What Is a Business Model Canvas? Business Model Canvas In A Nutshell

The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in the book Business Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

A quick intro to business models

A business model is a way in which organizations capture value. Not only the economic value but also the social values an organization can foster and the cultural values it can sustain in the long run.

In other words, generating a business model isn’t just about how companies make money but how they create value for several players. Unlocking profits for the organization that came up with that business model is one of the critical elements.

There isn’t a single way to design and assess a business model. However, the business model canvas is a holistic model that takes into account nine factors or building blocks.

Alexander Osterwalder proposed the Business Model Canvas.  He’s a  Swiss business theorist that in 2000 together with a team of 470 co-creators in an attempt to create a tool that entrepreneurs could use for their businesses.

The aim of having a sharp understanding of your business model is critical to provide strategic insights about your customers, product/service, and financial structure.

Thus, to take action and iterate the business model until it unlocks value for your organization as a whole.

Let’s take a real case study. I often mentioned the Google business model as a great example. You might like or not the giant from Mountain View.

Yet what made this company so profitable – I argue – was its ability to unlock value for several players in the digital marketing space.

In fact, on the one hand, with AdWords, Google allowed businesses to transparently bid on keywords based on the clicks those ads received.

This allowed companies to disintermediate advertising from intermediaries that were taking up most of the margins (of course now Google gets them).

On the other hand, with AdSense, Google allowed small publishers around the world to monetize their content. All they needed was an AdSense account and enough traffic to start earning money.

Of course, as of today, this model isn’t sustainable anymore for many businesses. In a way, AdSense democratized the ads revenues, which before were only taken by large players. With Google, those profits got shared with content creators.

Also, Google offered the best search experience compared to any other search engine.

Even though it wasn’t the first to take over the market (it was actually among the last movers) Google offered a free service that worked wonders.

The focus on a great search experience was one the most crucial factor in Google‘s success.

Little critical note: Just like professors study birds flight and go around the world to teach birds how to fly while they can’t. So entrepreneurs that tinker on a daily basis with business models might have a better feel for that compared to theorists trying to teach them what a business model is. In short, my point is that you don’t need to get bogged down on its definition or to stick with the business model canvas to assess your business model. You might want to develop your way to look at your business as – if you’re an entrepreneur – there’s none better than you to do that. In short, use the business model canvas as one of the many methods you can use to assess your business. What really matters is that you’ll be able to build a valuable business in the marketplace. 

Going back to the business model canvas Alexander Osterwalder, outlined several prescriptions that form the building blocks for a business model.

Those building blocks enable entrepreneurs to focus on operational, strategic, and financial assessments of their business.

• Successful Types of Business Models You Need to Know

Business model canvas in a nutshell

The nine-building blocks of the business model canvas comprise vital partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Key partners

Who are your key partners/suppliers?

What are the motivations for the partnerships?

It all begins with your partners. If you don’t have the right partnerships in place, you don’t have a business at all. That is the starting point of your business model. Finding the right partners is critical.

The success of your business and the traction depend upon your ability to identify and offer your partners a compelling reason to do business with you.

For instance, if you think about Google, the principal partners are the small publishers part of the AdSense program, together to the businesses that are part of the AdWords network and the users that daily keep going back to the Google search box by giving it critical data to sustain its business model.

If you think about Uber instead, you’ll notice how the key partners are its drivers for which Uber means an additional if not a full-time income as self-employed. Its engineers that keep the platform smooth and running and people that sustain the cause of Uber.

If you think instead at Airbnb, you’ll notice that those key partners aren’t only hosts and travelers that transact each day on the platform. Also, freelance photographers that travel the world to take professional pictures that enrich the user experience of Airbnb are also key players.

When it comes to partners “who” and “why” are critical questions. In short, who’s the niche of people that can sustain your business? And why, so what compelling reason are you giving them? What value do they get from this partnership? It doesn’t have to be just in terms of finances.

Of course, initially, a better deal would do. But it could also be about social values or personal values. For instance, initially for its drivers, Uber didn’t mean right away full-time income. But it also meant more freedom for its drivers to work when they wanted. So initially freedom might have been a critical aspect.

