Business Model Canvas

Dr. FAKRUDDIN
Associate Professor, School of Management
Presidency University

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Understanding and Developing Business model Canvas
The business model canvas, invented by Alex Osterwalder of
Strategyzer, is made up of nine building blocks showing the
logic of how a company intends to deliver value and make
money. The nine blocks cover the three main areas of a
business: desirability, viability and feasibility.

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Why do we use it?
• To quickly draw a picture of what the idea is.
• It allows us to get an understanding of your business and to go
through the process of making connections between what your
idea is and how to make it into a business.
• It looks at what kinds of customer decisions influence the use
of your systems.
• It allows everyone to get a clear idea of what the business will
likely be.

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Value Proposition:
The Value Proposition is foundational to any business/product.
•Generally, value is exchanged from a customer for money when
a problem is solved or pain is relieved for them by your business.

Good questions to ask when defining your business/product:

•What is the problem I am solving?
•Why would someone want to have this problem solved?
•What is the underlying motivator for this problem?
•Figuring out where your product/service solves the problem for
your customer, based on Maslow’s Hierarchy of Needs.

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 Customer Segments
It is the practice of dividing a customer base into groups of individuals that
are similar in specific ways, such as age, gender, interests and spending
habits.
Things to consider when determining your Customer Segments:
•Who are we solving the problem for?
•Who are the people that will value my value proposition?
•Are they another business?
•If so, what are the characteristics of those businesses?
•Does my value proposition appeal to men/women or both?
•Does it appeal to young adults aged 20 to 30 or teenagers?
•What are the characteristics of the people who are looking for my value
proposition?

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 Customer Relationships
Customer Relationships is defined as how a business interacts with its
customers.
•So, do you meet with them in person? Or over the phone? Or is your business
predominantly run online so the relationship will be online too?
Some examples are:
•In-person (one-to-one)
•Third-party contractors
•Online
•Events (one-to-many)
•Phone

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 Channels
• Channels are defined as the avenues through which your customer comes into
contact with your business and becomes part of your sales cycle.
• This is generally covered under the marketing plan for your business.
• Good questions to ask when identifying the channels to reach your
customers are:
• How are we going to tell our customer segment about our value
proposition?
• Where are our customers?
• Are they on social media?
• Are they driving their car and listening to the radio?
• Are they at an event or conference?
• Do they watch TV at 7pm on a Friday night?

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 Examples of Channels
• Social media,
• Public speaking
• Electronic mail (email marketing)
• Networking
• SEM (Search Engine Marketing)
• SEO (Search Engine Optimisation)
• Engineering as marketing
• Viral marketing, Targeting blogs
• Sales and promotions for commissions, Affiliates
• Existing platforms, PR, Unconventional PR, Social advertising, Trade shows, Content marketing,
Community building
• Offline advertising (billboards, TV, radio)

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 Key Activities

• The Key Activities of your business/product are the actions that your
business undertakes to achieve the value proposition for your customers.
• Questions to ask:
• What activities does the business undertake in achieving the value
proposition for the customer?
• What is the resource used?
• Time? Expertise? Distribution of product? Technical development?
• Strategy? Offer resources (human/physical)?
• What actions does it take you and/or your staff to achieve value exchange?

Examples:
• Production, Problem-solving, Platform

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 Key Resources
• Next, you should think about what practical resources are needed to achieve
the key activities (actions) of the business.
• Key means the resources your business requires to do business.

Resources needed practically to undertake the actions/activities of your

business:
• Human
• Physical
• Intellectual
• Financial

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 Key Partners

• Key Partners are a list of other external companies/suppliers/parties you

may need to achieve your key activities and deliver value to the customer.
• This moves into the realm of ‘if my business cannot achieve the value
proposition alone, who else do I need to rely on to do it?’.
• An example of this is ‘if I sell groceries to customers, I may need a local
baker to supply fresh bread to my store’.
• They are a key partner to achieve the value my business promises to the
customer.

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 Cost Structures
• Your business cost structure is defined as the monetary cost of
operating as a business.
• How much does it cost to achieve my business's key activities?
• What is the cost of my key resources and key partnerships?
• How much does it cost to achieve the value proposition for my
customers/users?
• Are there additional costs to running a business?
• Legal?
• Insurance?
• What is the cost of my business?
• It is important also to place a monetary value on your time as a cost.
• How much would it cost you to hire you?
• What is the opportunity cost of running your business?

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 Revenue Streams

• Revenue Streams are defined as the way by which your business

converts your Value Proposition or solution to the customer’s problem
into financial gain.
• It is also important to understand pricing your business accordingly to
pain of purchase in exchange for the pain of solving the problem for
your customer.
• But how do you gain revenue?
• There are many different revenue models here:
• Pay per product (pay per view)
• Fee for service, Fixed rate, Subscription, Dividends
• Referral feeds
• Freemium
• Equity gain

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Types of business model by Osterwalder
In their book Business Model Generation, authors
Osterwalder and Pigneur discuss five different
types of business models:
1)Unbundled,
2)Long tail,
3)Multi-sided platform,
4)Free, and
5)Open

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 1. Unbundled Business Model
Unbundled businesses split up (“unbundle”) their operations into three distinct
business categories to increase efficiency:
1) product innovation,

2) customer relationship management, and

3) infrastructure management.
Businesses Focused on Product Innovation:
•Focus: This business category aims to create the most innovative product or
service on the market.
•Strategy: Businesses focused on innovation need to hire talented designers
and develop efficient systems to commercialize ideas quickly.
•Resources: Successful product innovation requires investment in research,
development, and talented employees.

