Business Model Canvas - One Page Business Model
With the Business Model Canvas, you can create a simple business plan in just one A4. It is also intended as a useful tool or starting point for discussion or an extensive business plan. It provides an overview and defines the character of a company through 9 components. These components describe, among other things, the revenue model, the added value, distribution, customers, relationships and suppliers.
The Business Model Canvas is designed by
Alex Osterwalder, http://alexosterwalder.com
Yves Pigneur, http://www2.hec.unil.ch/wpmu/ypigneur/bio
• very suitable for new business models and for the introduction of new products or services
• provides insight and mutual influencing of the various aspects
• such an overview present information to share (for a substantive discussion/assessment)
• the visualisation gives a better insight into the processes within an organisation
• is a test or assessment of the strength of a company and a reality check of the real position or strength of the company
• obtained an identification for opportunities for improvement and innovation
• can be a good start (unified conformity) for an extensive business plan.
The model consists of 9 components and is a practical interpretation on just 1 page that is divided into these 9 components. The bottom consists of the costs and revenues. The focus is on the value proposition, the distinctive value of the business that is offered to their customer.
On the left, there is a space which is reserved for how to create this value: which partners, which (auxiliary) sources to be used and what activities to undertake.
On the right side, there is, to whom the business is selling the products/services, what the delivery looks like and how to build and maintain the relationships.
The 9 components of the Business Model Canvas are
1. customer segments
2. value proposition
3. customer relationships
5. revenue streams
6. key resources
7. key activities
8. key partners
9. cost structure
1. Customer Segments
Determining the right customer target group is essential. The first step is to map out which specific customers the company wants to serve and research the needs of this customer target group.
This is also known as segmenting the market because it defines the business target group.
• focus on a customer target group
In the customer segments, the focus should be on one or more client segments that will be or are being served. A common mistake in this phase is to have a too broad focus. Therefore, try to think about the following questions:
- what type of market (mass, niche, segmentation, diversified, multi-sided markets/platforms)
- which customers really need your solution? (yes a product or service should be a solution)
- which customers want to pay for your solution?
- which customers suit the identity of the company?
- what is the customer profile, think about;
--- men or women or families
--- wealthy pensioners or middle classes
--- abroad or the whole country or a specific province or….?
• be the customer! (Canvas Empathy Map)
The next step is to empathise with the customer. Each target group has its own needs, problems, ambitions, etc. The Canvas Empathy map is an excellent tool to make an analysis and to characterise the target group. The Canvas Empathy Map contains seven parts to qualify customer segments;
- WHO are we empathising with?
Who is the person we want to understand?
What is the situation they are in?
What is their role in the situation?
- What do they need to DO?
What do they need to do differently?
What job(s) do they want or need to get done?
What decision(s) do they need to make?
How will we know they were successful?
‘WHO are we empathising with’ and ‘what do they need to DO’ defines the company GOAL.
- What do they SEE?
What do they see in the marketplace?
What do they see in their immediate environment?
What do they see others saying and doing?
What are they watching and reading?
- What do they SAY?
What have we heard them say?
What can we imagine them saying?
- What do they DO?
What do they do today?
What behaviour have we observed?
What can we imagine them doing?
- What do they HEAR?
What do they hear others say?
What are they hearing from friends?
What are they hearing from colleagues?
What do they hear second-hand?
- What do they THINK and FEEL?
PAINS What are their fears, frustrations, and anxieties?
GAINS What are their wants, needs, hopes and dreams?
Pains and gains including - What other thoughts and feelings might motivate their behaviour?
From the pains and gains of the customer segments, the business model needs to be further developed.
2. Value Proposition
The value proposition provides an answer to 'why do customers choose the company and the products and services'.
• distinctive added value
This is about creating added value for the customer and not about a description of the products or services;
- what is the problem(s) of the target group will be solved?
- what needs of the target group will be fulfilled?
- which impediments of the target group are eliminated?
• from desires to profit makers
The desires of the target group are converted into the value proposition in profit-makers. What options are to achieve this;
- to realise the ambitions of the target group?
- to fill in the wishes of the target group?
- to respond to the decision-making factors of the target group?
The products or services must first be functional, but at the same time better or more extensive than the services or products of the competition.
The product must be attractive in use, offer a financial advantage and the customer must value it so that it will be ordered again. An important part here is the provided service, and it is a crucial factor that contributes to customer satisfaction.
