The Easy Guide to the Business Model Canvas

( Look at the website itself)

Lecture Objectives
In this lecture, we will look at
1) what is a business model canvas?,
2)  The traditional approach to a business model,
3) The 9 building blocks,
4) why to use the business model canvas
5) applying the business model canvas.
 Business Model Canvas: A Complete Guide

*A business model describes how a company

creates, delivers and captures value.
*There has been an increasing need for an
uniform template to define and discuss the
business model.
*This template should be applicable to new and
old businesses alike, across industries.
Business Model Canvas
 WHAT IS A BUSINESS MODEL CANVAS?

The Business Model Canvas, developed by

Alexander Osterwalder, is a visual representation
of current or new business models, generally
used by strategic managers.
The Canvas provides a holistic view of the
business as a whole and is especially useful in
running a comparative analysis on the impact of
an increase in investment.
 THE 9 BUILDING BLOCKS

The Business Model Canvas categorizes the processes

and internal activities of a business into 
9 separate categories, each representing a building block
in the creation of the product or service.
These categories represent the four major aspects of a
business; customers, offer, infrastructure, as well as
financial viability. All 9 categories are listed and
explained below.
 1. Customer Segments

The total customer pie is divided into segments

based on the manner in which an organization’s
products or services address a specific need for the
segment.
The customer segment is an essential part of an
organization’s business model and is key to ensuring
that the product features are aligned with the
segments characteristics and needs.
  Customer Segments cont
To carry out an effective customer segmentation, a
company must first know its customers, both through
their current and future needs.
Then the organization must list its customers in terms of
priority, including a list of potential future customers.
Finally, the company should do a thorough assessment of
its customers by understanding their strengths and
weaknesses and exploring other kinds of customers who
may benefit the company more if they are to focus on
them.
Various customer segments are as below;

 1- Mass Market:
 A business model that focuses on mass
markets doesn’t group its customers into
segments. Instead, it focuses on the
general population or a large group of
people with similar needs. For example, a
product like a phone.  
Niche Market

 2- Niche Market:
 Thiscustomer segment is based on highly
specific needs and unique traits of its clients.
An example of an organization with a niche
customer segment is buyer of sport shoes
Segmented market

 3- Segmented:
 Based on slightly different needs, there
could be different groups within the main
customer segment. Accordingly, you can
create different value propositions,
distribution channels, etc. to meet the
different needs of these segments.   
Diversified Segment

 4- Diversified:
A diversified market segment includes
customers with very different needs. 
Multi-Sided Platform/ Market

5- Multi-Sided Platform/ Market:

 This kind of segment serves customers who
have a relationship to each other, this includes
interdependent customer segments. For
example, a credit card company caters to
both their credit card holders as well as
merchants who accept those cards.
 2- Value Propositions

This is the building block that is at the heart

of the business model canvas. And it
represents your unique solution (product or
service) for a problem faced by a customer
segment, or that creates value for the
customer segment.
Value proposition
A value proposition should be unique or should be
different from that of your competitors. If you are
offering a new product, it should be innovative and
disruptive. And if you are offering a product that
already exists in the market, it should stand out
with new features and attributes. 
Value propositions can be divided into two
categories:
 Quantitative: this stresses the price or efficiency of the
product or service
 Qualitative: this value proposition highlights the
experience and results the product and its use, produce.
The value proposition provides value through a number

of attributes such as customization, performance, “getting

the job done”, brand/ status, design, newness, price, cost
and risk reduction, accessibility, as well as convenience/
usability.
 Value Propositions cont
When creating your product’s value proposition,
the first question an entrepreneur must ask himself
is, what problem he is solving through his offered
product or service. Then one needs to look into how
the product, service or overall experience can be
improved so that it provides greater value than the
competition. Finally, it is imperative to identify the
core value that your business provides.
 3. Channels

