Business Model Canvas Explained with Examples

Summary

This video lesson introduces the Business Model Canvas, a tool for visualizing and developing a business model on a single page. It defines a business model as a plan for successful operation, identifying revenue sources, customer base, products, and financing. The canvas consists of nine blocks: customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structures. The script explains each block's purpose and provides examples of companies like Google, Skype, and Gillette to illustrate how the canvas can be used to understand and communicate a business model effectively.

Takeaways

• 📘 The Business Model Canvas is a tool to create a clear business model on a single sheet of paper, applicable to any company size.
• 🔍 It simplifies the complex task of understanding a business model by focusing on nine key building blocks.
• 💡 The canvas is easy to understand, flexible, customer-focused, and facilitates clear communication of business plans.
• 👥 Customer Segments are the first building block, emphasizing that businesses exist to serve their customers.
• 💎 The Value Proposition explains why customers buy from you, highlighting the problem solved or need satisfied.
• 🚀 Channels describe how products or services are delivered to the market, considering customer preferences and current reach methods.
• 🤝 Customer Relationships focus on acquiring, retaining, and growing customer base through various strategies.
• 💰 Revenue Streams identify the strategies used to capture value from customers, such as one-time fees or subscriptions.
• 🏭 Key Resources outline the strategic assets needed for the business model to function effectively.
• 🔧 Key Activities are the essential actions directly linked to delivering the value proposition to customers.
• 🤔 Key Partnerships involve outsourcing non-essential activities to suppliers and partners to focus on core business operations.
• 💳 Cost Structure maps the major costs to key activities, ensuring they align with the value proposition.
• 🌐 The Business Model Canvas represents costs on the left and revenue generation on the right, providing a visual balance.
• 🌟 Examples like Google, Skype, and Gillette demonstrate how diverse businesses can utilize the canvas to outline their models.
• 🔄 Google's multi-sided model shows how it serves and earns revenue from different customer segments like search users and advertisers.
• 🆓 Skype's freemium model offers free internet calls as a value proposition, with a minority of users paying for premium services.
• 🪒 Gillette's bait and hook model uses an inexpensive initial offer to encourage ongoing purchases, like razor handles and blades.

Q & A

What is a business model and why is it important?

A business model is a plan for the successful operation of a business, identifying sources of revenue, the target customer base, products, and details of any financing. It's important because it outlines how the key drivers of a business fit together and provides a framework for understanding the company's strategy and operations.

What is the purpose of the Business Model Canvas?

The Business Model Canvas serves as a tool to create a clear and concise business model on a single sheet of paper. It is used to describe any company, from the largest to a startup, and helps in understanding, communicating, and iterating the business model effectively.

How does the Business Model Canvas simplify the process of understanding a business model?

The Business Model Canvas simplifies the process by providing a visual representation of the business model with nine building blocks. It removes complexity and fluff, focusing on essential elements, making it easier to understand, communicate, and modify.

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

The nine building blocks are customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.

How does the Business Model Canvas differentiate between costs and revenue?

Elements on the left-hand side of the Business Model Canvas represent costs to the business, while elements on the right-hand side represent revenue or activities that generate revenue.

What is the significance of 'customer segments' in the Business Model Canvas?

Customer segments define who the customers are that the business serves. It's a crucial step as it establishes the target audience and helps in tailoring the business model to meet their needs effectively.

Can you explain the 'value proposition' and its role in the Business Model Canvas?

The value proposition describes the value that the business delivers to each customer segment. It answers why customers would buy from the business, highlighting the problems it solves or the needs it satisfies.

How does the 'channels' building block function in the Business Model Canvas?

The 'channels' block refers to how products or services are sold to or delivered to customers. It involves understanding how customers want to be reached and the methods currently used for reaching them.

What does the 'customer relationships' block entail in the Business Model Canvas?

The 'customer relationships' block addresses how a business attracts, retains, and grows its customer base. It involves strategies for customer engagement and retention throughout the customer journey.

