Introduction to the Business Model Canvas

Summary

The Business Model Canvas, developed by Alexander Osterwalder, is a strategic tool that outlines nine key components essential for defining and developing a business model. It helps organizations understand their customer segments, value propositions, and how to communicate and deliver these values effectively. The canvas also covers customer relationships, key activities, revenue streams, necessary resources, partnerships, and cost structures, offering a holistic view of business operations and a framework for innovation and adaptation to changing environments.

Takeaways

• 📈 The Business Model Canvas is a strategic tool for defining, describing, or developing a business model, originally developed by Alexander Osterwalder.
• 👥 Customer segments are the first building block, focusing on key client groups that the organization serves, each with distinct needs.
• 💡 The value proposition is how a business creates value for its customers, distinguishing itself from competitors through product or service offerings.
• 📢 Channels describe how the value proposition is communicated and delivered to customers, including brand awareness and support post-sale.
• 🤝 Customer relationships explore how an organization interacts with its customer segments, ranging from personal interaction to automated experiences.
• 🔧 Key activities are the actions necessary for delivering the value proposition, such as product production or service provision.
• 💰 Revenue streams examine how businesses derive fees from customer segments, including transactional sales, subscriptions, and license fees.
• 🏢 Key resources are the assets needed to deliver the value proposition and create revenues, such as physical facilities, intellectual property, and human resources.
• 🤝 Key partnerships define who the business needs to work with to deliver its model, including suppliers and strategic alliances.
• 💼 Cost structure considers the costs associated with the business model, including fixed and variable costs, and how they can be managed as the business scales.
• 🔍 The Business Model Canvas is most useful for challenging existing models and generating new ideas, especially in response to changing environmental conditions.

Q & A

What is the Business Model Canvas?

The Business Model Canvas is a visual tool developed by Alexander Osterwalder for defining, describing, or developing the business model of an organization by identifying nine basic building blocks and how they inter-relate.

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

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

Why is understanding Customer Segments important?

Understanding Customer Segments is important to identify the key client groups an organization serves, their distinct needs, and how to efficiently use resources to create value for them.

What is a value proposition and why is it significant?

A value proposition is the aspect of a product or service that distinguishes it from the competition, creating value for customers by solving their problems or fulfilling their desires in a unique way.

How can an organization communicate and deliver its value proposition to customers?

Organizations can communicate and deliver their value proposition through various channels, raising brand awareness, helping customers evaluate the value, and providing support post-sale.

What does the building block of Customer Relationships explore?

Customer Relationships explores how an organization interacts with its customer segments, which can range from personal interaction to self-service, automated experiences, or collaborative relationships.

What are Key Activities and why are they necessary for a business?

Key Activities are the essential actions an organization must undertake to deliver its value proposition successfully, such as producing a product or providing a service that solves a problem for the customer.

Can you explain how Revenue Streams work in the context of the Business Model Canvas?

Revenue Streams explore the mechanisms used to derive fees from customer segments, including transactional sales, subscription fees, hire or rental fees, license fees, commissions, or brokerage fees.

What are Key Resources and why are they important for delivering a business model?

Key Resources are the assets needed to deliver the value proposition and create revenues, which can include physical facilities, intellectual property, people, and financial resources.

What role do Key Partnerships play in a business model?

Key Partnerships define the external organizations and providers an entity needs to work with to deliver its business model, including suppliers, strategic alliances, joint ventures, or transactional relationships.

How does the Cost Structure building block help in understanding a business model?

The Cost Structure helps in understanding the costs associated with each element of the business model, including fixed and variable costs, and how costs can be managed or reduced as the business scales.

How can the Business Model Canvas be used to challenge and innovate existing business models?

The Business Model Canvas can be used to systematically question each element of the existing model with 'what if' scenarios, fostering new ideas and concepts, especially when responding to changes in macro-environmental conditions.

What is the recommended resource for further understanding of the Business Model Canvas?

For further understanding, it is recommended to read 'Business Model Generation' by Alexander Osterwalder and Yves Pigneur or visit the Strategyzer website.

Outlines

00:00

📈 Understanding the Business Model Canvas

The Business Model Canvas is a strategic tool developed by Alexander Osterwalder to visualize and develop a business's operational strategy. It identifies nine key components that interconnect to form the backbone of any business model. The first component, Customer Segments, focuses on the distinct groups an organization serves, emphasizing the need for tailored value propositions and efficient resource allocation. The Value Proposition describes the unique aspects of a product or service that set it apart from competitors, potentially including design, brand, experience, or price. Channels are the means by which the value proposition reaches customers, involving marketing, sales, and support strategies. Customer Relationships explore the types of interactions a business has with its customers, ranging from personal to automated. Key Activities are the essential actions required for delivering the value proposition, such as product development or service provision. Revenue Streams investigate how customers compensate for the value received, through sales, subscriptions, or licensing fees. Key Resources are the assets needed for value creation and revenue generation, including physical, intellectual, human, and financial resources. Key Partnerships outline the external collaborations necessary for business operations, such as suppliers or strategic alliances. Lastly, the Cost Structure examines the expenses associated with all elements of the business model, including fixed and variable costs, and how they scale with business growth.