Key activities

What key activities does your value proposition require?

What activities are important the most in distribution channels, customer relationships, revenue stream…?

As innovationtactics.com explains, critical actions for Uber were: 

1. Remove friction from all interactions
2. Scale driver and customer side to reduce idle times for drivers and waiting times for customers
3. Reduce negative externalizes, e.g., bad behaviors on both sides
4. Grow the platform by getting more participants joining
5. Keep participants engaged and stimulate ongoing participation
6. Continue improving the value proposition, e.g., cheaper rides for regular commuters through UberPOOL
7. Look out for complementary value propositions (e.g., car financing, new customer segments, etc.)
8. Deliver on the customer proposition
9. Reduce churn (esp drivers)
10. Expand to more cities (US and global)
11. Analyze the data to fine-tune everything
12. Enhance technological lead and intellectual property to steepen barriers of entry

In short, those are the activities needed to make your value proposition compelling for your key partners. Thus, they can vary from removing friction (think of a marketplace that is hard to use), add features, or make transactions smooth.

In short, the more your organization acts as an enabler of business relationships among several players the more its value proposition consolidates. Thus, anything that solves a customer problem, or satisfies an unfulfilled need would do.

Based on my personal experience from the case studies I’ve looked at the more the value proposition can adapt to several players’ needs, the more it makes a business model become the driver for organizational growth. Take Quora:

The Q&A social network can bring together several partners (users, writers, top writers, publishers/online businesses, and investors) with different value propositions; all met on the same platform.

Value proposition

What core value do you deliver to the customer?

Which customer needs are you satisfying?

Although the value proposition is not listed as the first element. In reality, this is the first thing you should assess. I’d say this is the foundation of your business model. That is what keeps the blocks together.

Without knowing the core values for your customers or partners and what needs you’re satisfying, or what problems you’re solving for them you might have a product but not a business.

This is connected with the previous building blocks and with the next ones. This is the glue that keeps it all together. As explained in the last point a value proposition doesn’t have to be for only one player, partner, or type of customer.

Take the case of a multi-sided platform like LinkedIn. The value proposition can embrace both sides of the marketplace:

The value proposition isn’t marked in the stone, but it can change over time. As new partners join; and as you tinker with your business model and as new unforeseen needs come about your value proposition might also change.

Customer relationship

What relationship that the target customer expects you to establish?

How can you integrate that into your business in terms of cost and format?

Based on the identified partners and customers you need to assess how to manage those relationships to keep them aligned with their expectations and within your business model.

If you take Uber, as specified by innovationtactics.com it needs to consider four elements to manage their customer relationships. 

(1) the customers(=riders),

(2) the drivers,

(3) the broader public and

(4) regulators.

Each of those relationships will have different dynamics. For instance, drivers might be concerned about safety risks while regulators might be worried about transparency and proper data management.

Another example, if you take the Airbnb business model, hosts are critical to the success of the platform, and concerns like liability coverages are essential for them to keep using it.

That is why hosts are provided with insurance and liability coverage, the “Host Protection Coverage” (of course that might have happened because of some accidents).

https://fourweekmba.com/airbnb-business-model-explained/

Customer segment

Which classes are you creating values for?

Who is your most important customer?

Once you have the previous building blocks in place, it shouldn’t be hard to define for which class of people you’re creating value and what are your most important customers.

It is important to stress that although this is a list of blocks, it is not necessarily meant to be read or assessed in order. In fact, at times you might have some blocks but miss others.

For instance, let’s take the case of a startup that has created an innovative software-based on new, emerging technologies. The startup founders might know for sure that technology is valuable and it will open up market opportunities.

Yet that same founder might not have a clue about who the potential customers might be. This shouldn’t surprise you. Starting up a business doesn’t necessarily mean starting from a problem people have.

That is true in more traditional industries. In tech, the opposite might apply. You have new technology and a product that does many things.

However, you struggle to have that business take off. How to find your customers? Often they will come to you as the interactions with the first customers become more intense. You’ll also refine your service to make it more focused on specific features and needs.

