • Combination of Own and Partner Channels

When selecting a distribution channel, there are 5 key aspects to be considered:

  • Target: number of customer segments/size of the market the company is targeting
  • Investment: an analysis of the different costs associated with a channel
  • Product Standardization:
    • Standard Products: Customer Segments may be good with standard channels
    • Tailored Products: Customer Segments may want tailored channels
  • Control: different markets require a different level of control over the distribution channels
  • Relationships: each channel establishes different relationships with different stakeholders resulting in different levels of complexity and flexibility

Channels have 5 main functions:

  • Raising Customers’ Awareness about company’s products and services
  • Helping Customers Evaluation of the company’s Value Propositions
  • Allowing Purchase of specific products and services
  • Delivering a Value Proposition
  • Providing Customer Support usually called After-Sales

When managing a channel, it is important to be aware of the main functions and related lifecycle status it is going through.

There are 5 channel life phases that are:

  • Awareness: the Customer Segments are getting to know the company’s products, services and channels. In this situation, it is important to focus on how to raise awareness. Typically, this is done through Advertising
  • Evaluation: the Customer Segments are getting to know the company’s Value Propositions. In this situation, it is important to focus on how to help them. Typically, this is done through “asking to the customer” (Surveys and Reviews)
  • Purchase: the customer perceives the Product/Market Fit and decides to purchase the company’s products and services. In this situation, it is important to focus on how the company allows customers to purchase. Typically, this is about making a choice on which channel to use (i.e. Digital vs Physical Stores)
  • Delivery: the customer purchased the company’s products and services and now they must be delivered. In this situation, it is important to focus on how the company delivers its Value Propositions to customers. Typically, this is about making a choice on how the distribution takes place (i.e. product collected at a sales point, delivered or downloaded)
  • After-Sales: the customer has the products and services, but he may need support for using them. In this situation, it is important to focus on how the company provides post-purchase support. Typically, this is about making a choice on Contact Centers, Return Policies and After Sales activities

Step 4 Define Customer Relationships (using an AAARRR Funnel)

Customer Relationships are the connections a company establishes with each specific Customer Segments.

Some questions that are useful to understand the content of this block are

  • Which relations has the company established with customers?
  • How costly are them?
  • How are they integrated with the rest of the business model?
  • What type of relationship does each customer segment expect the company to establish?

Some examples of Customer Relationships are:

  • Transactional (there is no real relationship, the company interacts with the customer on a transactional basis)
  • Long-Term (a deep relationship is established, the company interacts with the customer on a recurring basis)
  • Personal Assistance (based on human interaction, the customer can communicate with a real customer representative to get help during the sales process or after the purchase is complete and it may happen onsite at the point of sale, through call centers, by e-mail, or through other means)
  • Dedicated Personal Assistance (it involves dedicating a customer representative specifically to an individual client, it represents the deepest and most intimate type of relationship and normally develops over a long period of time)
  • Self-Service (a company maintains no direct relationship with customers and it provides all the necessary means for customers to help themselves)
  • Automated Services (they mix a more sophisticated form of customer self-service with automated processes that can recognize individual customers and their characteristics, and offer information related to orders or transactions)
  • Communities (utilized to become more involved with customers/prospects and to facilitate connections between community members, online communities allow users to exchange knowledge/solve each other’s problems and help companies better understand their customers)
  • Co-Creation (this approach goes beyond the traditional customer-vendor relationship to co-create value with customers and it is about engaging customers to assist with the design of new and innovative products)

A very useful way to model Customer Relationships is using a Funnel.

A.A.A.R.R.R. FUNNEL AND VIRAL LOOP

A Viral Loop is the result of positive customer experience while interacting with the company’s Value Proposition. More precisely if a customer is happy with a product or service, he/she might be so excited that he/she wants to share with others his/her experience as well as news and info about the company’s products or services.

A Viral Loop creates quick and cost-effective Brand Recognition.

A helpful tool for creating a Viral Loop is the A.A.A.R.R.R. Funnel also known as Pirate Funnel.

The funnel models Consumer Relationships in 6 phases:

  • Awareness
  • Acquisition
  • Activation
  • Retention
  • Revenue
  • Referral

Each of these phases is managed through a metric that is called The Only Metric That Matters.

If you want to learn more about the A.A.A.R.R.R. Funnel, you will find dedicated links in the FAQ at the end of the page.

A.A.A.R.R.R. Funnel Representation from (thegrowthbase.com)

Step 5 Define Key Activities (using Supply Chain Canvas)

Key Activities are the core activities that a company must do to execute its Value Propositions.

