Business model canvas

What Is Business Model Canvas?

The Business Model Canvas is a strategic management tool that provides a visual framework for developing, analyzing, and documenting existing or new business models. It falls under the broader category of strategic management. This single-page chart is divided into nine essential building blocks that collectively describe how an organization creates, delivers, and captures value. The Business Model Canvas helps firms align their activities by illustrating potential trade-offs and fostering a shared understanding of the business. Its visual nature makes complex business strategy accessible and facilitates communication among stakeholders.

History and Origin

The Business Model Canvas was initially proposed in 2005 by Alexander Osterwalder, based on his PhD work on business model ontology, under the supervision of Yves Pigneur. Their collaborative efforts culminated in the widely acclaimed 2010 book, "Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers," which formalized the nine building blocks and popularized the tool globally.²¹, ²² The canvas was designed as a visual, straightforward alternative to lengthy and complex traditional business plans, quickly gaining traction among entrepreneurs and established businesses alike.¹⁹, ²⁰ Osterwalder and Pigneur, through their company Strategyzer, continue to develop and refine tools that aid in strategic innovation.¹⁸ The widespread adoption of the Business Model Canvas has been described as a "canvas revolution," changing how many approach innovation and business model development.¹⁷

Key Takeaways

The Business Model Canvas is a visual, one-page strategic management tool for mapping business models.
It consists of nine interconnected building blocks: Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships, and Cost Structure.
Developed by Alexander Osterwalder and Yves Pigneur, it was popularized by their 2010 book "Business Model Generation."
The Business Model Canvas is widely used for strategic planning, developing new products, and analyzing existing businesses.
It offers a clear, holistic view of a business, enhancing communication and collaboration within teams.

Formula and Calculation

The Business Model Canvas is a qualitative strategic framework and does not involve a mathematical formula or calculation. Instead, it serves as a visual template for organizing and understanding the qualitative elements that constitute a business model. It helps identify how different components interact to generate financial outcomes, but it is not a tool for financial modeling or quantitative analysis itself.

Interpreting the Business Model Canvas

Interpreting the Business Model Canvas involves analyzing the relationships and flows between its nine building blocks to understand how a business creates, delivers, and captures value. Each block represents a critical aspect of the business:

Customer Segments: Defines the specific groups of people or organizations an enterprise aims to reach and serve. Understanding these customer segments is foundational to the entire model.
Value Propositions: Describes the bundle of products and services that create value for a specific Customer Segment. This is what differentiates a business from its competitors and solves a customer's problem or satisfies a need, forming the core of the value proposition.
Channels: Illustrates how a company communicates with and reaches its Customer Segments to deliver a Value Proposition.
Customer Relationships: Describes the types of relationships a company establishes with specific Customer Segments.
Revenue Streams: Represents the cash a company generates from each Customer Segment. These are the ways the business makes money, sometimes linked to distinct revenue streams from different value propositions or customer groups.
Key Resources: Describes the most important assets required to offer and deliver the Value Proposition. These can include physical, intellectual, human, and financial resources.
Key Activities: Outlines the most important things a company must do to operate successfully. These key activities are necessary to deliver the value proposition, reach markets, maintain customer relationships, and earn revenue.
Key Partnerships: Describes the network of suppliers and partners that make the business model work. Key partnerships can reduce risks and acquire resources.
Cost Structure: Describes all costs incurred to operate a business model. This includes expenses related to key resources, key activities, and key partnerships.

By analyzing how these elements connect and influence each other, users can identify strengths, weaknesses, opportunities, and threats within the business model, informing strategic decisions.

Hypothetical Example

Consider a hypothetical startup, "EcoBike Share," aiming to provide electric bicycle rentals in urban areas.

Customer Segments: Urban commuters, tourists, environmentally conscious individuals.
Value Proposition: Convenient, affordable, eco-friendly electric bike rentals via a mobile app.
Channels: Mobile app, docking stations, local tourism offices, online advertising.
Customer Relationships: Automated self-service via app, in-app support, community events for users.
Revenue Streams: Per-minute rental fees, monthly subscriptions, ad revenue from local businesses.
Key Resources: Electric bikes, charging stations, mobile app platform, maintenance staff, permits.
Key Activities: Bike maintenance and redistribution, software development for the app, customer support, marketing.
Key Partnerships: City councils (for permits and docking locations), electricity providers, bike manufacturers, local tourism boards.
Cost Structure: Bike procurement and maintenance, app development, station installation and electricity, marketing, staff salaries.

By filling out the Business Model Canvas, EcoBike Share's founders gain a clear, holistic view of their business, helping them identify potential operational challenges, explore new channels for customer acquisition, and refine their overall strategy.