05:00

🛠️ Enhancing Business Models with the Canvas

The Business Model Canvas is not only a diagnostic tool but also a catalyst for innovation. It encourages businesses to question and reimagine each component of their model, fostering creativity and adaptability. By systematically considering 'what if' scenarios for each element, businesses can uncover new opportunities and strategies, such as transitioning to online learning in response to physical constraints. The Canvas is particularly useful in times of environmental upheaval, such as the COVID-19 pandemic, which may disrupt traditional business channels. It provides a framework for understanding and exploring sustainable alternatives to traditional models. For further insight, the script recommends 'Business Model Generation' by Alexander Osterwalder and Yves Pigneur, or the Strategyzer website, noting that Optima Training is not affiliated with Strategyzer but appreciates their contributions to the field.

Keywords

💡Business Model Canvas

The Business Model Canvas is a strategic management tool developed by Alexander Osterwalder that visually represents the key elements of a business model. It is used to define, describe, and develop the business model of an organization. In the video, it is presented as an invaluable aid for understanding how a business operates by identifying the nine basic building blocks and their inter-relations, which is central to the video's theme.

💡Customer Segments

Customer Segments refer to the different groups of clients that an organization serves, each with distinct needs that may require different channels and relationships to generate value. The video emphasizes the importance of identifying these segments and understanding their needs, as it is the first building block of the Business Model Canvas and directly relates to the value creation process.

💡Value Proposition

A value proposition is the aspect of a product or service that makes it distinct from competitors and creates value for customers. The video describes it as a key element in the Business Model Canvas, highlighting how businesses should consider what makes their offerings unique and how they can create value for their customers, whether through design, premium branding, unique experiences, or competitive pricing.

💡Channels

Channels in the context of the Business Model Canvas refer to the various means through which a business communicates and delivers its value proposition to customers. The script discusses how businesses should raise awareness of their brand and offerings, and how they should facilitate the evaluation and purchase of their products or services, illustrating the importance of effective communication and distribution strategies.

💡Customer Relationships

Customer Relationships describe the nature of the interactions between an organization and its customer segments. The video script explores the range of interactions, from personal to automated, and the importance of understanding the type of experience each customer segment expects, which is crucial for building and maintaining customer loyalty and satisfaction.

💡Key Activities

Key Activities are the essential actions that an organization must perform to deliver its value proposition successfully. The video mentions that these activities could involve producing a product to certain standards or providing a service that solves a problem for the customer, emphasizing the operational aspects of a business model.

💡Revenue Streams

Revenue Streams represent the mechanisms through which an organization derives income from its customer segments. The video script explains different types of revenue streams, such as transactional sales, subscription fees, hire or rental fees, and license fees, highlighting the financial aspect of the business model.

💡Key Resources

Key Resources are the assets necessary for delivering the value proposition and generating revenue. The video mentions physical facilities, equipment, intellectual property, human resources, and financial position as examples of key resources, underlining the importance of these assets in the functioning of a business model.

💡Key Partnerships

Key Partnerships define the external relationships that an organization forms to deliver its business model effectively. The video script outlines different types of partnerships, such as strategic alliances, cooperation with competitors, joint ventures, and transactional relationships, emphasizing the collaborative aspect of business operations.

💡Cost Structure

Cost Structure refers to the costs associated with the various elements of a business model. The video discusses how to consider the costs of resources, activities, and other elements, and how these costs can vary or be fixed, providing insight into the financial planning and management aspects of a business model.

💡Strategic Alternatives

Strategic Alternatives are new business models or approaches that an organization might explore in response to changes in its environment or challenges to its existing model. The video uses the example of social distancing measures during COVID-19, which may force businesses to re-examine their traditional models and develop sustainable alternatives, such as online learning platforms.

Highlights

The Business Model Canvas is a visual tool for defining, describing, or developing a business model.

Developed by Alexander Osterwalder, it helps communicate how a business operates by identifying nine basic building blocks.

Customer segments are key client groups the organization serves, each with distinct needs.

Value proposition distinguishes your product or service from the competition.

Value can be created through design, premium branding, unique experiences, or lower prices.

Channels and customer relationships explore how value is communicated and delivered to customers.

Customer relationships may range from personal interaction to self-service or automated experiences.

Key activities are necessary for delivering the value proposition and may include production or problem-solving.

Revenue streams explore how customers pay for value and the mechanisms used to derive fees.

Revenue can come from transactional sales, subscriptions, hire fees, licenses, commissions, or brokerage fees.

Key resources are the assets needed to deliver the value proposition and create revenues.

Key partnerships define who to work with to deliver the business model, including suppliers and collaborators.

Cost structure considers the costs associated with resources, activities, and other elements of the business model.

Fixed and variable costs, as well as economies of scale, should be considered in the cost structure.

The Business Model Canvas provides an overview of how a business creates and delivers value and generates revenue.

It is useful for articulating the business model to others and challenging existing elements to generate new ideas.

The Canvas can be used to explore new models in response to macro-environmental conditions affecting the business.

