Lachapelle primer on the building blocks of the canvas

by: Michael Lachapelle - Business Model Fulcrum v5

Primer on the building blocks of the canvas

A guide to the 9 building blocks of the canvas and key considerations in describing the components of your business model

BusinessModel

Canvas

by: Michael Lachapelle - Business Model Fulcrum v5 2

This document is intended as a companion to presentations and workshops on the Business Model Generation approach to business design and innovation. It can also be used as a stand alone introduction to the business model canvas.

It was created with the permission and support of Alexander Osterwalder and Yves Pigneur. My continuing thanks go out to them both for all they have taught me. The content was reviewed by members of the Strategyzer certified trainer cohort, and colleagues in the business design and business analysis community. My appreciation to them as well for their valuable input.

Michael LachapelleBusiness Model FulcrumStrategyzer/Business Model GenerationCertified [email protected]

PREFACE

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Business Model CanvasOverview

Business Model Canvas available under Creative Commons license at : www.businessmodelgeneration.comThe version of the canvas used here was generated through Strategyzer, the online tool and learning support www.Strategyzer.com

http://www.businessmodelgeneration.com/

http://www.Strategyzer.com/


Business Model CanvasA business model is defined as the rationale of how an organization creates and delivers value to its customers and captures value in return. .An organization’s business model is a description of the logic of how the business creates and delivers value important to their customers, clients or members and how they capture a return value to ensure the sustainability of the organization.Alexander Osterwalder, in his PHD thesis and in the book Business Model Generation, described a set of nine elements to serve as a common language for discussing business models, and a tool, the business model canvas, to understand, analyse and change business models..

Overview


Customer Segments (CS)

Customer segments are the different groups of people or organizations an enterprise aims to reach and serve.A business model may define one or more ‘segments’ of customers that are differentiated by their needs. Customer segments and their needs should be defined by the outcomes they are trying to achieve, most effectively indicated by the ‘jobs’ they are trying to get done, or the ‘problems’ they are trying to solve.The needs that each segment has to get its job done or problem solved become the drivers of the value proposition design. One should avoid differentiating customers by their demographics or their characteristics as this can lead to false segmentation.

Building blocks

Key Question on CS

? For whom are you creating value

? What is the job-to-be-done of your customers

? What problems are they trying to solve

? How will you group (segment) your customers, based on their jobs and problems


Value Proposition (VP)

Value Proposition is the product or service (bundle) that creates value for a specific customer segment.A value proposition is defined as how the business goes about designing and delivering an offer (product and service) that solves the needs of the customers. The value proposition addresses the pains (barriers) the customers may have in getting their job done or in solving their problem. Additionally, the value proposition creates the gains (outcomes) the customers are hoping to achieve in getting the job done or solving the problem, or delivering value that exceeds the expectations of the customer.

Building blocks

Key Question on VP

? What are you delivering that is of value to the customer

? What need are you satisfying that helps the customer get a job done or solve a problem

? What are the key pains and gains you are addressing for the customer.


Channels (CH)

Channels are how the enterprise communicates and transact business with the customer segments.Channels represent the mechanisms the business will use to interact with its customers. There are two aspects to be concerned with in the channels. The first is what channels will be used to communicate with the customers to let them know what the business has on offer and how to access the offers. The second aspect is the mechanisms used to transact business with customers. A bricks and mortar business will have its store locations or a sales force, whereas a web-based business will be concerned with sales transactions and delivery mechanisms.

Building blocks

Key Question on CH

? How do you communicate with your customers

? How are products and services delivered or distributed

? How is business transacted with customers

? Which channels are direct or indirect


Customer Relations (CR)

Customer relations include the types of relationship a company establishes with its customers, and its customer acquisition, retention strategies.The business must consider what the nature of the relationship will be with the customers; short or long term, electronic or personal. In addition the Customer Relationships component includes the strategies the business will use to bring in new customers, keep their current customers engaged, and increase the customers interaction with the business and get others to connect to the business.These are commonly referred to as the GET-KEEP-GROW strategies of the business.