Practical Applications

The Business Model Canvas is widely applied across various sectors for numerous purposes:

Startup Development: Entrepreneurship relies heavily on the Business Model Canvas for ideation, validation, and refining initial business concepts. It helps startups articulate their core offering and how they will generate revenue.
Strategic Planning: Established companies utilize the Business Model Canvas in their strategic planning and development cycles. It provides a blueprint for strategy and facilitates discussions among executive teams and across different departments.¹⁶
New Product/Service Development: Before launching a new product or service, companies can use the Business Model Canvas to map out its proposed value proposition, target customers, and operational requirements.
Business Analysis: It serves as a tool for market analysis, allowing businesses to visualize how different elements like customer segments, value propositions, and revenue streams connect, making it easier to refine strategies and stay competitive.¹⁵
Competitive Analysis: Firms can use the canvas to sketch out the business models of competitors, gaining insights into their strategies and identifying potential areas for differentiation.
Communication Tool: The visual format of the Business Model Canvas simplifies complex concepts, fostering improved communication and collaboration within teams and with external stakeholders, such as investors or partners.¹⁴
Innovation and Adaptation: It enables organizations to quickly iterate and experiment with different business model configurations to respond to changing market dynamics or emerging opportunities, fostering a culture of innovation.¹³

The Business Model Canvas has permeated business education and practice, becoming a fundamental tool for understanding and designing how organizations create value.¹²

Limitations and Criticisms

Despite its widespread adoption and utility, the Business Model Canvas is not without its limitations:

Lack of Detail for Complex Businesses: While its simplicity is a strength, for highly complex businesses with intricate value chains or multiple interdependent revenue streams, the Business Model Canvas may oversimplify the operational nuances and miss critical strategic details necessary for comprehensive planning.¹⁰, ¹¹
Static Nature: The Business Model Canvas captures a snapshot of a business model at a given time. It does not inherently illustrate the dynamic evolution of a strategy or the detailed interactions between components over time. It can be seen as a static framework that demands additional tools or methods to reflect ongoing changes.⁸, ⁹
Exclusion of External Forces: Critics note that the canvas, in its original form, does not explicitly account for external forces such as competition, broader market factors, regulatory environments, or societal impact.⁶, ⁷ It focuses primarily on the internal structure of the business model.
Limited Financial Depth: While it includes cost structure and revenue streams, the Business Model Canvas does not provide a detailed financial analysis or projections. A more comprehensive financial model is often necessary, especially when seeking investment.⁵
Focus on Profit-Generating Organizations: The canvas primarily focuses on creating value with a return on revenue, potentially limiting its applicability for non-profit organizations or those with significant social or environmental missions not directly tied to financial profit.⁴

Effective use of the Business Model Canvas often involves complementing it with other strategic tools and frameworks to address these limitations.

Business Model Canvas vs. Value Proposition Canvas

While both are strategic tools developed by Alexander Osterwalder and Yves Pigneur, the Business Model Canvas and the Value Proposition Canvas serve different, albeit complementary, purposes.

Feature	Business Model Canvas	Value Proposition Canvas
Scope	Holistic view of an entire business model (9 blocks).	Deep dive into the relationship between a product/service and its customer (2 blocks).
Primary Focus	How a business creates, delivers, and captures value.	Understanding customer needs and designing products/services that meet those needs.
Components	Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships, Cost Structure.	Customer Segments (Customer Jobs, Pains, Gains) and Value Propositions (Products & Services, Pain Relievers, Gain Creators).
When to Use	Overall business strategy, new business ideas, scaling.	Designing new products, improving existing products, ensuring product-market fit.
Relationship	The Value Proposition Canvas is a "zoom-in" tool for the "Value Propositions" and "Customer Segments" blocks of the Business Model Canvas.

The Value Proposition Canvas helps flesh out two crucial elements of the broader Business Model Canvas, ensuring that the products and services offered genuinely resonate with the target customer segments.

FAQs

What are the nine building blocks of the Business Model Canvas?

The nine building blocks are Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships, and Cost Structure.

Who created the Business Model Canvas?

The Business Model Canvas was co-created by Alexander Osterwalder and Yves Pigneur, and popularized in their 2010 book "Business Model Generation."³

Is the Business Model Canvas only for startups?

No, while popular with entrepreneurship and startups, established companies of all sizes, including large corporations and non-profits, use the Business Model Canvas for strategic planning, innovation, and analyzing existing business models.²

How does the Business Model Canvas help in strategic planning?

It provides a clear, visual overview of the entire business model on a single page, helping teams to understand interconnected elements, identify potential gaps, and align activities to improve business strategy.¹

Can the Business Model Canvas be used for non-profit organizations?

Yes, with some adaptation, non-profit and social enterprises can also utilize the Business Model Canvas. While the "revenue streams" might be replaced by "funding streams" or "impact generation," the core logic of creating and delivering value remains relevant.