Why you should use the Business Model Canvas
Developed by Alexander Osterwalder in 2005, the business model canvas (BMC) is a central tool in Strategy Management. Consisting of 9 fields, it provides a brief but profound understanding of the core of your business: what it does, who are the parties involved, what resources are required, and where the fundings come from and go into. The Canvas is especially useful during brainstorming sessions, where keywords can be written on sticky notes and added or removed from their respective fields.
Since its introduction, the BMC has become so popular that most business study programs discuss it in their courses. This popularity comes from many reasons, some of which we will elaborate on below.
1. It helps you focus on your Value Proposition
Clear and strong Value Propositions are the raison d’etre of start-ups – the reasons for their existence. The Value Proposition field was probably put in the middle of the canvas for the same reason. In fact, we recommend that you begin building the Business Model from this field. What products or services are you providing? What unresolved personal or social needs does your business address? What is the value of your existence? Without having an answer to these questions, it is impossible to operate a business in the long run.
2. It lays out all the foundational details of your business
After having established the reasons for your business’s existence, it is a good idea to find out what is needed to sustain it. Regardless of the products or services, there are always three main blocks that require attention: input, output, and finance. The three fields on the left: Key Partners, Key Activities, and Key Resources concentrate on the input. Identifying and securing the right people, knowledge, and resources is the first step to getting the business running. The output is discussed in the fields on the right: Customer relationships, Channels, and Customer Segments. These require you to identify the people whom your company serves and your approach and long-term relation with them. Last but certainly not least, the two bottom fields represent the cash flow: money that goes into the business is listed in the cost structure, while the revenue stream illustrates what comes out of it financially. If you are able to fill out all the nine fields convincingly, chances are high that your business will be successful!
3. It helps with the business pitch
A company is a complex organism that takes a lot of time to be explained – precisely the thing your investors always seem to be short of. Hence the infamous but much dreaded timed business pitch. While a successful pitch depends on many other factors, having a clear BMC will clearly leave investors with a professional impression. It also visualises your ideas better than a written business plan (although one obviously does not replace the other). Additional options include colour-coding, using arrows and moving elements directly for a more interactive session.
4. It is flexible
As your business develops, the BMC also needs to evolve. It makes sense to re-study the existing canvas at set intervals. We suggest that you follow the same pattern as above, starting with the Value proposition followed by either the output or input blocks and concluding with the finances. Outdated information should be removed and new elements integrated (remember the sticky notes?).
In addition to its flexibility, the BMC is also at the heart of a family of Strategy Management tools. The Value Proposition Canvas, for instance, allows a deeper analysis of the customers’ needs and what they gain from your business. Sustainability-conscious entrepreneurs can also adopt the triple-layered BMC which integrates the triple bottom line principle into the planning.
5. It is free!
Unlike other fancy business tools, Osterwalder released his canvas under Creative Common license, meaning that anyone can use it! In fact, a free, printable version, as well as instructions on how to fill it out, can be found here. The completion of the BMC should take one day at most, which sounds like a good deal for me considering the advantages it brings!