Some questions that are useful to understand Key Activities are:

  • What processes do our Value Propositions require? These could involve for instance Logistics, Manufacturing and Maintenance
  • What processes do our Channels require? These could involve for instance Advertising and Equipment
  • What processes do our Customer Relationships require? These could involve for instance Human Resources and Design

Key Activities are a clear consequence of Value Propositions, Channels and Customer Relationships.

A very useful way to model Key Activities is using Supply Chain Canvas.

SUPPLY CHAIN CANVAS

Supply Chain Canvas is a tool that helps a company to build a Supply Chain that is tailored to your Value Propositions by:

  • Defining Key Activities, Key Resources and Key Partners
  • Visualizing the synchronization of the activities of the network

The Supply Chain Canvas focuses on synchronizing a company’s Supply Chain by splitting it into 4 sections:

  1. Deliver Value to the Customers
  2. Looking for Efficiency inside Operations
  3. Minimizing Costs while Maximizing Service Level
  4. Minimizing Fixed Assets, Inventory and Account Payable

If you want to learn more about the Supply Chain Canvas, you will find dedicated contents at the Business Model Canvas Alternative Applications page.

Supply Chain Canvas Template (from Strategok)

Step 6 Define Key Resources (using Supply Chain Canvas)

Key Resources are the most important assets required to make a business model work. They allow the company to:

  • Deliver Value Propositions
  • Reach Markets
  • Build Relationships with Customer Segments
  • Generate Revenues

Some questions that are useful to understand Key Resources are:

  • What resources do the company’s Value Propositions require?
  • What resources do the company’s Distribution Channels require?
  • What resources do the company’s Customer Relationships require?
  • What resources do the company’s Revenue Streams require?

Key Resources could be of 5 types:

  • Human
  • Intellectual
  • Financial
  • Physical
  • Digital

Key Resources are a clear consequence of Value Propositions, Channels, Customer Relationships and Key Activities.

As for defining Key Activities, a very useful way to model Key Resources is using Supply Chain Canvas.

If you want to learn more about the Supply Chain Canvas, you will find dedicated contents at the Business Model Canvas Alternative Applications page.

Step 7 Define Key Partners (using Supply Chain Canvas)

Key Partners are relationships that a company have with other entities that help the business model to work (for instance, suppliers, manufacturers or advisors). These partnerships are a helping hand needed to succeed in areas that would be inefficient for the company to take care of itself.

Some questions that are useful to understand the content of this block are:

  • What are the company’s partners?
  • Who are the company’s suppliers?
  • Which Key Resources is the company purchasing from partners/suppliers?
  • Which Key Activities do partners perform?

There are 4 main types of partnerships:

  • Buyer-Supplier Relationships
  • Co-opetition: it is the strategic partnership between competitors that will still work together to reach a common goal (for instance creating Awareness of an industry)
  • Joint Ventures: they are usually meant to develop new businesses or synergies
  • Strategic Alliances between Non-Competitors

As for defining Key Activities and Key Resources, a very useful way to model Key Partners is using Supply Chain Canvas.

If you want to learn more about the Supply Chain Canvas, you will find dedicated contents at the Business Model Canvas Alternative Applications page.

Step 8 Define Revenue Streams (using Cash Flow Canvas )

Revenue Streams are the strategies that enable a company to generate an income and they are based on the money a customer is willing to pay for Value Propositions, the way they are delivered (Channels) and the Customer Relationships the company puts in place.

Some questions that are useful to understand the content of this block are

  • How does the company generate revenues?
  • What products and services do our customers pay for?
  • How are they sold?
  • How are the customers paying?
  • How would the customers prefer to pay?
  • How much does each Revenue Stream contribute to overall revenues?

A very useful way to model Revenues is using Cashflow Canvas.

CASHFLOW CANVAS

Revenue Streams are fundamental in the Business Model Canvas since they determine how the business is able to generate an income.
A good way to represent the company’s Revenue Streams and Cost Structure is to use Cashflow Canvas.

Cashflow Canvas is a financial tool that helps a company to design and challenge their business’ profit model by:

  • Defining an operating budget
  • Forcing to validate and adjust the business model from a financial standpoint

Cashflow Canvas is based on 8 blocks

  1. Revenue Streams
  2. Direct Costs
  3. Price Points
  4. Mapping Assumptions
  5. Team
  6. Space + Operations
  7. Marketing + Sales
  8. Additional Expenses

Cashflow Canvas Template (from Nailthenumbers.com)

If you want to learn more about the Cashflow Canvas, you will find dedicated contents at the Business Model Canvas Alternative Applications page.

