A number of years ago when I was coaching at the Haas School of Business at UC Berkeley, I was introduced to the Business Model Generation book by Osterwalder and Pigneur. Since then I have literally reviewed a thousand Business Model Canvases (BMC) and coached executives on how to use it in a way that is useful for them, their teams and their organizations. I found it to be a powerful and universal tool that works well for all types of organizations and functions — from selling products or services, platforms, internally focused departments, non-profits and for businesses of all sizes.
With Covid-19, most businesses are in disruption, having no choice but to rethink and challenge all the ways they do business, both in terms of the products and services they need to provide to customers’ changing needs, as well as the way to create and deliver them. Likely these changes will need to be both internally and externally focused.
The BMC is the perfect tool for reviewing and considering necessary or possible changes that need to happen, whether it is at the product level, department, business unit, or global organization.
What it a Business Model Canvas?
The Business Model Canvas was one of the first tools designed that focused on visually including many elements in one chart, where it is easy to see and understand the interactions and interconnectivity of key aspects of a business.
Going back to my “bible” (the Business Model Generation book published in 2010), now falling apart from years of use, the definition of a business model is a model that “describes the rational of how an organization creates, delivers and captures value.” (page 14). What I found particularly interesting is that this seems straight forward and that most team members in an organization/team would know this. Yet, having worked with hundreds of executives, product managers and engineers on their “canvas”, I discovered that they have often not thought about the different elements of the canvas (only focusing on the product/services and features). In the process of completing a canvas, they often realize that they may not know if other functions are aligned with the way they see the business. I believe the reason for this blind spot is due to the silo mentality that is prevalent in many organizations where each entity (be it an individual, a team, a function, a department) does not fully understand how “the others” work and how they impact each other.
What does it look like?
The business canvas is a very simple canvas with nine boxes. Yet behind its apparent simplicity, it provides insights into the interconnectivity of different aspects of a business and helps you think beyond your own function, how the business is a system, and where each piece informs and impacts each other.
Source: Business Model Generation, Osterwalder and Pigneur
How to complete a canvas
I found that it works best to think about the canvas and to complete it in the order described below. Although there is no right way, if you start from a blank canvas it may work best to start from the right side, then middle and left, and finally complete the bottom two boxes. That means starting with your users and their needs (which are at the core of a design thinking approach and one of the reason I value this tool) then move on to what you offer, filling out the details of how you are doing this and the financial implication.
- On the top right of the canvas, start thinking about your Customer Segments (the different internal and/or external customers) for which you are offering your product/services and experiences. Understanding the different customers you are serving and their wants, needs or Jobs to be Done (see Ulwick’s framework around this concept) helps ensure you understand your reason for being in business — for both internal or external customers.
- The center is the most important, and most difficult part of the canvas. Here you describe the Value Propositions. The challenge is to go beyond the features (we use technology Y at speed X…) and really describe value propositions that capture the reasons why these customers are in relationship with your organization. A customer does not buy features, they buy the benefits that your products/services/experiences bring to their job and life (fi.e. saving time, stress free, easy to learn, peace of mind….). This also means that you may offer the same basic features as a competitor and yet have a different value proposition. For instance, think about Apple iphone versus Galaxy phone. They may both have the same features (phone, email, apps, large screen) but a value Apple brings is the “smooth integration with all apple devices” while Galaxy attracts people wanting to “show that they have an edge”.
- In between the customers and the value propositions are two areas which are focused on how these two are connected. First, you specify the type of Customer Relationships (are you providing personal assistance, is the community helping each other, is it fully automated?…). Then, add the Channels, the key touch points between customers and products/services that are required so the customers become aware, evaluate, purchase, get delivery/install and have support for their products or services.
- On the right side of the canvas are areas describing the ways your organization/department/team create and deliver on the value proposition. This includes the Key Activities that need to be done (writing software, marketing, research…), the Key Resources required (people, money, patents…) and the Key Partners that can help you. These partners can be external (if you outsource key elements of your activities) or internal (if you canvas is focused on your team, you may need teams to work closely with you, for instance legal, to be sure you deliver on the value propositions).
