A Business Model Canvas (BMC) is a concept developed by business theorist Alexander Osterwalder in 2004 as an alternative to complicated business plans. In 2020, the approach is widely used by both startups and large global corporations at the strategic management level.
Why is the tool so popular? A Business Model Canvas template is simple, highly standardized, and easy to comprehend. It requires minimal time to fill in the template and you can use any type of tool to work on BMC including Google Documents, paper, or advanced instruments like Strategyzer and Canvanizer.
Read this article to learn how to define your business concept using the BMC approach and evaluate its potential.
What Is a Business Model Canvas?
Companies should focus on one of three value disciplines: operational excellence, product leadership, or customer intimacy...Alexander Osterwalder
A Business Model Canvas is an innovative yet simple tool to work with new business ideas and concepts with or without a team.
The original idea of BMC belongs to Alexander Osterwalder who is a Swiss business theorist, author, and entrepreneur.
Alexander Osterwalder also wrote a number of books for founders and entrepreneurs. The Business Model Ontology and Business Model Generation: A Handbook For Visionaries, Game Changers, And Challengers are his most prominent and influential works.
In brief, writing a business model with a BMC tool means working with a one-sheet canvas (a set of boxes or a single tablet), with the right half focused on customer issues and the left half dealing with business processes and resources. A classic BMC template is also called a Lean Startup Canvas, as it perfectly fits the Lean Startup concept. To learn more about it — check out our article How to Start a Startup.
Do not confuse BMC with a business model framework that can take various forms including a block scheme, a classic table, or a huge presentation. In general, a business model framework shows how the business works, instead of proving if it could be profitable.
The idea behind a Business Model Canvas is to present one’s business plan briefly, clearly, and completely.
The BMC approach helps a team to focus on 9 core business operational aspects:
- Customer segments
- Value proposition
- Customer relationships
- Revenue streams
- Key activities
- Key resources
- Key partnerships
- Cost structure
That is essential that all of these elements are described on the same page so the canvas will provide your team a coherent view of a newborn business concept. There are lots of so-called “Benchmark” Business Model Canvas examples across the Internet (Twitter, Uber, BMW, and many others), but we recommend that you learn by trying to craft your own canvas. Keep in mind that the BMC is a flexible tool. For example, you can use it to present your startup idea to investors. Explore business pitch tips here — How to Pitch an App Idea to Investors.
Business Plan Canvas: Start with Customer Segmentation
Customer segmentation, also called ideal client portrait (ICP) creation, is the first step to building your business plan canvas. Alexander Osterwalder in his prominent book called Value Proposition Design: How to Create Products and Services Customers Want wrote:
Your customers are the judge, jury, and executioner of your value proposition. They will be merciless if you don’t find fit!
So it’s no wonder that the Customer Segment section needs to be filled out at the very beginning.
There are 3 aspects you have to cover while defining your ideal customer:
- Do you have several segment dimensions within your business model?
You may opt for a single or multi-sided market, which means you can sell different types of products to different types of customers. Take any Freemium app like YouTube. End users pay YouTube to watch videos without ads and companies pay YouTube to show their ads to users.
- Define target audience segments
To answer the question of how to make a business model start with the very basics. Most products do not have a homogenous (homogeneous) audience. So your task is to separate segments by age, gender, geography, reason to use your future product, and other factors. Think of real people you are going to sell your product to. Learn more on this topic — How to Write a Tech Startup Business Plan.
- Creating a detailed ideal client portrait
If you are still puzzled over how to create a business model, focus on ICP which includes the list of problems, fears, pain points, needs, daily habits, and options to resolve their problematic issues right now (without your product). At this stage, think of your value proposition, analyzing target audience needs and substitute product vulnerabilities. You’ll need this observation later.
Business Model Canvas: Key Partners
When creating a BMC for your startup you can’t avoid mentioning strategic partners that will make it possible for you to launch and maintain your project. What is the Business Model Canvas in relation to short and long-term partnerships? Here, we are speaking about your ability as a business owner to reach key partners and build a relationship with them. Keep in mind that not all of your potential partners are strategic ones.
