The road from having a great idea to developing it into a working business is long and segmented into many steps. It’s easy for new entrepreneurs to get too excited about their idea and disregard some of them. But even then, a business model is something they should develop with great care. And the Business Model Canvas is among the easiest, and most fun, ways to do it.
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Why Do Entrepreneurs need to Make Business Models?
A business model is a document that lays out the most fundamental aspects of a business. It explains how and where the entrepreneur plans to run the business. It details everything from how and where to get the goods that are later sold, to how to ship them to the customers. It’s common to develop a business model before developing a business plan.
A business model is where entrepreneurs place the building blocks of their business. It’s where they arrange them into a functional system. This is a critical step in the development of a business that requires a methodical approach. It should also encourage cooperation. The Business Model Canvas fits all the criteria.
The Business Model Canvas
The Business Model Canvas was originally developed by the Swiss business theorist Alexander Osterwalder. It serves as a template entrepreneurs can use to visualize and map the major elements of their business model. It also helps determine the interconnection of major elements.
The Business Model Canvas has nine separate blocks:
- Key Partners: a section that lists the partners necessary for running the business. It can include business partners, suppliers, but also payment processors, and technology partners.
- Key Activities: a section that lists the key activities required for the proper functioning of the business. These include activities related to building distributions channels, for example. They also include activities that lead to product development and customer sign-up.
- Key Resources: a section that lists the resources needed for the business. It can list physical resources needed to build a product, but also resources needed to develop customer relationships.
- Value Propositions: this section is where entrepreneurs list the things that will make their products or service valuable to the customers.
- Customer Relationships: a section that lists what is needed to achieve desirable relationships for different segments of customers. For example, in-person meetings with B2B clients, chat support for B2C clients, phone support, and so on.
- Channels: the section that lists the channels that can be used to deliver the value propositions to different customer segments.
- Customer Segments: the section that’s used to list the customer segments the company targets. Mass market, niche markets, B2B, and B2C are all possible customer segments.
- Cost Structure: the section where the most important costs of running the business are listed.
- Revenue Streams: the section where all the planned revenue streams for the business are specified.
Entrepreneurs who want to use the Business Model Canvas only need to find a template and print it out. Alternatively, they can use a whiteboard to draw the template, and then fill in each block using post-it notes. There are no limitations to the size of a template or the number of people who can contribute to it.
The only constraints to the Business Model Canvas are those posed by the blocks. And not all business need all the blocks. But the Business Model Canvas is versatile. It has adaptations for various purposes, including supply chain management and mapping cash flow. There are also niche versions of the template, such as the Lean Canvas designed specifically for startups. The Business Model Canvas offers an accessible tool they can use to develop their business model. Fledgling entrepreneurs should take note.