Can you describe the 'revenue streams' and its importance in the Business Model Canvas?

The 'revenue streams' block identifies how the business earns money. It's important because it helps in determining the strategies for capturing value from customers, such as one-time fees, subscriptions, or freemium models.

What are the different types of resources that can be listed under 'key resources' in the Business Model Canvas?

Key resources can include physical resources like buildings and machines, intellectual resources like brands and patents, human resources such as key personnel, and financial resources like credit lines and cash.

What does the 'key activities' block represent in the Business Model Canvas?

The 'key activities' block represents the most important strategic actions that must be performed to make the business model work. These activities should be directly related to delivering the value proposition to customers.

How are 'key partnerships' utilized in the Business Model Canvas?

The 'key partnerships' block lists the tasks and activities that are important but not performed by the business itself. Instead, suppliers and partners are used to execute these tasks, which can help in focusing more on core activities.

What is the purpose of the 'cost structure' in the Business Model Canvas?

The 'cost structure' block maps key activities to costs, ensuring that costs are aligned with the value proposition. It helps in identifying the most important and expensive costs associated with the business model.

Can you provide an example of a multi-sided business model using the Business Model Canvas?

Google is an example of a multi-sided business model. It brings together two distinct customer segments: search users who use the service for free and advertisers who pay to use Google's search platform. The revenue from advertisers subsidizes the free offering to search users.

How does the freemium business model work, as illustrated by Skype's example in the script?

The freemium business model, as seen with Skype, offers a basic service for free (Internet and video calls) while a premium service (calls to phones) is paid for by a smaller percentage of users. This model attracts a large user base with the free service and generates revenue from the premium service.

What is the 'bait and hook' business model pattern, and how does Gillette implement it?

The 'bait and hook' business model pattern involves offering an initial product at a low cost or for free to encourage ongoing purchases of related products or services. Gillette uses this by offering inexpensive razor handles (the bait) and then selling replacement blades (the hook) at a profit.

Outlines

00:00

📚 Introduction to the Business Model Canvas

The video script introduces the concept of the business model canvas, a tool designed to help entrepreneurs and business owners outline and understand the key components of their business strategy. It emphasizes the canvas's ability to condense complex business information into a single, easily digestible page. The script explains that a business model includes plans for operation, revenue sources, target customers, products, and financing details. The business model canvas is highlighted for its simplicity, focus, flexibility, customer orientation, and ease of communication, making it suitable for businesses of all sizes, from startups to multinational corporations. The nine building blocks of the canvas are outlined, each representing a different aspect of the business model, such as customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structures. The script also explains the cost-revenue relationship represented on the canvas, with elements on the left side indicating costs and those on the right side indicating revenue generation.

05:00

🔍 Deep Dive into the Business Model Canvas Components

This paragraph delves deeper into each of the nine building blocks of the business model canvas. It starts with 'customer segments,' emphasizing the importance of understanding who the customers are and how the business serves them. The 'value proposition' is next, detailing what value the business delivers to its customers and what problems it solves. 'Channels' explain how products or services reach the customers, with options ranging from owned channels like a company website to partner channels like wholesalers or affiliates. 'Customer relationships' cover how businesses attract, retain, and grow their customer base, potentially through excellent customer service or regular communication. 'Revenue streams' discuss the strategies used to generate income from customers, such as one-time fees, subscriptions, or freemium models. The paragraph then transitions to the infrastructure side of the canvas, starting with 'key resources,' which can include physical, intellectual, human, and financial resources. 'Key activities' are the essential actions the business must undertake to deliver its value proposition, directly linked to customer value. 'Key partners' are entities that help in the business operations, such as suppliers or strategic alliances, and 'cost structure' wraps up the section by mapping the key activities to the associated costs, ensuring cost alignment with the value proposition.