- Finally, at the bottom of the canvas is a simple balance sheet. On the right are the key Revenues Streams from selling your products/services/experiences or if you do not generate direct revenues (for example if you are an internally focused department) the indirect ways your value propositions impact the bottom line of the organization. I am often surprised that product managers may have limited ideas about their revenues and particularly the revenue per segment. This information can be critical to help ensure best allocation of resources. On the left is Cost Structure which includes the main costs usually driven by key activities, resources and channels.
What are the benefits of the BMC?
While these nine boxes seem so simple, the more I use the tool the more depth I find and that is the beauty of a great tool.
I see three primary benefits with this tool:
Clarification and alignment
It is a great way to be clear about your business and to get alignment with a team. Because you have to think about the interconnectivity of all the elements of your business, breaking the silo mentality. And because one person may not have all the answers (a product manager for example, may not have enough information about marketing or finance to complete the canvas fully) it forces useful discussion and alignment between different functions.
Flexibility of perspective
It is helpful to see your business at the right level depending on the target audience and your role. A BMC is like a picture, you can zoom in or zoom out. So if I am a product manager working with my team, my focus may be the products I am in charge of and I may have all the key components of my business. But if my audience is the management team, they may want to see a canvas at a higher level (zoom out) with all their products represented. And if I preparing to launch a new product, I may just do a canvas for that single product, and be very granular with all the details.
The BMC is also a great innovation or change tool. Once you have an “as is” canvas representing your business today, you can play with making changes somewhere in the canvas and then consider where else the canvas will also need to be changed, visually seeing the interconnectivity of different parts of the business.
For instance, with COVID 19, supply chains are being disrupted and you may have lost some of your main partners. Maybe there are some activities that need to be done internally, and maybe it will affect your revenue stream and your cost structure. Or like in this story, you were manufacturing buttons and now you are manufacturing masks (see story). How does that change your customer segments and value propositions? How does it affect your customer relationship…?
My experience with innovation is that often someone in a specific role will think about innovation only as it relates to that role. For example, I worked with a marketing group who were excited about changing a product bottle design to one that their users highly preferred. As they were about to make the change to the bottle after two years of work, they talked to manufacturing and realized that the cost of making the new bottle may make it impossible to launch. Had they had worked on a canvas for this initiative, the team may have realized early on that manufacturing was a key component of this innovation effort and could have included their constraints as well.
When and how often should you use the tool?
One important thing to remember is that it is a tool, and only a tool. I recommend just trying it, use it different ways, try by yourself and with others. See how it fits with the culture of your organization and decide the way it is useful and not useful to you.
In general, I would say that it is useful to have an “as is” canvas of your business done at a level where you can have an impact. Then revisit it every so often — depending on the pace of change — every three months, every six months or once a year.
And when you are considering innovation, do not limit your thinking that innovation is only about products/services (that would be a new value proposition) or attracting a new customer segment. It can also happen in one of the other areas of the canvas (i.e. innovate your price structure, your channels, your partners for example). Use the canvas as a way to ideate and visualize your different options.
Who can use it?
It is hard to think of any function in an organization that would not benefit from using this tool. In terms of owning and initiating a canvas, it is often lead by a project management role since they work with many other functions (think product managers, marketing) and/or someone in a strategic role (from sole proprietor to upper management).
How to create a good business canvas?
From my experience, it is important to spend enough time understanding your customers deeply, which often requires doing some in-depth ethnographic research. Interviewing and observing customers, a practice that is still not prevalent in many businesses, is even more critical today as customers behaviors and attitudes are changing to adapt to the COVID-19 crisis. Then spend time articulating your value propositions and avoid describing merely your features (which I repeat, are not value propositions). Getting feedback and alignment from others is also critical. Hiring an external coach to get help, particularly working on creating a canvas with your team, can be extremely valuable and can be done virtually. Please contact us if you are interested in setting up coaching or training sessions around creating business model canvases for your team.
As our world is changing in ways we may not even yet know, I encourage you to try to create canvases to help you make sense of the new reality. Run different scenarios and break the silos of communication between functions, departments, roles in an organization as well as with your external partners. We are learning in this crisis how deeply the world is connected. The canvas is the perfect visual tool to focus and get better at dealing with interconnections.