Let’s find out how to make a business model for a startup and see what categories of key partners there are:
- Buyer-suppliers are about exchanging strategic goods between parties. If you have a reliable supplier, that means you can establish a sustainable production flow. Example: you plan to sell smart home equipment with custom features so you need a hardware supplier and an electronic store network as key partners.
- Strategic alliances (with non-competitors) are about long-term exclusive collaborations with other businesses. Example: as a smart home apps developer you can cooperate with design and construction companies that can integrate your tech solution into their products and provide their clients with a special price for such projects.
- Joint-ventures are close to strategic alliances, however, here we are speaking about full product integration. Example: your product API could be used by third-party apps exclusively filling gaps in its features.
- Coopetition is a strategic alliance between competitors that help them to expand their market niche and reach more users with their innovative solution. In this case, companies share risks when launching something truly new and experimental. Coopetition is also a form of situational marketing for huge brands. Example: Google products for iOS.
Key Activities: Business Model Development
Key activities are something you need to focus on while going deeper into your business operating details. By this time you need to have a general vision of your value proposition and your target market. If you are facing difficulties trying to figure out how to design a business model at this stage, look at your business from your team perspective. In other words, ask yourself what tasks your departments are supposed to execute.
On the pages of Business Model Generation by Alexander Osterwalder, you’ll find the following categories of your business activities. Your startup may fall into all or just one of them:
- Production. Verification questions: Do you produce any goods? What actions do you need to take in order to complete an item? Business example: Tesla.
- Problem-solving. Verification questions: Do you help others to deal with their goods or other things? What actions should your team execute to meet clients’ needs and expectations? Business examples: McKinsey & Company.
- Platform. Verification questions: Do you host other businesses or clients’ data? What do you need to maintain your platform? Business examples: Facebook and Airbnb.
To build a complete business plan canvas, list all the activities required to deliver the key value proposition to your potential customers. A significant slice of your startup budget will be spent on them. Consider marketing aspects such as customer base development and internal process management (hiring employees and maintaining teams).
Revenue Streams, or Where to Get Money
Another essential section of your BMC is called revenue streams. Your startup might have just one source of income or it could use several revenue models at once. Lately, revenue streams will define your Business Model Canvas key resources. Learn more about where to get money for or out of your startup idea from our article How to Monetize Your App Idea and here, we’d like to briefly mention the most common revenue models for tech startups:
- In-app ads. You sell your product audience to third-party companies directly or through native ads providers.
- Commission. If you build a platform for sellers and buyers, you can charge a commission from sales.
- Subscription. Sell access to your tool on a monthly or yearly basis. This approach could be part of a Freemium monetization model where users can get access to limited features for free and use advanced functionality within the subscription plan.
- Sponsorship. Are you planning to build an innovative product that has the potential to shake the global market? In most cases, products of this kind are not able to become profitable at once and need significant investments. Ask big brands for sponsorship or make a deal with an investor. Learn more — How to Pitch an App Idea to Investors.
- One-time fee. This is the most common revenue model if we are speaking about material production. You simply sell your product to end-users and that’s it. However, you could also use this approach on the tech market (example: one-time purchase paid apps or some SaaS products).
- White label. Create a basic white label product and then sell it to third-party companies in a certain business area. This approach works well for apps dedicated to typical B2C services: booking apps for restaurants, online shop apps, and apps for local on-demand services.
The cost structure of your business model should be based on the key activities and revenue streams you choose. Keep in mind that you can also use a blended revenue model which means you mix several types of monetization. The most widely-spread options: subscriptions plus advertisement and sponsorship plus a one-time fee.
Your Value Proposition
A Value Proposition creates value for a Customer Segment through a distinct mix of elements catering to that segment’s needs. Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience).Alexander Osterwalder
A value proposition is the essence of your business model, so it’s impossible to avoid its clear description while building your Business Model Canvas. In brief, it’s about providing your target customers with reasons to buy your product, buy it again, and share their positive feedback about their purchase with others. A well-thought value proposition is a combination of your product features that helps customers solve their problems.
Check if your proposition description is short and understandable both for your team and potential customers.
If it sounds like your product motto or advertisement tagline, you have done everything right (examples: “Free, fast, detailed and entirely offline maps with turn-by-turn navigation for travelers” by Maps.me or “A community-based online platform that facilitates the process of booking private living spaces for travelers” for Airbnb). Key Resources in Business Model Canvas (the section we’ll speak about later) are defined by your key value proposition.