A value proposition describes the bundle of products and services that create value for a specific customer segment. A value proposition creates value for a customer segment through a distinct mix of elements that meet the needs of that customer segment. Benefits of the customer experience can be
f.e. price, speed, availability
f.e. design, customer experience, sustainability.
3. Customer Relationships
Selling is investing in a good and stable customer relationship and being better so that the customer hopefully returns more often. To take a customer away from the competition, not only the product or service should be just as good or better, but the customer must develop a relationship in which the customer feels attracted. This part of the business model canvas is describing the types of relationships that the company enters into with specific customer segments. These can vary from a digital automated relationship to very personal relationships and everything in between.
• method and style
- the atmosphere, customer approach
- appearance, image and reputation of the company
- service degree, customer interpretation and after-sales service
• sales motivation
Various motivations can drive customer relationships;
- customers acquisition (gain, get customers)
- customer retention (retain, keep customers)
- stimulate sales (upselling, grow customers)
• interaction, characterisation of the customer relationship
There can be different types of customer relationships, such as;
- personal assistance
--- a relationship manager, 1 on 1 based on human interaction, as is, for example, customary in business services
- dedicated personal assistance
--- for the relationship, a customer representative is specifically assigned to develop the relationship further
--- here there is no direct relationship, one offers all the necessary resources to the customers so that they do their shopping (f.e. webshop)
- automated services (online)
--- this relationship form combines an advanced style of customer self-service with automated processes (f.e. helpdesk, newsletter, information and recommendations)
--- show commitment by facilitating user exchange experience and knowledge to solve each other's problems.
--- customer-seller relationship to create extra value together, increase involvement by creating new value in products and/or services along with the customer (f.e. youtube content)
• customer relationships costs
A vital consideration factor is the efficiency, the costs compared to the revenue of a customer relationships
• development and trends
The relationship with your customer is shifting continuously. Customers' needs change and so does the relationship with the customers. Customers want more influence, different purchase and user structures, partly determine product characteristics, etc. Within this trend, the customer relationships also change. The customer relationship is an essential basis for the success of a business model, and the timely adjustment of the customer relationships life cycle is of vital importance.
These are the (sales and distribution) channels with which the company comes into contact with their customers. In this part of the Canvas business model, the marketing communication, distribution and sales channels are described. To transfer the value proposition to the customers, different channels are needed. In order to determine which channels are interesting, it is good to know which considerations and decision factors are decisive for a (potential) customer to be unfamiliar with the company, then consciously to become the customer of the company.
- by which channels do customer segments want to be reached?
- how to reach and convince these customers?
- how are the mutual channels aligned and are possible conflicts avoided?
- which channels generate the most turnover and margin?
- which channels are the most cost efficient?
- how to adjust and respond to customer expectations and routines?
• distribution channels
In the base, 2 separate distribution channels can be combined, namely
- own chancel
such as a store, project sales, markets/events, online webshop, etc.
- partner channels
such as franchisee, independent agents, exporters, wholesalers etc.
• channel phases
A distinction is made in the following five stages;
--- how the customer gets interested (advertising, promotions, social media, word of mouth, etc.) in the products and services to be sold, what actions are taken to raise awareness
--- the generation of trust aimed at a long-lasting customer relationship, during this experience phase, the customer gets acquainted with the organisation for the first time, products and services and the customer assesses the value proposition of this. Supporting test samples, surveys and reviews can be used in this evaluation phase.
--- the way in which the purchase is made, place, agreement and payment method, etc.
--- the method of delivery of the value proposition to customers, such as; over the counter, delivery and installation and/or support
- after sales
--- how to provide post-purchase customer support, topics like; call centre, return policy, customer assistance, etc.
5. Revenue Streams
The revenue model will make clear where the income comes from. Not only now, but also in the future. It is often one of the most underestimated pitfalls of starting entrepreneurs, especially about the time needed. It is crucial that a company creates added value, usually money, but this can also be fun or rewarding. An earnings model describes how to generate income and how to achieve this. This goes beyond the price of a product or service.
For example, the value that customers are willing to pay, the price elasticity of demand and the margin for the different channels must be determined.