That process of iteration will bring you to the so-called “product-market fit.” This process can be at times painful and time-consuming.

Source: startup-marketing.com

Key resource

What key resources does your value proposition require?

What resources are important the most in distribution channels, customer relationships, revenue stream…?

As we’ve seen the value proposition is the glue that keeps all the blocks of your business model together. Thus, it is critical to assess what financial and human resources to allocate to allow your value proposition to keep your business model going.

For instance, on Airbnb, it is critical to continue growing the offering and the quality of it to give more and more options to travelers. Also, Airbnb has noticed users wanted more experiences. It started to offer a whole new section focused on those experiences.

Distribution channel

Through which channels that your customers want to be reached?

Which channels work best? How much do they cost? How can they be integrated into your and your customers’ routines?

A Peter Thiel might say if you don’t have a distribution you don’t have a product. As engineers are running many successful tech companies, it’s easy to get deluded by the fact that engineering alone can generate a successful business model. This is false!

The business world is a competitive environment. It doesn’t matter if you’re technically skilled if you don’t have the guts to take action in critical moments your business might well sink with your technical skills.

If you take Bring and Page, Google‘s founders, they are engineers, but they are businessmen.

When Google paid  $300 million for keeping its search engine as default choice within Mozilla, when Microsoft was about to steal it, it was an aggressive move to keep one of the most important distribution channels (at the time).

Microsoft was trying to have Bing featured as the default choice of Mozilla. When Google’s founders understood what was happening, they didn’t stop thinking for a second. They didn’t build algorithms to make that decision. They acted out of their guts feelings.

If I had to name what’s the most important asset of any company, the distribution would come first. Finding the distribution channels that best fit your business isn’t a natural process. Traditional channels are word of mouth, paid marketing, and media coverage.

In the digital business world instead, there are channels like SEO, social media, and content marketing. I know you might look at them as marketing tactics and they are. However, those are meant to build distribution channels.

For instance, content can be used as a way to connect with key players in your industry that you’d want to have as business partners. Google can also act as a “distributor” as with a proper SEO strategy can bring a continuous stream of qualified traffic to enhance your business and so on.

Gabriel Weinberg, the author of “Traction” and founder of DuckDuckGo, a search engine that doesn’t track you, has identified 19 channels you can tap into to grow your business.

Zero to One: Sales and Distribution Lessons from Peter Thiel

Cost structure

What are the most cost in your business?

Which key resources/ activities are most expensive?

In the business community often growth is confused for profitability. That is not the case. Many companies that achieved staggering growth rates have failed to be profitable.

This isn’t necessarily bad, but a successful long-term business needs to become profitable as soon as possible. When Google opened its hood in 2004 after its IPO, the numbers were staggering. In terms of growth, revenues, and profitability.

A cost structure is then crucial to allow sustainable long-term growth.

Generally speaking, your customer acquisition cost has to be lower than the lifetime value of your customers. Easy said than done. This connects us to the next, critical building block, the revenue stream generation.

Revenue stream

For what value are your customers willing to pay?

What and how do they recently pay? How would they prefer to pay?

How much does every revenue stream contribute to the overall revenues?

Until you don’t have a stream of revenues coming in you can’t say you have a business. This might seem a trivial point. Yet the way you monetize the company will also affect the overall business model.

There isn’t a single way to generate revenues. You might choose a subscription business model, a freemium, a fee, or membership model. That also depends upon the industry, product, and service you offer.

For instance, Facebook uses a hidden revenue generation model.

In short, the utterly free platform in a way “hides” to its users the way it monetizes. Of course, business people and marketers are well aware of how Facebook makes money as it has been so far a proper advertising channel for many businesses.

However, the average user doesn’t have a clue. Things are changing now that privacy issues and new regulations have brought attention to the Facebook, business model.

Yet for a decade Facebook has benefited from a vast stream of revenues and high profitability without most users ever noticing it.

https://fourweekmba.com/facebook-business-model/

Many might argue that the hidden revenue generation model is the most powerful. And in fact, it has proved so (Google is another example).