10:03

🌐 Real-World Examples of Business Model Canvas Applications

The script provides real-world examples to illustrate how the business model canvas is applied in practice. Google's multi-sided business model is first, highlighting how it serves two distinct customer segments: search users and advertisers. Google's revenue comes from advertisers, subsidizing free services for search users and content owners. The key resources, activities, and partnerships that support Google's model are also discussed. The example of Skype follows, showing a freemium model where the majority of users access free internet calls, while a smaller segment pays for additional services. Skype's business model relies on minimal infrastructure, leveraging software and server hosting to offer its value proposition. The final example is Gillette, which operates on a 'bait and hook' model, offering an inexpensive initial product (the bait) to encourage ongoing purchases of related products or services (the hook), such as replacement blades. The script uses these examples to demonstrate how the business model canvas can succinctly represent the complete business model of any company.

15:03

📈 Conclusion and Summary of the Business Model Canvas

In conclusion, the script summarizes the business model canvas as a comprehensive tool for visualizing the key elements of any business model on a single sheet of paper. It reiterates the nine building blocks and their interrelationships, which form the foundation of the canvas. The examples provided earlier in the script are referenced to emphasize the ease with which the canvas can represent the business models of different companies. The script ends with a hopeful note, encouraging viewers to apply the concepts learned to their own business models and looking forward to future interactions.

Keywords

💡Business Model Canvas

The Business Model Canvas is a strategic management tool used to develop new or document, analyze, and design a business model. It is the central theme of the video, providing a framework for understanding the key components of a business. The canvas is depicted as a single sheet of paper divided into nine blocks, each representing an essential aspect of a business model. In the script, it is used to dissect and explain the business models of Google, Skype, and Gillette, demonstrating its utility in visualizing and communicating business strategies.

💡Customer Segments

Customer Segments refer to the different groups of people or organizations that a business aims to serve or target with its products or services. In the context of the video, it is one of the nine building blocks of the Business Model Canvas. The script mentions that understanding who your customers are is crucial, as businesses exist to serve their customers rather than the other way around. Google, for example, serves two customer segments: search users and advertisers.

💡Value Proposition

A Value Proposition is a promise of value to be delivered through a product or service, defining why customers should buy from a company. It is a core component of the Business Model Canvas and is discussed in the script as the reason why customers choose a particular business. The script uses Google's search platform and Gillette's inexpensive razor handle as examples of value propositions that attract customers.

💡Channels

Channels in the context of the Business Model Canvas refer to the avenues through which a company delivers its products or services to customers. The script explains that channels can be owned by the company or through partnerships. Google's channels include its search platform and advertising services like AdWords, while Skype uses its website and partnerships with headset brands to reach customers.

💡Customer Relationships

Customer Relationships denote the ways in which a company interacts with its customers to retain and grow the business. The script describes this as a building block of the Business Model Canvas, emphasizing the importance of understanding how to acquire, retain, and grow customers. For instance, Skype fosters a self-service relationship with its customers, using its support website as a primary channel for interaction.

💡Revenue Streams

Revenue Streams are the sources from which a company generates income. The video script explains that identifying revenue streams is crucial to understanding how a business earns money. Google's revenue streams, as mentioned in the script, come from advertisers whose ads appear in search results or on webpages, while Gillette generates revenue primarily from the sale of replacement blades.

💡Key Resources

Key Resources are the most important assets required for a business model to work effectively. The script describes them as a fundamental part of the Business Model Canvas, which can include physical, intellectual, human, and financial resources. Google's key resource, for example, is its search platform, which includes Google.com, Adsense, and AdWords.

💡Key Activities

Key Activities are the critical actions that a company must undertake to deliver its value proposition. The script explains that these activities should be directly related to the value proposition. For Google, key activities include managing its search platform and infrastructure, while for Gillette, it involves the development and production of razor blades and handles.

💡Key Partnerships

Key Partnerships are the relationships with other organizations that can help a company achieve its objectives. The video script discusses partnerships as a way to outsource non-critical activities, allowing the company to focus on its core activities. An example from the script is Spotify's partnership with record labels and publishing houses, which is essential for providing music content to its users.

