The Business Model Canvas is a popular business planning and strategizing tool used by start-ups and corporations alike. It is a very effective tool because it is designed to be collaborative and alive, which is perfect in today’s fast-paced, ever-changing business environment.
Business model canvas also helps the user take ideas from the brainstorm stage to a lean implementation (saving time and money) by focusing attention on the relationships between value, customers, and finance. By framing business activities through a lens of value, businesses can see their products and services, distribution, costs, and revenue based on how each element will add value to the customer, thus identifying a competitive advantage.
Business model canvas is intended to be creative and done in groups so ideas can be added and removed through the process of “hashing it out.” For this reason, many groups choose to do their canvas using sticky notes or on a whiteboard.
Elements of the Business Model Canvas
- Key Partners – who do you need to have on your team to add value to your customers? This could be advisers, vendors, suppliers, investors. What resources are they providing? What duties do they perform?
- Key Activities – These activities solve problems or improve processes. Which activities will you engage in that create value? Maybe it’s an efficient distribution network that brings down costs for the business and customer. Or it could be negotiating better rates on vendor terms.
- Key Resources – What resources must you acquire to deliver value? They can be physical (raw materials), intellectual (patents), human (labor), or financial (money).
- Cost Structure – This includes both fixed and variable costs. Fixed costs are those that remain the same regardless of how much business takes place (utilities, mortgage). Variable costs go up as business increases (labor hours, materials). Are there ways to reduce costs?
- Value Proposition – This is not just about what you do or sell. It’s about what your business does that relieves a complaint in the marketplace. What is your competitive advantage? Why are you more unique or better than alternatives? What benefits are you providing to your customers? The taco truck guy isn’t selling tacos. He’s selling an inexpensive, quick dining experience to folks who are bored of cheeseburgers.
- Customer Relationships – Define your relationship with your customers. Do you want to give them a personalized experience? Hassle-free service? A feeling of being part of a community? What type of relationship does your customer expect?
- Channels – Think of the most efficient and effective ways to reach your customers.
- Customer Segments – When you define your value proposition, consider who it is in the marketplace that is looking for your product or service. Sometimes a customer segment is broadly defined by geography or age, but more often there are several characteristics that make up your ideal customer. For instance, your segment could be “Salt Lake City” or it could be “women in Salt Lake City who earn about $40K annually, have dogs, and enjoy outdoor activities.” The second segment will be easier to reach because you know more about them and which channels they prefer.
- Revenue Streams – This is all the ways your business generates income. Including sales, ad revenue, interest income, and fees. What does your pricing model look like? How much do you believe each stream will provide?
Remember, cooperation is one thing that makes the Business Model Canvas so useful. Different team members will have different perspectives. The best ideas are those that survive the feedback and critiques offered by several points of view. The business model that stands at the end of the process is much more likely to be viable because it was tested on a smaller scale.
Have fun with it, and be creative!
Tooele Small Business Development Center
Utah SBDC – Tooele
Ryen Salazar has been helping small businesses and start-ups since 2013. She is the lead business adviser at the Small Business Development Center in Tooele County. She has a Bachelor Degree in Business Administration from USU. Ryen is also the proud mother of four daughters and two sons. She has been living with her family in West Valley City since 2016.