Indeed, as Peter Thiel remarks in his book, Zero to One, sales works best when hidden. As none likes to be reminded of being sold something. However, a business model that works, in the long run, needs to be aligned with users’ interests.

Thus, the way you monetize isn’t only about the bottom line but also about the kind of organization you’re building. If the revenue streams you generate provides value and is in line with your users’ interests, there is no need for corporate slogans like “don’t be evil.”

What more? Once you’ve found a revenue stream the works and is in line with your business model you can’t stop there. You need to keep experimenting with new revenue models.

In short, the business model canvas is the starting point for your business, rather than the ending point of your entrepreneurial journey.

Read: Google Business Model Canvas

Key takeaways

The business model canvas is a model that helps you have an overall strategic vision of your business. It is comprised of nine building blocks. Those building blocks are critical to assessing your long-term strategy.

This is one of the methods you can use. To sum up, the nine building blocks are:

• Key partners
• Key activities
• Value proposition
• Customer relationship
• Customer segment
• Distribution channel
• Cost structure
• Revenue stream

Each of those blocks is not independent of the other. In fact, in many cases, they are strictly tied to each other.

And from the interactions between them, you can build a sustainable business model able to unlock value for your organization and other players that are part of its growth.

Alternative ways to design, develop and understand a business model

The business model canvas is a good starting point to assess your business or a competitors’ business. It is also a simple tool to leverage if you need to design a sustainable and financially viable business model.

However, that is not the only tool. Alternative tools for business model innovation and design comprise the lean startup canvas, the growth hacking canvas, Blitzscaling business model innovation canvas, and many others.

Leaner canvas

The customer/problem quadrant from the LEANSTACK, also called by its author, Ash Maurya, “leaner canvas.”

A tool like the leaner canvas might be quite useful in the first stage. Where all the building blocks are still missing. And they will probably be lacking for a while.

Thus, at that initial stage, it becomes critical to focus on understanding the problem you’re trying to solve and who you’re solving that for. Once you fine-tune that process you’re ready to move to the next step.

The most important takes from Ash Maurya leaner canvas is a via negativa approach (as Nassim Nicholas Taleb explains in his book Antifragile, via negativa is about focusing on the things you might want to remove), where you need to limit your focus to the problem rather than having a pre-conceived solution to it. Thus avoiding to fall in what Ash Maurya called in our interview the “Innovator’s Bias.”

Lean startup canvas

Once you fine-tune the process of truly understanding the problem, it might make sense to move to the next building blocks to test some of the assumptions underlying the business you’re building.

Assumptions can make or break a business.

While in the past or when financial resources are easily available to companies, it is possible to hold these assumptions for a long time (until you won’t run out of cash or potential investors interested in your business) in a beautifully drafted business plan.

For a company with limited resources, gathering feedback from customers, mastering the problem, and building a solution on top of that becomes a key element. Therefore, the Lean Canvas by Ash Maurya helps do that:

The Lean Canvas is a variation of the Business Model Canvas by Alexander Osterwalder, put together by entrepreneur and author (Running Lean and Scaling Lean) Ash Maurya. 

The advantage of the lean startup canvas is the reduction in uncertainty and risk intrinsic to the initial stage of the launch of a business. It’s important to highlight that there is no tool that can remove all the risks.

And entrepreneurship is risky, that’s part of the game. And that is also what makes the opportunity worth it. What these tools should help us achieve is a focus on the things that matter and remove the rest. 

The business world can be very noisy, and if we have a few tools that make us focus on a few key elements those are welcome. Thus, with a tool like the lean canvas, as you start reiterating on a measuring whether the product or service delivered to your audience is a solution to their problems.

You can track that by looking at key metrics. This model is well suited for those that want to grow a lean organization by limiting the risk of running a business based on too many assumptions and with an approach that is driven by your customers’ needs.

Growth hacking canvas

Another tool that might work instead, if you want to accelerate the growth process, via a framework that is designed to test and prioritize marketing channels to enhance growth, the growth hacking canvas:

The growth hacking canvas also built on top of the business model canvas and similar to the lean startup canvas, it has an additional layer in comparison to the latter as it allows to identify a set of actions to undertake to measure, assess and speed up growth.

