A Business Model outlines how a company creates value for itself by delivering products and services to customers for revenue and profit.

The Business Model Canvas is the quickest thorough way to assess a business opportunity or tune up an existing one.

It was developed by the business theorist Alexander Osterwalder.

The Business Model Canvas is divided into nine categories representing all the major components of a business model:

• Key Partners
• Key Activities
• Key Resources
• Value Propositions
• Customer Relationships
• Channels
• Customer Segments
• Cost Structure
• Revenue Streams

By mapping your current business model — or your business idea — onto the canvas, you can identify strengths, gaps, weaknesses, opportunities and potential competitive threats in your model.

The Canvas is also helpful for strategically identifying your business model type. There are different types of business models like: open business models, and multi-sided platforms. Knowing which general pattern yours fits into can provide some insight into the dynamics of your business.

Maybe you realize that you’re marketing through a narrow channel base and you could expand to include web sales and partner stores; or, perhaps you realize that you could shift towards a self-service customer service model through providing web-based support services.

The Business Model Canvas can be used to re-evaluate your current business model or to begin modeling a new idea. Entrepreneurs and leaders need to be continually evaluating if there are better ways to do things.

It is a strategic and idea generation tool that can help you get a handle on marketing strategy and focus on the big picture.

Business Model Canvas

The Business Model Canvas (BMC) is a simple and quick way to think about and grasp the major parts of any business. The BMC is a template used to organize our thinking around developing business models.

A Business Model outlines how a company creates value for itself by delivering products and services to customers for revenue and profit.

The Business Model Canvas is a visual chart with elements describing a firm’s offering, customers, infrastructure and finances. It is comprised of nine interrelated elements:

Offering

Value Proposition

Customers

Customer Segments

Channels

Customer Relationships

Infrastructure

Key Resources

Key Activities

Partner Network

Finances

Cost Structure

Revenue Streams

Thinking about an enterprise, whether it is one you want to start or an existing one, can get complicated. We need a tool that can overlay any business situation and ask the basic questions about how it is structured, what is being offered and to whom. This tool is the Business Model Canvas. It helps us keep the whole picture of the business enterprise in our mind so we can evaluate it, test it, and make productive changes.

The Business Model Canvas is where we capture our best guesses about the key business elements and turn them into facts by testing them against potential customers in our search for a viable Business Model.

The testing and searching process is called Lean Startup Methodology. These are core concepts and tools used by entrepreneurs and startups.

Lets look at the nine elements of the Business Model Canvas in more detail.

BMC: The Nine Elements and Marketing

I want to emphasize marketing. Marketing is key in any business model. Nothing happens until things are sold. One of the big shortfalls in new enterprises is being inward and product focused. Marketing is really about being outwardly focused and customer-centric.

Marketing is mostly about the right-hand side of the BMC, but each of the nine elements have some relation to strategic marketing. For example managing costs and keeping them under control gives you latitude and flexibility with pricing. Lets look at them all in a bit more detail.

Value Proposition: What are you building and for who? Here we need to be careful not to be overly product or technology focused. It’s all about perceived value to customers. In order to be in business, we have to be solving a customer problem or satisfying a customer need.

Customer Segments: You exist for them and you need to understand them in detail: who they are and why they would buy.

Channels: How you deliver your Value Proposition to your Customer Segments. Its about logistics, distribution and communication; how do you sell and deliver. Pre 1990s channels were all physical: stores, sales people, and warehouses. Now there are virtual channels as well: Web, Mobile, Cloud and digital downloads and streaming.

Customer Relationships: How do you get, keep and grow customers. This is the role of Marketing and, with techniques like Growth Hacking, these customer engagement attributes are becoming baked-in to products and services. The first stage is Customer Acquisition where we activate customers to do something through calls-to-action. Next we want to keep them and not lose them to competitors. Then we want to grow them by giving them compelling reasons to spend or use more of what we offer.

Key Resources: What do you need to make the Business Model work? What are the working capital requirements? What physical resources are required for fulfillment: manufacturing, machines, inventory, and delivery trucks. What Intellectual Property is needed: patents, customer lists. What are the Human Resources needed?

Key Partners: Strategic alliances, joint ventures, and suppliers.

Key Activities: What are the most important things the company must do to make the Business Model work? Is it Production, making something or Problem Solving like consulting or engineering, or Supply Chain Management? What do you need to become expert at?

Costs: What are the costs and expenses to operate the business? What is the cost structure of the product/service? What are the fixed and variable costs? Are there economies of scale and scope? What are the most expensive resources and activities as a percent of the budget?

Revenue Streams/Models: How do you make money from your product/service being sold to customers? What value are customers paying for? What is your strategy to capture value: direct sales, subscription, or freemium? What are you pricing tactics?