If you plan to launch a multi-sided platform, you are supposed to have several customer segments. In this case, use different value propositions for each of them (Uber example: “A tool that helps to get around anytime and track the driver arriving” is a value proposition for riders and “A tool to earn with your car, choosing any work hours” is a value proposition for drivers. More about this — Uber-like App Development.
The next step is to create a full list of value propositions for every segment and then prioritize them. Almost no digital product has just one value for users, however, every product has a key one. Note that your Business Model Canvas customer relationships depend on the value propositions you’ve found for your product.
Channels: Business Model Canvas
The Channels’ section is not only about your product distribution, but also about your cooperation with potential customers in general. How can you deliver your value proposition to your different customer segments? Find the answers by thinking about each phase of channel development as described by Alexander Osterwalder:
- Awareness. Ask yourself how your potential users are supposed to get to know about your solution. You may use social media, classic advertising, blogging, or something else.
- Evaluation. Your target audience should find your value proposition valuable in order to buy your product. There are some good old methods to provide them with a sense of positive experience connected with your digital product: free trials, case studies, and comprehensive product guides or overviews.
- Purchasing. Make sure your potential customers will be able to purchase your product and which purchasing experiences will be possible. Think of how to make the process of charging them stress free and flawless. Test your payment systems or use reliable distributors such as Google Play Market or App Store.
- Delivery. Most software products do not require delivery. However, they will need integration or downloading and launching on the user’s hardware. Provide users with support services for newcomers to avoid negative feedback.
- Support. Users need to have a tool to resolve their problematic issues, cancel their subscription, report a tech problem, or simply ask for advice. Set up proper onboarding for all customer segments. In 2020, a good idea for cost-effective post-purchase support is a chat bot. Review your customers’ product opinions regularly.
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Key Resources: Business Model Canvas
The Key Resources section is about your potential to bring the whole business concept to life. If you do not have enough resources to produce your product, deliver, and maintain it, you are not likely to gain projected revenue. According to Osterwalder’s Business Model, resource planning has a direct role while developing your Business Model Canvas.
There are 4 types of resources. Software development businesses typically rely on just 3 of them. However, we’ll describe all categories below:
- Physical (tangible) resources
example: hardware, office, and industrial buildings, production equipment, furniture, corporate vehicles
- Intellectual resources
example: knowledge base, copyrights, licenses, cloud services, software, and other subjects of intellectual property
- Human resources
example: managers, engineers, customer support managers, marketing specialists, QA experts, and others
- Financial resources
example: funds, venture capital investors, loans, projected income
Examples of Business Model Canvases (take Netflix, PayPal, or WhatsApp) in the software development field you may find across the internet are mainly based on human and intellectual resources, which are usually interconnected. Companies that work with the production of physical goods are usually infrastructure-based.
At the same time, most startups need significant financial resources to become unicorns and win the global market. Financial limitations at the deployment and marketing stages can result in a rapid business takeover by competitors. Learn more on this topic from our blog article — How to Pitch an App Idea to Investors.
BCM Customer Relationships
What is the Business Model Canvas Customer Relationships section? This section could be confused with the one regarding Channels, however, the distinct difference is that customer relations are about what messages and values you communicate and channels are about what means of communication you use.
At the same time, some Channel phases such as Awareness and Support are closely connected with the relationship development between customers and your product. A standard Business Model Canvas template described within the Business Model Generation book by Alexander Osterwalder talks about 5 cases of relationships with customers. Your particular business case may fall into one or several of them:
- Personal assistance
examples — White-Label software, premium eBanking area, legal assistance, telemedicine projects, SaaS
In this case, users should have the option to contact you at any time and get personalized assistance. Your customers can use a built-in messaging tool, email, phone, video chat, or chatbot designed especially for those cases. A 24/7 client support team is also a wide-spread solution.
Business Model Canvas examples — Facebook, Google, Uber, and TikTok
It’s the most cost-effective approach, that’s why social networking platforms as well as a significant number of global companies apply it as a core model. Self-service means that your product has intuitive UI and UX, as well as an advanced onboarding guide, so there’s only a very small possibility that a user might want to ask for assistance. In order to get help, the user goes to FAQs. Direct communication with a support team is also possible but it’s not usually required.