Growth marketing is a key ingredient for the success of any business in the current landscape. It is also the first move toward a 10X growth thinking for your business.

Blitzscaling business model canvas

The last tool, you can use for your business is called Blitzscaling business innovation canvas. I put together this framework after reading the book Blitzscaling, by LinkedIn co-founder Reid Hoffman.

The Blitzscaling canvas aims to design an innovative business model to generate aggressive growth. More precisely Blitzscaling prioritizes speed over efficiency and makes of massive growth its primary objective.

Thus, in a climate of uncertainty where competition or the market might threaten your business, any delay might mean the death of your business. Then the Blitzscaling framework might be the best suited to face that scenario:

Blitzscaling tells you that – in some particular circumstances – if you want to scale a business, you’ll need to leverage a few elements, among which business model innovation plays a key role.

This business model will need to be built around four growth factors (market size, distribution, high gross margins, network effects) and to avoid the to primary growth limiters (lack of product/market fit and operational scalability).

Blitzcaling is well suited if you’re trying to scale a business and bring it to a billion-dollar business as quickly as possible. This is only suited to a few scenarios, where the company is in a place to doing or dying. Thus, this framework might be both a defense and an attack mechanism.

FourWeekMBA Two-Deimensional Business model

The key components of any business model according to the FourWeekMBA analysis are: 

• A compelling value proposition: How do you want your people to think about your brand?
• A unique brand positioning: What do you offer to your people that make them want more?
• A 10x goal setting: Can you offer a 10X better product or service? (compared to existing solutions)
• Customer segments: Who is your customer? (to notice here we’re not talking anymore about people but customers, those willing to pay for your product or service)
• Distribution channels: How do you get your product or service to your customers?
• Profit formula: Is the business financially sustainable?

This business model framework by FourWeekMBA has four aims:

• simplicity: heuristics-based rather than complex models
• noise reduction: choosing a few key data points, rather than looking at a massive amount of data that only adds noise and paralyze decision-making processes
• branding and distribution: looking at a business model as a systematic way to build a strong distribution network and a strong brand. The two things walk hand in hand
• and profitability: the financial viability of a business model is a key element for its success

In short, according to this framework, there are two dimensions of a business:

• The people dimension
• The financial dimension

These two dimensions walk hand in hand.

Yet the people side is also what makes the business thick from the economic standpoint.

The people side comprises the following elements:

• A compelling value proposition: How do you want your people to think about your brand?
• A unique brand positioning: What do you offer to your people that make them want more?
• A 10x goal setting: Can you offer a 10X better product or service? (compared to existing solutions)

This people dimension will help you build a solid brand. A solid brand builds up a tribe, a group of people that can follow you anywhere. Once you have a solid brand, you can focus on the second dimension: the financial dimension.

The three elements of the financial dimensions are:

• Customer segments: Who is your customer? (to notice here we’re not talking anymore about people but customers, those willing to pay for your product or service)
• Distribution channels: How do you get your product or service to your customers?
• Profit formula: Is the business financially sustainable?

3c Business Model Analysis 

Another way to look at business models is through the 3c model analysis, where the three components that make up the business model are customers, competitors, and company. The 3C Analysis Business Model was developed by Japanese business strategist Kenichi Ohmae. 

Platform Canvas

VTDF Framework

What tool to use?

What tool to use to design your business model will depend on what is that you’re after. In this guide, you have enough material to get going with your business.

Business model tools can be used for several reasons:

• Analysis: imagine you are a business analyst trying to make sense of a company, a tool like the business model canvas is a great framework to start with as it gives you a clear path to follow.
• Entrepreneurship: if you’re an entrepreneur trying to build a valuable company than using tools like the leaner canvas or the lean canvas is probably a good starting point.
• Business innovation: if you’re looking for the recipe to build an innovative business, intended as a company that finds new ways to build value for its customers, both the business model canvas to study existing successful businesses, in other fields might be a good starting point. In many cases, business innovation is about finding the right mix of existing patterns. Or transposing things that have been done in other faster industries, in a slower, and less attractive industry.
• Business acumen: if you want to just improve your business acumen, I’d suggest not using any particular tool, but rather keep your mind open to the things you might stumble upon. Look at financials, at data, look at entire industries and try to absorb as much as you can. Once the process becomes automatic and almost unconscious your mind will know how to make sense of that!