💡Cost Structure

Cost Structure refers to the major costs associated with operating a business. The script explains that mapping key activities to costs is important to align expenses with the value proposition. In the case of Gillette, the cost structure is aligned with delivering its value proposition, with marketing and R&D costs being significant to support the brand and technology of the blades and handles.

Highlights

The business model canvas is a tool to create a clear business model on a single sheet of paper.

It is easy to understand, focused, flexible, customer-focused, and easy to communicate.

The canvas is composed of nine building blocks that represent the key elements of a business model.

Customer segments answer who the customers are and why the business exists to serve them.

Value proposition describes the value delivered to each customer segment and why customers buy from the business.

Channels define how products or services are sold to customers.

Customer relationships focus on how to get, keep, and grow customers.

Revenue streams identify how the business earns money.

Key resources are the unique strategic assets required for the business model to work.

Key activities are the most important strategic actions needed to deliver the value proposition.

Key partnerships involve outsourcing non-key activities to focus on core activities.

Cost structures map the major costs incurred by the business.

Elements on the left side of the canvas represent costs, while those on the right represent revenue.

Google's business model is multi-sided, serving both search users and advertisers.

Skype operates a freemium model with most users using the service for free and a minority paying for premium services.

Gillette's business model is based on the bait-and-hook pattern, offering an inexpensive initial product with ongoing purchases of related products.

The business model canvas can represent the complete business model of any company on a single sheet of paper.