- Automated service
examples — Spotify, Netflix, Daily Yoga, and Pokémon Go
Most multimedia apps maintain relationships with users by applying AI-based technologies that suggest to users content to watch or listen to. However, machine learning and AI are not the only way to provide customers with a 100% automated service. No-coach yoga and fitness apps for those who stay at home usually do not require third-party assistance.
examples — Oracle, Spark AR Studio, Ruby, and Reddit
You may facilitate your own community and use it not only to retain clients but also to save on customer service. Create a platform where your users can discuss issues connected to your product, share thoughts, and learn more about how to get the maximum out of your product. They become an active participant in your official community and may attain ‘Super-user’ status.
examples — Wikipedia, YouTube, HiNative, and Quora
Your service can be also based on user-generated content created by your users. If your product allows others to contribute to it in an informational or other way, you should use it to your advantage. Make sure that you have made everything to match content creators to those who need it.
Cost Structure for Business Model Canvas
The Cost Structure part within your BMC represents the main types of spending and helps you to understand how much money you need to start your project. It is also the final part of your canvas.
If you are stuck with the question of how to make a business model while working on your cost structure, check out some facts about your industry and the cost structuring approaches that are common for it. For instance, before-launch marketing expenses of apps like Snapchat, Tinder, and Venmo were about 30% of their initial budget while less than 20% was dedicated to software development and research. To learn more about dating app development read our blog article How to Create an Application Like Tinder.
There 3 types of expenditure your BMC Cost Structure may include and they are related to your key activities:
- Capital costs
Costs for purchasing or upgrading the physical resources mentioned previously. Capital costs include the purchase of fixed assets and business equipment as well as the acquisition of intangible assets like licenses.
- Overhead costs
The Operational budget for covering your ongoing resource consumption. They should not be linked to creating a product or service directly. Example — accounting fees, insurance, legal fees, rent, taxes, and travel expenditures.
- Staff costs
This costs type includes resources for hiring, training, and retaining specialists. Other spending connected with staff maintenance (for instance, HR department initiatives) also belong to this type. One more useful article on this topic — How to Hire Dedicated Developers.
Keep in mind that writing a business model also means prioritizing. Decide which items are more or less important within your cost structure. At this stage, you don’t need precise calculations, so focus on the general Cost Structure concept.
When and How to Use the Business Model Canvas
A Business Model Canvas is a simple yet powerful tool for those who are planning to develop their first startup, as well as for experienced business people that are creating a new business branch. The BMC approach has lots of advantages:
- It requires minimal time to create your own Business Model Canvas (especially compared to a classic business plan).
- BMC helps to structure your project vision and share it with your team. As a result, you can start discussing the general concept of your startup immediately and get team feedback. You can also build a startup pitch around your BMC.
- You can focus on a relevant value proposition and link it with the required resources, necessary business activities, and other aspects of your potential startup.
- A Business Model Canvas will help you to understand your startup idea better, find mistakes at the early stages, and clarify what you need to do next.
- A BMC document is easy to keep and share. If you find that you are not ready to implement your idea right away, you can keep the document until the time is right to develop your vision, network, or basic resources.
Since you already know how to create a business model, you are ready to practice using it for various purposes. There are at least 4 situations when it is extremely helpful:
- Startup pitching preparation
Use a BMC document as a guiding star.
- Finding partners
Business Model Canvas will help you to visualize the business connections you require most.
- Checking sustainability and livability (viability) of your idea
You should build your business around the value propositions you’ve found while working on your full-size business plan. Find the key and bottleneck functions of your product and evaluate your ability to maintain such a product.
- Changing and advancing other products
With knowledge of how to create a business model for a startup, you can easily evaluate existing businesses. This skill will help you stay flexible in crisis periods and capture new competitive niches.
- Team meetings and employee onboarding
Use a BCD document to provide others with a clear understanding of your business processes and priorities.