• turnover and profit budget
A budget must be drawn up for the turnover per period with a specialisation, for example, to
- units sold
- unit price
- the cost price per unit
- unit sales costs
- charging overhead costs overall and per unit.:
• innovative revenue models
Innovating a business model is the same as innovating a revenue model. That is why f.e., accountants increasingly decide to charge clients a fixed subscription price instead of an hourly rate. Just because the customer wants it! So innovation starts with the customer, with the needs of the customer. The trend is that more and more customers want to enter into a long-term relationship with their suppliers. An entrepreneur must be aware of this and therefore can respond to this with an innovative revenue model. Examples: freemium model, barter, broker/matchmaking, commission-based, auction, ad-based, affiliates, referrals, franchise, direct sales, multi-level marketing, subscription, premium model, pay-per-use, license, discounted, EPC engineering-procurement-construction (added with installation, commission, management, financing, operate), turnkey/lumpsum, financing and lease etc. see for details and examples https://en.wikipedia.org/wiki/Revenue_model
6. Key Resources
The key resources represent the most critical resources of the business model. These are the resources that are needed to allow the other components to function and that the business can provide value to the intended target group. The resources are an important part of a business model and will become increasingly important. Especially the knowledge required is a crucial factor to create value, and it is probable that, from a cost point of view, a company cannot be wholly self-reliant and own all of them. By building a good team (with key partners) one can provide excellent resources through which a successful business model can be created.
• categories of key resources
Resources that can be thought of are:
- intellectual means
--- such as customer base, partnerships, contracts and licenses, proprietary knowledge, the brand, patents that are important to protect concepts and ideas
--- these are means that ensure that a company is physically able to create value. You can think of buildings, machines, tools/instruments and vehicles.
- human resources
--- these mainly relate to knowledge and experience of staff and contacts that can be used
- financial resources
--- money needed for the business model to function, such as debt financing, equity financing, working capital, supplier credit, etc.
7. Key Activities
Identify here the main core activities of the company to create the value proposition. The focus is of great importance, and assess whether the assumed activities actually create added value and are worth the time and costs. Key activities must ensure that the business model can function. If, on the whole, people look critically at the activities, it appears that entrepreneurs and companies do a lot of work, spend time and money on activities that do not contribute directly to the value proposition!
• what key activities are required for optimal returns in the different parts of the Business Canvas model
- product quality, need and problem solutions (f.e. engineering, manufacturing, logistics, maintenance, etc.)
- channels, effective in selected channels in the different phases (f.e. marketing, advertising, equipment/assets, etc.)
- customer relations, gain and retention of customers (f.e. service, design, human resources, etc.)
- revenue streams, improving sales and profitability
- key resources, to obtain and enhance competitive position (intellectual resources, assets, human resources, financial resources)
8. Key partners
Collaboration can be essential in generating value and/or being stronger together. It is true that some activities can be outsourced and some resources can be purchased outside the company. Regarding the listing of the partnerships, it can be useful to distinguish between the different motivations to create such partnerships:
• optimisation of economies of scale
• limitation of risk and uncertainty
• introducing resources
• taking over core activities
• acquisition of specific knowledge and skills
• forming a complementary team
• obtaining access to certain market
The key partners are all partners that make it possible to keep the business model running and successful, to be able to grow and be competitive. It is possible that partners add value to the business proposition, but also that they supply components that are not available to the business in the short term. Companies cannot have all the qualities, and that should not be pursued. In the current economic time, partners are becoming increasingly important. Working together and complimenting is the credo and good partners are of vital importance.
• types of partnerships
- strategic alliances
- cooperation of competitors
- joint ventures aimed at developing new business
- buyer-supplier relationships
Such collaborations may be informal until the establishment of a joint venture. Possibly a collaboration can result in a business acquisition or merger.
9. Cost Structure
Description of all costs related to the business model, where one can distinguish two structures:
• cost-driven business model
- is a focus on minimal costs to offer the lowest price
• value-driven business model
- focusing on creating value.
In addition to the two different structures, the cost structures have four different characteristics:
• fixed costs
- regardless of the number of customers, these costs are always the same (f.e. rent, overhead staff, insurance, depreciation expense)
• variable cost
- the costs vary depending on the number of customers that are served because the costs are only incurred when there is a customer (f.e. declarable staff, raw materials, consumables, packaging materials, transport)
• economies of scale
- cost advantages that can be achieved through a larger volume in, such as purchasing, production and sales
• economies of scope
- when several cost units share the costs, however, this is often only possible for larger companies.
Now that the magnitude and character of costs are known, further analysis can be carried out regarding;
- potential cost savings
- reverse fixed costs to variable costs
- possible options to realise scale and scope benefits
- increase the income stream through cost items (f.e. by-products)