Transcripts

hello and welcome to today's lesson

where we're looking at the business

model canvas now in this video we'll

examine the nine steps needed to create

your first business model and we'll look

at some examples to bring the theory to

life but Before we jump in and look at

the canvas let's just take a brief

moment to define what we mean when we

use the phrase business model so a

business model is defined as a plan for

the successful operation of a business

identifying sources of revenue the

target customer base products and

details of any financing now essentially

it tells us how the key drivers of a

business fit together now if you think

about writing all this down in a

document such as a word document then

it's obviously going to require multiple

pages to capture all of that information

now if you think about trying to get all

that information you've just captured

into your brain and playing with this in

your brain then it's a really

complicated and confusing task and it's

really easy to see why people get

overwhelmed when thinking about business

models and that's where the business

model canvas comes in it gives you a way

to create a pretty clear business model

using just a single sheet of paper and

what is great about it is that it can be

used to describe any company from the

largest company in the world to a

startup with just a single employee so

why would we want to use a business

model canvas well we've just touched a

Polish that it can describe a business

model in a single sheet of paper and

that's the first point here that the

business model canvas is easy to

understand but it's also focused it

removes all the fluff that might have

been present in a traditional business

model it's all killer no filler it's

flexible because it's quick and easy to

make changes to your model and sketch

out new ideas its customer focused and

that's because it forces you to think

about the value you're providing to your

customers and only then what it takes to

deliver that value

it shows connections so the single page

and graphical nature of the canvas shows

how the different

parts of the model in to relate to each

other and that's something that's really

hard to understand from a traditional

business plan and finally it's easy to

communicate and again that's because the

canvas is so easy to understand you'll

be able to share and explain it easily

with your team making it easier for them

to get on board with your vision so here

in this diagram you can see a business

model canvas a blank business model

canvas and that canvas is made up of

nine building blocks so the first one we

have is customer segments and that

answers who are your customers then we

have value proposition and that answers

why do you customers buy from you what

is the game that you provide or the need

that you satisfy then we have channels

how are your products and servers

services delivered to the market then we

have customer relationships how do you

get keep and grow your customers we have

revenue streams how does your business

earn money we've got key resources and

that answers the question what unique

strategic resources does your business

have or does it need we have key

activities what unique strategic

activities does your business perform to

deliver your value proposition we have

key partnerships what non key activities

can you outsource to enable you to focus

more on your key activities and finally

we have cost structures what are the

major costs incurred by your business

now before we take deeper into each of

these elements there is one thing you

should be aware of and that is that

broadly speaking we can say that

elements on the left-hand side of the

business model canvas represent costs to

the business and similarly elements on

the right-hand side of the can this

represents revenue for the business or

they generate revenue for the business

so with that let's dig into each of

those building blocks in a little bit

more detail so the first building block

is customer segments and in this

building block you enter the different

customer segments

you will serve one really important

point to get across here is that

customers don't exist for you but rather

you exist to serve your customers and

many business will serve just one

customer segment but not all so for

example Google serves two customer

segments obviously it serves people who

perform searches but it also serves

advertisers the next building block is

the value proposition and this describes

the value that you deliver to each

customer segment what problems do you

solve for each segment what needs do you

satisfy and the value proposition

answers the question why will customers

buy from us now some of the most common

value propositions are shown here things

like it's the most high performing

product the design of the product is

fantastic or the brand is really strong

or it's really competitive around price

but there's lots of others too so the

third building block is channels and

these refer to how your products or

services are sold to customers ask

yourself how do customers want to be

reached or even how are you reaching

them right now now broadly speaking you

can either have your own channels or you

can partner with someone else who has a

channel so your own channel your own

channels might include any combination

of things like stories you own a sales

force you employ or even your website

partner channels could include a

multitude of options so for example

using a wholesaler or maybe working with

affiliates or even using Google AdWords

to advertise on Google the fourth

building block is customer relationships

and this answers the question how do you

get keep and grow customers so when we

say get we mean how do customers find

out about you and make their initial

purchase decision so for example as we

just said you could advertise through

Google keep how do you keep customers

once you've got them so for example

excellent customer service might help

you to keep your existing customers grow

when we say grow we mean how do we get

your customers to spend more so for

example you could send out a monthly

newsletter to keep them informed about

your latest products or your latest

services now the easiest way to define

all this is to walk through the entire

customer journey in detail and that is

to define you know how do customers find

out about you how do they decide whether

to investigate your product how do they

buy your product and then how are they

managed after they've made the purchase

the fifth building block is revenue

streams where does the money come from

and this might sound really super simple

but it isn't so what you're actually

trying to figure out is what strategy

you'll use to capture the most value

from your customers and in a practical

sense there's a bunch of ways you could

do this so will customers pay a one-time

fee will you have a monthly subscription

fee perhaps you give away your product

for free like Skype does and hope that

some portion of your customers upgrade

to your premium product so let's just

take a step back for a moment if you

look at what we've done so far we've

filled in our value proposition and all

the building blocks to the right of it

and in a nutshell we've developed our