Keep it creative

One of the biggest mistakes people make (I do it as well) is to fall in love with particular tools, methodologies, and instruments. But those are just tools, that while helpful to get us started and give us a clear path, they might also limit our understanding.

The real world is extremely messy and it requires an open approach, where you are able to look at different aspects, angles, and perspectives. Only when you leave the process creative, and you leave space to test many things out, eventually you might stumble on incredible business discoveries!

Alternatives to the Business Model Canvas

FourWeekMBA Squared Triangle Business Model

This framework has been thought for any type of business model, be it digital or not. It’s a framework to start mind mapping the key components of your business or how it might look as it grows. Here, as usual, what matters is not the framework itself (let’s prevent to fall trap of the Maslow’s Hammer), what matters is to have a framework that enables you to hold the key components of your business in your mind, and execute fast to prevent running the business on too many untested assumptions, especially about what customers really want. Any framework that helps us test fast, it’s welcomed in our business strategy.

FourWeekMBA VTDF Framework For Tech Business Models

This framework is well suited for all these cases where technology plays a key role in enhancing the value proposition for the users and customers. In short, when the company you’re building, analyzing, or looking at is a tech or platform business model, the template below is perfect for the job.

Download The VTDF Framework Template Here

FourWeekMBA VBDE Framework For Blockchain Business Models

This framework is well suited to analyze and understand blockchain-based business models. Here, the underlying blockchain protocol, and the token economics behind it play a key role in aligning incentives and also in creating disincentives for the community of developers, individual contributors, entrepreneurs, and investors that enable the whole business model. The blockchain-based model is similar to a platform-based business model, but with an important twist, decentralization should be the key element enabling both decision-making and how incentives are distributed across the network.

Download The VBDE Framework Template Here

Business model case studies:

• Amazon Business Model
• Microsoft Business Model
• Netflix Business Model 
• LinkedIn Business Model
• Google Business Model
• Facebook Business Model
• Spotify Business Model
• Uber Business Model
• Lyft Business Model
• DuckDuckGo Business Model
• ALDI Business Model
• Apple Business Model
• TOMS Business Model
• Pinterest Business Model
• Telegram Business Model
• TripAdvisor Business Model
• Booking Business Model

Read Next: Business Model Innovation, Business Models.

Related Innovation Frameworks

Business Model Innovation

Innovation Theory

Types of Innovation

Continuous Innovation

Disruptive Innovation

Business Competition

Technological Modeling

Diffusion of Innovation

Frugal Innovation

Constructive Disruption

Growth Matrix

Innovation Funnel

Idea Generation

Design Thinking

FourWeekMBA Business Toolbox

Business Engineering

Tech Business Model Template

Web3 Business Model Template

Asymmetric Business Models

Business Competition

Technological Modeling

Transitional Business Models

Minimum Viable Audience

Business Scaling

Market Expansion Theory

Speed-Reversibility

Asymmetric Betting

Growth Matrix

Revenue Streams Matrix

Revenue Modeling

Pricing Strategies

Read Also:

• Business Strategy Examples
• Business Models
• What Is a Value Proposition?
• Business Model Innovation

What is a business model canvas?

The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in the book Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

How do I create a canvas model for my business?

By going through the nine building blocks proposed by the business model canvas (key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams) you can have in one page the whole representation of a business.

What is cost structure in business model canvas?

The cost structure building block in the business model canvas asks the questions, “What are the most cost in your business?” and “Which key resources/ activities are most expensive?” Thanks to the cost structure building block, it is possible to look at the vital resources and cost centers of an organization.

What is Lean Canvas model?

The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.