Step 9 Define Cost Structure (using Cash Flow Canvas)

Cost Structure is about the expenses of a company operating its business model.

There are 2 main categories of Cost Structures:

  • Value-Driven: it focuses on the value of the product not necessarily looking for producing it at the lowest possible cost (for instance Luxury Products)
  • Cost-Driven: it focuses on minimizing the costs of the product or service as much as possible (for instance Mass Production Industries)

Some questions that are useful to understand the content of this block are

  • Which are the most important costs inherent in the company’s business model?
  • Which Key Resources are most expensive?
  • Which Key Activities are most expensive?
  • How much do our Partnerships cost?

As for Revenues, a very useful way to model Cost Structure is using Cashflow Canvas.

Step 10 Define Social and Environmental Benefits/Costs

Social Benefits/Costs are beneficial or detrimental impacts on people resulting from a company’s activities. For instance, purchasing some automated machines generates a social benefit in terms of occupation at the supplier but it will reduce the number of employees needed at the buyer.

Environmental Benefits/Costs are beneficial or detrimental impacts on the natural environment resulting from a company’s activities. For instance, deciding to generate electricity using solar energy has environmental benefits compared to other sources but still has a cost in terms of producing and transporting the materials.

Ethical businesses are careful to minimize the impact of their behaviour on society and the environment.

Some questions that are useful to understand the content of this block are

  • What are the direct costs and benefits that can be directly linked to the company?
  • What are the indirect costs and benefits that are passed outside the market?
  • What are the External costs and benefits that cannot be passed on to any existing markets because they relate to issues like the environment, safety and nature?

A very useful way to define Social and Environmental Benefits/Costs is using Social & Environmental Cost-Benefit Analysis.

SOCIAL & ENVIRONMENTAL COST-BENEFIT ANALYSIS

A Social&Environmental Cost-Benefit Analysis (SCBA) is a framework to evaluate the impacts caused by an urban development project as well as by a company’s activities.

It makes a balance between

  • Financial Components
  • Social and Environmental Consequences

Financial Components are for instance:

  • Revenues
  • Investment Costs
  • Profits
  • Taxes and Fees

Social and Environment Consequences are an increase/reduction for instance in the level of:

  • Noise
  • Pollution
  • Visual blight
  • Congestion
  • Safety
  • Travel Times
  • Spatial Quality
  • Health
  • Market Impacts
  • Legal Aspects

The balance between Financial Components and Social and Environment Consequences helps the company to make informed decisions reflecting the value attached to the caused effects of its activities.

If you want to learn more about the Social&Environmental Cost-Benefit Analysis, you will find dedicated links in the FAQ at the end of the page.

CONTINUOUS BUSINESS STRATEGY IMPROVING

The canvas does a good job by helping the company figure out its business, which is a good place to start.
Anyway, the most core application of the Canvas is to be a baseline for a Brainstorming because it forces everyone to ask herself/himself at least quarterly:

  • Does our Strategy make sense?
  • Could it be better?
  • Does the rest of my team understand and agree? Are there additional ideas?
  • Did the competitive environment change? Does the company have/maintain a long-term competitive advantage?

Moreover, the BMC gives all the elements to answer t these question on a single page making it easy to have a comprehensive vision of the company’s strategy.

BUSINESS CASES

Now that you learned everything about Business Model Canvas, would you like to go through some real cases?

If the answer is yes, follow the White Rabbit through this link!

Frequently Asked Questions

What is a Buyer Persona?

Buyer Personas are avatars of a Customer Segment and they transform the hard facts about your target audience into ‘living’ people.
If you want to know more about the topic, follow this link!

What is an AAARRR or Pirate Funnel?

An A.A.A.R.R.R. or Pirate Funnel is a model of a company’s Consumer Relationships based on 6 stages (Awareness, Acquisition, Activation, Retention, Revenue, Referral)
Each of these stages is managed through a metric that is called The Only Metric That Matters.
If you want to know more about the topic, follow this link!

What is a Social&Environmental Cost-Benefit Analysis?

A Social&Environmental Cost-Benefit Analysis (SCBA) is a framework to evaluate the impacts caused by an urban development project as well as by a company’s activities.
If you want to know more about the topic, follow this link!

What does the business model canvas do?

The Business Model Canvas (BMC) is the structure of a business plan in one single page.
The BMC is popular with entrepreneurs and intrapreneurs for business model innovation.
It delivers three things:
Focus: since it is more concise than a traditional business plan
Flexibility: sitting on a single page it is a lot easier to read than a business plan
Transparency: it is much easier to understand than a business model

What are the parts of a business model canvas?