The medium through which an organization provides

its value proposition to its customer segment is known
as a channel. There are various options for channels
available to an organization, and the selection is based
on the channel that is the quickest, most efficient with
the least amount of investment required.
There are two basic kinds of channels; Company
owned channels such as store fronts or Partner Channels
such as Distributors. A company can choose either one
or employ a combination of both.
 4. Customer Relationships
An organization must select the kind of relationship it
will have with its customer segment in order to create
financial success and sustainability.
Customer Relationships can be categorized as follows;
1-Personal Assistance:
In this kind of relationship the company interacts with the
customer directly through an employee who provides the
human touch by assisting the customer presale, during the
sale and even may provide after sales services.
Cont.
2- Dedicated Personal Assistance:
This kind of relationship is characterized by a
very close interaction between the customer and
the company through a dedicated representative
who is assigned a set of clients and is personally
responsible for the entire experience the
customer has with the company.
Cont.
3- Self-Service:
Self-Service places the onus of the customer experience
on the tools the company provides for the customer to
serve him or herself.
4- Automated Services:
These are customized self-service relationships where
the historical preference of the customer is taken into
account to improve the overall experience.
Cont.
5- Communities:
In today’s electronic age creating communities
of clients allows organizations to communicate
with them directly. This allows for an enhanced
client experience because the community allows
clients to share their experiences and come up
with common challenges and solutions.
Cont.
 6- Co-creation: here the company allows the
customer to get involved in the designing or
development of the product. For example,
YouTube has given its users the opportunity to
create content for its audience. 
Cont.
You can understand the kind of relationship
your customer has with your company through
a customer journey map. It will help you
identify the different stages your customers go
through when interacting with your company.
And it will help you make sense of how to
acquire, retain and grow your customers.
A customer journey map
 5. Revenue Streams
Revenues streams are the sources from which a
company generates money by selling their product
or service to the customers. And in this block, you
should describe how you will earn revenue from
your value propositions.  
 A revenuestream can be created through the
following ways;
 1- AssetSale: the company sells the right of
ownership over the good to the customer.
Cont.
 2- Usage Fee: the company charges the customer for
the use of its product or service.
 3- Subscription Fee: the company charges the
customer for the regular and consistent use of its
product or service.
 4- Lending/ Leasing/ Renting: the customer pays to
get exclusive access to the product for a time-bound
period.
Cont.
 5- Licensing:
 The company charges for the use of its intellectual
property.
 6- Brokerage Fees:
 Companies or individuals that act as an intermediary
between two parties charge a brokerage fee for their
services.
Cont.
 7- Advertising:
 A company charges for others to advertise their

products using their mediums.

When setting up revenue streams, it is important to

recognize that an effective price for the product and/or

service will be arrived at through the process of
elimination. Different trials of prices should be listed
and evaluated. It is important, in the end to take a break
ad reflect on possible avenues open to you as a business.
Cont.
A revenue stream can belong to one of the
following revenue models,
 Transaction-based revenue: made from
customers who make a one-time payment 
 Recurring revenue: made from ongoing
payments for continuing services or post-sale
services
 6. Key Resources
These are the assets of the organization fundamental to
how it provides value to its customers. Resources can be
categorized as human, financial, physical and
intellectual.
There are several types of key resources and they
are 
 Human (employees)
 Financial (cash, lines of credit, etc.)
 Intellectual (brand, patents, IP, copyright) 
 Physical (equipment, inventory, buildings) 
Cont.
For an entrepreneur, it is important to begin with listing
your resources. This gives you a clear idea of what final
product or service your company needs to create for the
customer and which resources are needed, resulting in
cost savings for your company. Once the final list of
resources is available, the company can decide on how
much it needs to invest in these key resources to operate a
sustainable business.
 7. Key Activities

Activities that are key to producing the company’s

value proposition. An entrepreneur must start by
listing the key activities relevant to his/her business.
These activities are the most important processes
that need to occur for the business model to be
effective. Now it is important to evaluate which
activities are key by adding or removing some and
evaluating their impact.
Key activities
There are 3 categories of key activities;
 Production: designing, manufacturing and delivering a
product in significant quantities and/ or of superior quality. 
 Problem-solving: finding new solutions to individual
problems faced by customers.
 Platform/ network: Creating and maintaining platforms.
For example, Microsoft provides a reliable operating
system to support third-party software products. 
 8. Key Partnerships

To create efficient operations and reduce risks

associated with any business model, an
organization forms partnerships with its high-
quality suppliers. Key partnerships are the network
of suppliers and partners who complement each
other in helping the company create its value
proposition. Partnerships can be categorized as
follows;
Cont.
 1-Strategic alliance between competitors (also known
as coopetition),
 2-Joint ventures and
 3-Relationships between buyers and suppliers.
An entrepreneur must begin by identifying its key

partners followed by making future partnership plans.

This can be done through an evaluation of the partnership
relationship to judge which characteristics of the
relationship need improvement and what kind of future
partnerships will be required.
 9. Cost Structure

This defines the cost of running a business

according to a particular model. Businesses can
either be A)Cost driven i.e. focused on minimizing
investment into the business or
B)value driven i.e. focused on providing maximum
value to the customer. The first step for an 
entrepreneur is to obviously identify all costs
associated with the business. A realistic
understanding of the costs of the business is one of
the hallmarks of a good business model.
 Cont.

Following are some traits of common cost structures;

 Fixed Costs: costs that remain the same over a period
of time
 Variable Costs: as the name suggests, these costs
vary according to a variance in production
 Economies of Scale: costs decrease as production
increases
 Economies of Scope: costs are decreased by
investing in businesses related to the core product.
WHY TO USE THE BUSINESS MODEL CANVAS

 Easy Visual Thinking

 Repeat Quickly
 Grasp the relationship between the 9 blocks: 
 Short and simple
 Easy to circulate

Look at Canvas Applications

( Uber , Apple iPod)