The Business Model Canvas (BMC) has been popularized as a tool to help start-up firms. One of the driving needs was to help emphasize that it wasn’t enough to have a product or service that people would use. You need a solid business model that shows how you will make money at delivering value to particular customer segments. In today’s digital world, many innovations and businesses are created where the actual user doesn’t always pay, but someone has to if you want a scalable, repeatable, and profitable business—think Google and other services where advertisers pay, or services where users pay only for premium-level functions.
The BMC was introduced in the book “Business Model Generation” in 2010 by Alexander Osterwalder and Yves Pigneur and published by John Wiley and Sons, Inc. The authors write that 470 business practitioners and researchers co-created the book. The concept of business-model innovation continues to evolve, and you can participate in the discussion and try out new tools at businessmodelgeneration.com.
Business Model Canvas Components
• Customer Segments
• Value Propositions
• Channels of Distribution
• Customer Relationships
• Key Partners
• Key Resources
• Key Activities
• Cost Structure
• Revenue Streams
The BMC was developed to be used by any organization—existing or new—to think through their business model, create new products or services, and show how they will be profitable. Some of the benefits of the BMC are:
• It is visual and is laid out in a easy-to-use table format.
• It is easy to get started.
• It is iterative—easy to update and make changes as you learn more about how your innovation can be successful.
• It provides a tested framework and it can be used to make a presentation to others.
One way to think about the BMC is that it can help you determine the feasibility of your product or service innovation. Start with Customer Segments and Value Propositions, as they are key to the development of your successful innovation. What value are you providing to a defined customer segment? What problem, challenge, want, or need are you providing a solution for that is compelling enough that your target customer segment will care? While the BMC looks easy, it is robust and takes a lot of thought, research, and detail to do a thorough job in each segment of the canvas.
An established organization potentially has a great advantage in developing an innovation. An existing firm will have many of the other key elements already developed, such as channels of distribution, customer relationships, resources and partners, and an understanding of key activities that need to be accomplished. One key activity will be to determine if the innovation is synergistic with the firm’s existing business operations and relationships, or if it is so different that some of these areas need to be developed anew. Users in established firms should also ask what existing paradigms, systems, and organization within the company could hinder the development and launch of their innovation. A new business with a new innovation has to build up all of the BMC areas mostly from scratch, but can benefit from not having internal challenges that could materialize in an existing organization.
Co-Create with the BMC and Customer Development Methodology
Customer development methodology created by Steve Blank helps you take the BMC and use it to co-create your innovation with your target customer segments to help make sure it provides high value. Use your BMC to develop hypotheses about your innovation. A brief example is that people in your customer segment will buy your product or service because it solves a compelling problem, want, or need. Next, go out and perform structured individual customer interviews. The goal of the interviews is to prove or disprove your hypothesis.
Initial customer development interviews are not about revealing your solution, but about obtaining a greater understanding about the problems and challenges potential customers have that your innovation could solve. The data you collect can help you determine if your innovation solves a problem that people really care about; help you better define features, benefits, and value; help you continue down the development path you are on for the customer segments you identified; or pivot—make changes to your innovation to better align with solving your customer’s problems or modify your customer segments.
While there is a lot more to the process of successful product and service development, the BMC and customer development methodology provide a simple, powerful framework to help guide your efforts.