The BMC business model design template is based on:
Customer Segments: this block is about which customers a company tries to target, from whom it is creating value and who are the most important ones. Customer Segments are represented by Buyer Personas
Value Propositions: this block is about how the products and services meet the needs and pains of Buyer Personas. A company’s value proposition is what distinguishes it from its direct and indirect competitors
Channels: this block is about how the Value Proposition is delivered to the customers and how Buyer Personas want to be reached
Customer Relationships: this block is about the type of relationship the company wants to create with their Buyer Personas in terms of atmosphere, interactions and customer service
Key Activities: this block is about the most important activities in executing a company’s Value Proposition for instance in terms of Design, Manufacturing, Maintenance, Logistics
Key Resources: this block is about the resources that are necessary to create value for the customer and that are needed to sustain and support the business. These resources could be human, financial, physical and intellectual
Key Partners: this block is about buyer-supplier relationships, joint ventures and strategic alliances that a company put in place to optimize operations and reduce risks
Revenue Streams: this block is about how a company makes income from each Buyer Personas, for what do customers pay and how they are paying
Cost Structure: this block is about the most important costs inherent to the business model, Key Resources, and Key Activities
Social & Environmental Benefits/Costs: these additional two blocks are about the sustainable growth of the company. This means meeting the needs of the present without compromising the ability of future generations to meet their own needs

How do I create a canvas model for my business?

My suggestion is to start from the Customer Segments and then to move upstream to expose any lack of fit between the needs/pains the company is targeting and what the organization is doing.
This can be done by following a 10 steps process as below:
Step 1 Define Customer Segments using Buyer Personas Model and Buyer Personas Canvas
Step 2 Define Value Propositions using Value Proposition Canvas
Step 3 Define Channels
Step 4 Define Customer Relationships using an AAARRR Funnel
Step 5 Define Key Activities using Supply Chain Canvas
Step 6 Define Key Resources using Supply Chain Canvas
Step 7 Define Key Partners using Supply Chain Canvas
Step 8 Define Revenue Streams using Cash Flow Canvas
Step 9 Define Cost Structure using Cash Flow Canvas
Step 10 Define Social and Environmental Benefits/Costs
Step 11 Innovate the Business Model

What is Lean Canvas business model?

Lean Canvas is a business model design template that is based on the Lean Startup model.
The Lean Start-up is a framework for developing businesses and products that aim to shorten both:
– the Time to Market
– the reaching of Break-Even Point.
The concept of Lean Start-up was brought to the world by Eric Ries in 2008.
This framework is based on adapting lean management principles to start-up companies but it can be used also for introducing new products and services to a market or to develop innovative projects inside an organization.
Today, several companies such as Dropbox, Intuit, Wealthfront, Votizen, Aardvark and Grockit adopted Lean Start-up methodology and its principles are also taught in classes at Harvard Business School and UC Berkeley.
Lean Start-up methodology aims to eliminate waste and to increase value during the product development phase.
This is achieved by:
– Talking with Target Customers
Co-developing Value Propositions with them
– Using Customers Feedback to avoid investing in features that nobody wants to pay for
These 3 activities are performed on a day by day basis in order to achieve Continuous Improvement.
The Lean Start-up Framework is popular because of:
Minimization of the Capital needed by the start-ups
Strong Relationship that can be created between the Company and the Customer

What is the difference between lean canvas and business model canvas?

They are both business model design templates.
Lean Canvas is more useful for Startups and New Product Launching.
Business Model Canvas is more useful for established companies that have an organic strategy. Therefore, BMC is more complete and detailed in describing a business model.

Where can I find some real Business Model Canvas Cases?

If you would like to go through some real cases, follow the White Rabbit through this link!

Nicola Zaffonato Administrator

Business Strategy | Product Marketing | Executive Master eCommerce Management | Business Innovation Master | MSc

I am driven by my personal growth and of people/contexts that surround me.

I followed a professional path in Valentino Fashion Group and Luxottica during which, thanks to the ability to understand different businesses and interests, I was able to succeed in Operations, Merchandising and Retail.

These organizations have exploited my ability to mediate and translate needs/constraints into practice, assigning me to Project Management roles.

Luxottica relied on my ability to analyze, to anticipate things and to imagine/implement solutions by appointing me in Supply Chain Management department and assigning me to the Product Management of IoT solutions for Anti-counterfeiting and Retail digitalization.

During this professional path, I also developed my leadership by managing teams to build Processes, Organizations, Systems and Governance Tools.

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