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Unbundled ……contd
Businesses Focused on Customer Relationship Management:
•Focus: This business category aims to nurture long-term relationships with
customers.
•Strategy: Businesses focused on customer relationships need to look beyond the
value of single transactions and focus on the lifetime value of their customers.
•Resources: In addition to tailoring products and services to satisfy customers in
each customer group, businesses need to invest heavily in developing their
touchpoints and customer interactions.

Businesses Focused on Infrastructure Management:

•Focus: This business category aims to operate as efficiently and as cost-
effectively as possible.
•Strategy: Businesses focused on infrastructure management adopt strategies
that minimize costs and optimize efficiency wherever possible.
•Resources: Reliable and cost-effective infrastructures depend on economies of
scale and standardized processes to keep costs down.

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2. Long Tail Business Model

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 Multi-Sided Platforms
This business facilitates exchanges between buyers and sellers, and it requires
participation from both parties to offer value and operate successfully. In other
words, if sellers stopped listing items on online, customers would see no value in visiting
the site. If customers stopped shopping on Etsy, sellers would see no value in listing
their products. The more active users that a platform can attract, the more value it
can offer to both parties.
•Osterwalder and Pigneur suggest the following layout for Multi-Sided Platform business
models:
•Customer Groups: Focus on a minimum of two interdependent customer groups.
•Value Offer: Value comes from the platform—it facilitates efficient and cost-
effective interactions between the customer groups.
•Profit Sources: Each group produces a different revenue stream depending on the fees
they pay to use the platform (for marketplaces, sellers usually pay subscription fees
while buyers have free access).
•Critical Actions: Develop, maintain, and promote the platform to ensure it meets the
needs of individual customer groups.
•Network: Focus on developing partnerships that will make the platform more functional
or attractive to all customer groups.

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Free
This model ensures that at least one customer group
always receives value for free.

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 Common types of business models
And lots of businesses earn money from multiple revenue
streams, meaning their business models include several of these
types.
•Retailer model. ...
•Manufacturer model. ...
•Fee-for-service model. ... Urban
•Subscription model. ...…netflix
•Bundling model. ... walmart
•Product-as-a-service model. ... aquaguard
•Leasing model. ......
•Franchise model.

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 Importance of business model canvas
The importance of business model canvas is that it offers a high-
level analysis, provides important insights, and a greater
understanding of your venture, all while avoiding getting
bogged down in the details.
As a visual tool, the Business Model Canvas has some key
advantages. It provides information at a glance and can be useful
as part of an initial pitch. It also focuses on customer value and
can be an excellent tool for brainstorming.

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 Develop Befitting Business Model (Master Business Plan)

A business model, consists of four interlocking

elements that, taken together, create and deliver
value:

1.Customer's’ value proposition

2.Profit formula
3.Key resources
4.Key processes

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Business Model Canvas
The Business Model Canvas Template is likely to be the most well-known and used
business modeling system in the world. This tool was developed by Alexander
Osterwalder, in his book entitled Business Model Generation.
It is user-friendly and different from everything that had been previously proposed,
because it dispenses pages and pages of explanations and, on the other hand, focuses the
attention of interested parties on a single canvas.

This canvas is divided graphically into nine building blocks, which must be filled in as
follows:

1. Customer Segments: you should start filling out your Business Model Canvas here.
That’s because it’s easier to design your business when you already know who you’re
selling to. Try to answer as briefly as possible to the question: “Who is my primary
customer?” or “What kind of customer can I generate value for”?

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2. Value Propositions: having defined who your audience is, in the first block, you must
now think about what needs of those people your product can meet. Ask yourself
“What value do I deliver to my consumer?” Basically, try to highlight what differentiates
your product or service from the competition.
3. Channels: the question here is “What are the best ways for me to reach my
customer?”. List, in this block, all the ways through which your business can deliver
value to your customer, whether sales channels, distribution or even communication
and marketing.
4. Customer Relationships: the purpose of this block is to bring together all the service,
communication and after-sales strategies that your business will use to create a
relationship with the customer, in order to guarantee the retention of your audience,
preventing them from migrating to the competition.
5. Revenue Streams: “How and how much will my customer pay for the value
proposition I will be delivering?” This block outlines how your business will make
money. You can have more than one revenue stream also, and it is important that all of
them are included here. For example, sales, subscription, licensing, etc.

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6. Key Resources: to fill this block, you first need to ask yourself “What resources are
essential for my business to be able to deliver value to the customer?”. Then, you
must also include the necessary resources to keep your channels and relationship
strategies working. In short, they are all fundamental assets for the maintenance of
the business, such as software, human resources, machines, among others.
7. Key Activities: the purpose of this building block is very similar to the previous one.
Indicate here all the essential activities for your business to work out and deliver value
to the customer. They can be development and maintenance of technologies,
production line, logistics and distribution etc.
8. Key Partners: inform in this block who your business partners are, observing the
motivation of each one, whether they are suppliers, service providers, outsourced
companies, among others.
9. Cost Structure: it is interesting to let this as the last block of the Business Model
Canvas to be completed. By doing so, you will have already defined what the main
activities and resources are so that your business can deliver value to the customer.
Therefore, you will be able to define the costs that these and the other blocks may
involve and, thus, explain them finally.

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