Business Model Canvas

10 min readJul 19, 2023

Introduction

If you are looking to start a business, there are two ways you can go about it. You could follow path A or path B. Here’s what path A looks like:

Day 1 of starting a business-> Hit the ground running

Day 2-> Continue running

Day 3 -> Don’t rest. Think and Do.

Very simple instructions right? Except, where are you running to?

Here’s path B

Have a Business Model Canvas!

Path B is a long one but it’s worth it.

What’s A Business Model Canvas?

A business model canvas (BMC) is a strategic visual tool used by businesses to map out their business model. It is a visual chart that consists of nine key components that describe a company’s value proposition, target customers, revenue streams, cost structure, and key activities. The canvas allows businesses to clearly define and visualize their business model in a concise and organized manner.

BMC should not be confused with a business model. While a business model provides a detailed analysis of a company’s operations, a business model canvas is a summary that provides a high-level overview. The canvas is a useful tool for businesses to quickly communicate their business model to stakeholders, investors, and employees. It also allows businesses to evaluate and pivot their business model as needed.

Why You Should Have A BMC

Whether you run a startup or an existing business, you shouldn’t shy away from having a BMC. Here’s why:

1. Provides clarity and focus

The BMC helps to provide a clear and concise overview of your business model. It enables you to identify your key value propositions, target customers, revenue streams, and other essential elements of your business. This clarity and focus help you to stay aligned with your goals and avoid unnecessary distractions.

2. Facilitates communication and collaboration

The BMC is a visual tool that can be easily shared and understood by all members of your team, investors, and stakeholders. It allows you to communicate your business model clearly and concisely, leading to better collaboration and decision-making.

3. Promotes innovation and agility

The BMC allows you to experiment with different business models and scenarios, without committing significant resources. It encourages innovation and agility by facilitating rapid iteration and adaptation of your business model.

4. Helps to identify potential risks and opportunities

The BMC provides a framework to identify potential risks and opportunities for your business. It enables you to assess the feasibility of your business model and make informed decisions about your strategy.

5. Enables better resource allocation

The BMC helps you to identify the resources required to execute your business model. It enables you to allocate resources effectively, leading to better financial management and profitability.

Key Components of the Business Model Canvas

BMC consists of nine interdependent components, including customer segments, value propositions, channels, customer relationships, revenue streams, key activities, key resources, key partnerships, and cost structure. Here’s a brief overview of each component and its role in creating a successful business model.

1. Customer Segments:

This is a critical component of a business model as it contains information on the target audience or groups of customers that the business aims to serve. For your business to thrive, you need profitable customers. Ask yourself these questions: who are we creating value for, what are their pain points, what age group are we targeting, what gender, etc?

2. Value Propositions:

These are the unique products, services, or solutions that the business offers to its customers to address their needs and solve their problems. Your value proposition is what distinguishes you from your competitors especially if you are venturing into a saturated market. This could be a new product, service, or a new way of offering already existing products/ services.

3. Channels:

This refers to how the business delivers its value propositions to its customers. Knowing your target market can help you determine the best channel to use to deliver your products or services. You could have a physical store or an online store, have an active social media presence, use email marketing, etc. You need to understand where your potential customers seek the products/services you are offering. The channel you choose to deliver your products should depend mostly on where your target market usually resides.

4. Customer Relationships:

This is the type of relationship that the business establishes with its customers to build loyalty and retention. According to Forbes, depending on the industry, acquiring a new customer can cost you five to seven times more than retaining an old one. This shows you how important it is to develop a healthy customer relationship. You want to make sure that customers find it easy to reach out to you, especially on the platform they get your products from. For example, an e-commerce website should have a chatbot, most businesses should have a social media presence to reach a larger percentage of customers, and emails could also be used as a communication medium between businesses and customers.

5. Revenue Streams:

These are the revenue sources the business generates from its value propositions and customer segments. Apart from your primary source of revenue, that is, selling your products, you should also have secondary and additional revenue sources. Note other parts of your business that can be profited from. A good example would be a store that sells skin care products but also offers consulting services and probably offers customized products to customers for an extra price. Think about services and additional products your customers would be willing to pay for.

6. Key Activities:

These are the core activities required to deliver value propositions to customers. They include the steps a business has to take to make the business model work. This segment answers how the products/services will be offered, how the business will earn from other revenue streams, and what exactly the business will be doing differently from the competition to remain relevant and profitable.

7. Key Resources:

These are the critical assets and resources required to deliver the value proposition to customers. They are the essentials that give your business life. They include tools or assets required to create and deliver value, reach out to customers, maintain customer relationships, etc. These resources include physical assets, intellectual property, financial assets, etc.

8. Key Partnerships:

They are strategic alliances and partnerships that the business forms to support its key activities and resources. As a business owner, you may not have all the skills required to run your business, and even if you do, you’ll burn out trying to execute every task by yourself. Partners help businesses carry out their objectives effectively and efficiently. The Key Partners section lists external companies, suppliers, or parties an organization does business with to perform key activities and deliver customer value.

9. Cost Structure:

This includes the expenses associated with the key activities, resources, and partnerships required to deliver the value proposition. The cost structure defines the cost of starting a business and the daily cost of running the business. It is made up of fixed costs and variable costs. For example, office or workshop rent, salaries, utility bills, etc are fixed costs while raw materials cost, cost of packaging supplies, shipping costs, etc are variable costs.

Each of these components is interdependent and interconnected, and they work together to create a holistic view of the business model. The Business Model Canvas provides a framework to map out these components and evaluate the effectiveness of the business model, enabling businesses to optimize their operations and increase their chances of success.