understanding of everything that relates

to our customers but now what we need to

do is obviously fill out the left side

of the value sorry of the business model

canvas so we need to build our

infrastructure so that we're able to

provide the value proposition to

customers so with that let's move on and

look at the next building block key

resources so this building block

describes your most important strategic

assets that are required to make your

business model work now broadly speaking

resources can fall into one of four

categories you have physical resources

such as buildings vehicles machines

intellectual resources brands and

specialist knowledge you have or patents

and copyrights Human Resources so

sometimes your people will be your most

key resource and that's particularly

true in the

creative industries you could have

financial resources such as lines of

credit or cash balances the seventh

building block is key activities and

these are the most important strategic

things you must do to make your business

model work now key activities should be

directly related to your value

proposition and if they're not then

something is wrong because the

activities that you view as being most

important in your business aren't

actually delivering any value to your

customers the eighth building block is

key partners and in this block you list

the tasks and activities that are

important but which you're not going to

do yourself instead you'll use suppliers

and partners to make your business model

work so as an example think about

Spotify Spotify Ski activity is probably

updating their platform however as it

doesn't produce its own music one of the

key partnerships of Spotify will be the

deals that it strikes with record labels

and publishing houses you know without

those deals there literally wouldn't be

any music in Spotify so the final block

of the business model canvas is cost

structure and this is where we map key

activities to costs we want to ensure

that costs are aligned with our value

proposition now it should be

straightforward to determine your most

important costs and your most expensive

costs after you've defined your key

resources your key activities and your

key partnership so that's the theory of

the business model canvas out of the way

but let's take a look at some real

examples so you really get a feel for

how it works so the first example we're

going to look at is Google and the first

thing you should know about Google's

business model is that it's multi-sided

now that means that it brings together

two distinct but related customers and

in Google's case it's people who use the

service for free people who perform

searches and people who pay to use

Google searches people who want to

advertise so from the diagram we can see

that Google

makes money from the advertiser customer

segment whose ads appear either in

search results or on webpages and we can

see that that money subsidizes a free

offering to the other two customer

segments those of search users and

content owners now Google's key resource

is obviously its search platform and

that includes Google com it includes

Adsense for content owners and AdWords

for advertisers

now the key strategic activities that

Google must perform are obviously

managing its existing platform including

a really large infrastructure which is

needed to support that platform its key

partners are content owners from which a

large part of its revenue is generated

that's indirectly obviously advertisers

generate the revenue but they wouldn't

make that revenue without the content

owners now other partners our OEMs or

original equipment equipment

manufacturers and OMS are companies who

produce mobile handsets to whom Google

provides its Android operating system

free of charge

now in return when users of these

handsets search the internet they use

the Google search engine by default just

bringing more users into the ecosystem

and generating even more revenue so the

second model that we're going to look at

is that of Skype and from the business

model canvas you can see that Skype has

two key value propositions so the first

is the ability to make calls over the

Internet including video calls for free

and the second is the ability to make

calls to phones cheaply

now Skype operates what's known as a

freemium business model and that just

means that the majority of skypes users

use the service for free to make calls

over the internet with just about 10% of

users signing up for the premium prepaid

service

now we can see from the customer

relationship building block that

customers typically have a helped them

self relationship with Skype and

typically this means they're using their

support website the channels Skype uses

to reach its customers are its website

Skype comm and partnerships with headset

brands now if we look at key

partnerships key activities and key

resources together the main thing to

notice collectively about these things

is that Skype is able to support its

business model of offering cheap and

free calls because it doesn't have to

maintain its own telecommunications

network like a traditional telecoms

provider would have to Skype doesn't

need that much infrastructure at all

just back-end software and the servers

hosting user accounts and that's how

come it's able to offer this unique

value proposition to the customer

segments that it serves now the third

example we're going to look at is that

if Gillette and Gillette business model

is based on the bait and hook business

platter or business model pattern and

that pattern is characterized by an

attractive inexpensive or even free

initial offer that encourages ongoing

future purchases of related products or

services now within this business model

the base is often provided at a loss

subsidized eventually by the hook so in

Gillette case they offer an inexpensive

razor handle and that's the bait and

then continued purchases of the blades

represent the hook so this business

model is also very popular in SAS

businesses a software-as-a-service

businesses where typically a free

initial month leads to a monthly

subscription so in the diagram here you

can see that we've used the thickness of

the arrows to indicate where the revenue

is coming from so as you can see here

all revenues are

Rashaad by just a single customer

segment customers but within that the

vast majority of revenues come from

frequent blade replacements with just

minor revenues coming from the purchase

of handles

now if you look at the left hand side of

Gillette's business model canvas you

will notice now all major costs are

aligned with delivering the value

proposition so for example marketing

costs help to build Gillette's strong

brand and R&D costs help to ensure that

the blade and handle technology is

unique and proprietary so in summary the

business model canvas provides a way to

show the key elements of any business

model on a single sheet of paper the

canvas is based on nine building blocks

and the interrelationships between them

now through the examples that we looked

at you should be able to see just how

easy it is to represent the complete

business model of any company on just

one single sheet of paper so that's it

for this lesson I really hope you

enjoyed it and I look forward to

speaking to you again soon