For further learning, 'Business Model Generation' by Alexander Osterwalder and Yves Pigneur is recommended.

Optima Training is not affiliated with Strategyzer but admires their work on the Business Model Canvas.

Transcripts

The Business Model Canvas is a great visual tool

for defining, describing or developing the business model of your organisation.

Originally developed by Alexander Osterwalder,

the concept of the Business Model Canvas is invaluable as an aid to communicating how the business operates

by clearly identifying the nine basic building blocks

of the business and how they are inter-related.

The first building block is Customer segments.

The key client groups that the organisation serves.

Each group should have distinct needs that require different channels and relationships to generate value.

Ask who your ideal or most important customers are?

Who are you creating value for?

What type of relationship does each segment want?

This may mean that you need to decide not to serve certain groups of customers,

so that you are using your resources efficiently.

The way in which you create value for your customers is described as the value proposition;

that aspect of your product or service

that distinguishes you from the competition.

How do you create value for your customers?

This can include the way in which you design your offering or create a premium brand.

It could be that you offer a unique experience,

or that you provide something at a significantly lower price point than your competition.

Value can also be created not by price

but by speed of delivery, or an enhanced service.

Ask yourself how you create value for your customers?

Are you removing a pain or providing something that people want?

The third basic building block describes how the value proposition

is communicated and delivered to your customers.

How do you raise awareness of your brand and your offerings?

How do you help your customers to evaluate the value that you bring?

What routes can your customers use to buy the products and services that you provide?

How do you deliver your value proposition

and what support do you offer once a sale has been made?

Each customer segment will expect a different type of experience when they engage with our business,

and this is explored in the next building block - Customer relationships.

How does your organisation interact with each of your customer segments?

This can range from a personal interaction to self-service or automated experiences.

Or it could include a more collaborative relationship

through a sense of shared communal experience,

or even working with customers to jointly create offerings.

These first four building blocks are essentially concerned with the customer

who we serve and how we do it.

The Key Activities block then describes

those things that you need to do to be successful in delivering your value proposition.

This could be producing a product that meets certain standards or quality

or in providing a service that removes a pain or problem on behalf of your customer.

The third type of activity is in providing a space where

other vendors and customers can exchange products or services, such as on online marketplace.

Once we know what value we create for our customers,

we can understand what our customers are willing to pay?

How they pay and how they would like to pay?

The Revenue streams block explores the mechanisms used to derive fees from each of the customer segments.

These can include transactional sales for physical assets or the usage of a service,

fees paid to make use of a service or product temporarily

such as a subscription to a streaming service or the hire of construction tools,

or even license fees paid for the use of a brand.

Revenues can also be based on commissions, or brokerage fees, and for providing promotional access to an audience.

Now that we understand our customers and how we exchange value for revenues,

we can consider the internal building blocks.

These include the Key Resources that are needed to deliver the Value Proposition

and to create revenues.

These assets can include the physical facilities,

equipment or vehicles.

You may have intellectual assets such as patents, copyrighted material or know how.

Resources can also include your people and your financial position.

Some resources that are needed for the business model to work

are not available to you from within your business.

These are obtained through partnering with other organisations and providers.

Key Partnerships defines who it is that we need to work with to deliver the business model.

Who are your key suppliers?

Are there key activities that are provided by someone else?

There are four types of partnership:

Strategic alliances with non-competitors,

cooperating with traditional competitors,

working jointly with a third party to create a new business venture

or transactional relationships that assure a reliable source of supply.

The final building block

considers the costs associated with each of the other eight elements of the business model.

Consider what resources cost the most?

Which activities are most expensive?

What is the cost structure

and how are charges incurred in operating your business model?

These could be fixed costs

that do not change as your levels of business fluctuate,

or they could vary in proportion to the volume of business that you are doing.

You should also consider how costs can be apportioned over a range of activities

as the scale of your business increases.

For example, unit prices may be reduced as you buy higher volumes.

And similarly, economies of scope may be enjoyed as you expand operations

so that key activities support multiple channels.

Together the nine basic building blocks provide you with an overview of how your business creates and delivers value,

how the various elements inter-relate,

what they cost to deliver and how much revenue they generate.

It's also a great way to articulate your business model to others.

However, the Business Model Canvas is perhaps most useful

when it's used to challenge each element of the existing business model

to generate new ideas and concepts.

It comes to life when you systematically ask

‘what if?’ for each of the elements.

For example, ‘What if we didn’t need to be in the room when delivering training?’

could be the spark that leads to the development of a new

online learning business model.

This is particularly relevant when a business is forced to re-examine its business model

in response to macro-environmental conditions removing one or more of the basic building blocks.

For example, when the social distancing measures undertaken to combat COVID-19

result in your main channels to your customer being closed.

By using the Business Model Canvas to understand your traditional model,

you will be able to explore new models that deliver sustainable strategic alternatives.

To learn more about the Business Model Canvas,

we recommend that you read Business Model Generation

by Alexander Osterwalder and Yves Pigneur

or visit the Strategyzer website.

We should point out that Optima Training is in no way affiliated with Strategyzer

we just admire the work that they do.