How to Use the Business Model Canvas

For this segment to be very comprehensible, I’ll be using a made-up business as an example. It is called “FitLife Gym”

1. Start with the Customer Segments:

The first step is to identify the different groups of customers that your business serves. You can use customer demographics, psychographics, or behavior to define these segments. Write the names of each customer segment in the Customer Segments box on the canvas.

FitLife’s customer segment would include fitness enthusiasts, individuals seeking weight loss or muscle gain, athletes, and health-conscious individuals of all ages.

2. Define the Value Propositions:

Once you have identified your customer segments, the next step is to describe the unique value that your business offers to each segment. In the Value Propositions box, write the key benefits or solutions that your business provides to each segment.

For FitLife, key VPs: personalization, state-of-the-art equipment, convenient operating hours, variety in programs, and a supportive community.

3. Identify the Channels:

The Channels component describes how your business reaches and communicates with its customers. Identify the different marketing and sales channels that your business uses to match each customer segment. Write them in the Channels box on the canvas.

FitLife’s channels: local advertisements, online marketing, social media platforms, referral programs, and collaborations with wellness influencers.

4. Define Customer Relationships:

Customer Relationships describe the types of interactions that your business has with its customers. Identify the types of relationships that your business has with each customer segment. Write them in the Customer Relationships box on the canvas.

FitLife CR: personalized fitness consultations, ongoing progress tracking, regular communication through newsletters or an app, and member appreciation events.

5. Determine Revenue Streams:

Revenue Streams describe the different ways your business generates revenue from each customer segment. Identify the pricing models and revenue streams associated with each customer segment. Write them in the Revenue Streams box on the canvas.

Revenue streams for FitLif: monthly membership fees, personal training session fees, group fitness class fees, merchandise sales, and additional services like nutrition consultations or wellness workshops.

6. Identify Key Resources:

Key Resources are the critical assets that your business needs to operate effectively. Identify the key resources required to deliver your value proposition to each customer segment. Write them in the Key Resources box on the canvas.

Some key resources for FitLife: a well-equipped gym facility, qualified trainers and instructors, a user-friendly website or app for scheduling and tracking, marketing materials, and a strong network of fitness professionals.

7. Determine Key Activities:

Key Activities describe the essential tasks that your business needs to perform to deliver its value proposition. Identify the key activities that your business performs to deliver its value proposition to each customer segment. Write them in the Key Activities box on the canvas.

FitLife’s KAs: fitness evaluations, individualized training plans, group fitness courses, equipment maintenance, and upgrades, and promoting a happy and stimulating gym environment.

8. Identify Key Partnerships:

Key Partnerships describe the external relationships that your business relies on to operate effectively. Identify the key partnerships and collaborations that your business needs to deliver its value proposition to each customer segment. Write them in the Key Partnerships box on the canvas.

Key partners that FitLife Gym works with to provide more services or mutually beneficial promotions include nutritionists, physiotherapists, sports gear companies, local health clubs, and sports teams.

9. Determine Cost Structure:

Cost Structure describes the expenses that your business incurs to operate effectively. Identify the costs associated with delivering your value proposition to each customer segment. Write them in the Cost Structure box on the canvas.

The critical cost factors for FitLife Gym include employee salary, rent and utilities for the gym building, upkeep of the equipment, marketing costs, insurance, and other operational costs.

Benefits of Using the Business Model Canvas

Remember how we started this article by comparing a hypothetical “Path A” and “Path B” for starting a business? After a long read on BMC, you probably still need convincing that this is the right way to venture into a business. Here are a few benefits of BMC:

Visualization- BMC provides a visual representation of the key components of a business model, making it easier to understand and communicate. By using a visual format, businesses can more easily see how each component fits together and identify areas for improvement.
Holistic approach- The canvas takes a holistic approach to business modeling, considering all aspects of a business, from the value proposition to the cost structure. This approach ensures that businesses are considering all the important elements of their model and not overlooking any critical components.
Flexibility- The canvas is flexible and can be adapted to different business types, sizes, and stages of development. This flexibility allows businesses to tailor the canvas to their specific needs and make adjustments as their business evolves.
Collaboration- The canvas is a collaborative tool that can be used by teams to develop, refine, and communicate business models. By working together, teams can leverage their diverse perspectives and knowledge to create more comprehensive and effective models.
Testing- The canvas can be used to test and validate different business models quickly and efficiently. By iterating on the canvas and testing different scenarios, businesses can identify the most effective approach and reduce the risk of failure.
Strategic planning- The canvas can be used as a strategic planning tool to guide business decision-making and prioritize resources. By using Canvas to assess their business model, businesses can identify areas for improvement, optimize their resources, and create a more effective and sustainable business.

With these few points of mine, I hope I have been able to convince you of the importance of having a business model canvas.

Conclusion

The Business Model Canvas is a powerful tool that can help startups and existing businesses create, evaluate, and optimize their business models. The key components of the BMC provide a holistic view of the business and its operations. By using the Business Model Canvas, businesses can identify their target customers, understand their unique value propositions, and determine the best channels to deliver their offerings. Additionally, the Business Model Canvas facilitates communication and collaboration among team members, investors, and stakeholders, enabling better decision-making and agility. Overall, the benefits of using the Business Model Canvas are clear — it promotes clarity and focus, innovation and skill, and enables better resource allocation and risk management. Businesses can increase their chances of success in today’s dynamic and competitive business environment by incorporating the Business Model Canvas into their strategy.