Business Model Canvas Examples
Business Model Canvases work well both for startups and existing well-established businesses (if one decides to change their business course or launch a new product). As usual, companies’ documentation of this kind is not published on the internet, so to illustrate a BMC approach and our suggestions of how to design a business model we have used imaginary canvases for well-known brands and products:
Apple Business Model Canvas
Here, you may find only two customer segments: mass-market buyers and platforms. The main source of revenue is sales, the second one — selling licenses.
Nike Business Model Canvas
Since Nike is a production company, you will find demand creation, manufacturing, distribution, and R&D (research & development) among its key activities.
Airbnb Business Model Canvas
What is the Business Model Canvas of Airbnb? Its value propositions are service convenience, on-demand business nature, extra income for hosts, home insurance (reliability for guests), unique travel experience, more space for less money.
Software to Create a Business Model Canvas
As you can see, BMC is a form of business plan canvas that requires minimal time to be created and can provide you with an overview of your project idea with all its shortcomings and weaknesses.
Originally designed for teams that have meetings in the room with only pens and paper, in 2020, it can be also used online by one or more teammates simultaneously. Obviously, an online BMC document is more convenient than a paper one, as you could share it using a link, add required information later, or update some points after strategic meetings.
The easiest way to create an online BMC for your project is by using Google Docs (or Google Sheets). However, there are numerous tailored online tools that will simplify your tasks and let you fill out the Business Model Canvas Key Resources and other sections with less effort.
This tool allows you to brainstorm online together with your teammates and then export your BMC as a CSV file or an image. Various templates are available. You can also create a Lean Canvas (read more here — How to Build a Minimum Viable Product), customer journey canvas, and other documents of that kind.
25$ per month
Strategyzer has an inbuilt tool that analyzes your revenue streams and other information you have added to your layout and then tells you whether your business idea is stable in terms of finances. You can also create your Value Proposition Canvas and estimate its viability. A Testing dashboard for Lean Startups, portfolio management, and advanced dedicated business coaching are among the major perks of this tool.
free version and 10$ for all features
This simple tool provides you with an infinite number of design options, so you can use it to build your BMC for general product presentation. Templates available — Business Model, Feature Canvas, and Lean Canvas.
up to 16$ per month, depending on the package you choose
Miro is an all-in-one tool for creating project documentation (including BMC), remote collaboration and centralized communication for cross-functional teams. You can integrate Miro documents into most popular tools for collaboration such as Slack, Jira, Google Drive, and Sketch, as well as design a great range of different designs with its help.
Business Model Canvas is a widely used tool to evaluate your business idea viability and analyze what you really need (including activities, strategic partners, resources, and much more) to bring your startup idea to life and maintain your project moving forward.
The BMC approach is applicable for business concepts in any area with App development being no exception. As Alexander Osterwalder in his book Handbook for Visionaries, Game Changers, and Challengers wrote:
Crafting a business model is no different. Ideas placed in the Canvas trigger new ones. The Canvas becomes a tool for facilitating the idea dialogue—for individuals sketching out their ideas and for groups developing ideas together.
We at LANARS suggest that you use a Business Model Canvas to create a competitive product, find gaps in your business concepts in the early stages, and collaborate with your teammates efficiently. You can also use it to see your project from a customer’s perspective and prioritize your primary actions and goals. Good luck on your startup journey and keep in mind that we are always here to handle your software-related tasks!
Business Model Canvas (BMC) is a strategic management approach that helps to analyze the viability of your business concept. BMC is an alternative to classic business plans and it requires significantly less time to create this document as it should be no larger than one printed page.
The Key Resources section of your BMC answers the questions that you need to possess in order to launch and maintain your project. There are 4 categories of such resources: physical (tangible), intellectual, human, and financial.
Check out Business Model Canvas samples created for some famous brands (Apple, Uber, Airbnb, or LinkedIn) and use an online tool to create a canvas. You can use Google Docs or Google Sheets, however, there are more specialized tools like Canvanizer and Strategyzer. Some of them are free.
The Value Proposition section within your BMC describes why your target customers will buy your product and share their positive feedback about their purchase with others. It is a combination of your product features that helps customers solve their problems in a better way than your competitor’s product does.
The Cost Structure section represents the main types of your expenditure and helps you to understand how much money you need to start your project. There are 3 types of costs: capital, staff, and overhead.
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