Building blocks

Key Question on CR

? What kind of relationship does your customer want – personal, automated

? What are your strategies to attract new customers

? How will you retain your customer’s participation

? How will you get them to increase their interaction


Customer Relationships (CR) and Channels (CH) differ in that CR is about the strategies the business will follow in GET-KEEP-GROW (e.g. social media networking) and CH is about the mechanisms to be used to deliver on those strategies (e.g. Facebook or Twitter)


Revenue Streams (R$)

Revenue streams are the value the business captures from its customers.

Revenue streams are concerned with the ‘types’ of revenues captured as the return value rather than the specific pricing strategy.

The revenue streams can be transactional (each payment is separate) or recurring (ongoing payments from recurring interaction such as subscriptions, memberships, ongoing services).

Revenue streams can be fixed price, negotiated, or dynamic.

Building blocks

Key Question on R$

? For what value are customers willing to pay

? How often will they pay – transaction or recurring

? What is the revenue type – sales, subscription, use , license, advertising…

? To what segment-value is the revenue connected


Customer Revenue streams must be connected to a specific Customer Segment and Value Proposition. Likewise each customer-value proposition must be tied to a revenue stream, even if that stream is identified as ‘free’, as in the case of Skype where there is no charge for calls, or Dropbox where basic features are free.


Key Activities (KA)

The Key Activities are the most important things the business must do make the business model successful.

Key Activities are the capabilities necessary to operate successfully. The focus in this component should be on the primary activities necessary for the business, not the secondary, or functional capabilities of the business (e.g. financial reporting or human resources).

The key capabilities required of a business are dependent on the type of business – value added (manufacturing, retail), solution (consulting, health services), network (multi-sided platforms, marketplaces).

Building blocks

Key Question on KA

? What are the core activities that must be done by the business

? What type of business is it – value-added, problem solving, or networking

? Which Key Activities will be done in the business


KA is susceptible to too much information. It is very easy to get bogged down in detail when looking at activities. KAs must be kept at a strategic level, capabilities not processes, and those KAs specific to the success and type of business being run, not a shopping list of the things done in running a business.


Value-added businesses (manufacturing, retail) need to concern themselves with supply chain, product or service creation, marketing, and distribution. (value chain activities)

Solution businesses (consulting, health services) need to be concerned with problem acquisition, finding and choosing solutions and implementing those solutions. (value shop activities)

Networking businesses (marketplaces, multi-sided platforms) must consider connecting customers, the services provided to the network and the infrastructure to run the network. (value network activities)

The KAs of a business

are dependent on the type of business

My references to types of businesses and their primary activities are derived from: Porter (value chain model) and Stabell & Fjeldstad (value shop and value network models)


Key Resources (KR)

The Key Resources are the most important assets required to make the business work.

There are are four types of Key Resources the business has to consider. Intangible resources are those intellectual or virtual things needed to run the business (intellectual property, patents and copyrights, data). Tangible resources are the physical things needed to run the business (facilities, vehicles, machines, IT infrastructure). Human resources are comprised of people and expertise (sales force, subject matter expertise). The last is financial resources. These resources are different from revenue in they are specific to capital investment (loans, guarantees, line of credit, stock) used to launch or expand the business.

Building blocks

Key Question on KR

? What tangible resources do you need (plants, stores, IT)

? What intangible resources do you need (data, licenses)

? What human resource is critical (expertise, people)

? What finances do you need to build, launch or grow


Key Partnerships (KP)

The network of suppliers and partners that are needed to make the business successful..

Businesses very rarely have all the things they need to run the business independently. Very often partnerships are required to acquire resources needed for the business to operate, reduce risks inherent in the business, or to optimize the business by providing scale.

Partnerships can be built on strategic alliances, joint ventures or buyer-supplier relationships. But in every partnership it is important to understand the reciprocal value created for each partner.

Building blocks

Key Question on KP

? Who are your suppliers

? Who is providing resources you need for your business

? Who is integrated into your activities

? Who is providing support to your Key Activities (outsourced, open innovation)


Cost Structure (C$)

Cost Structure is about the costs incurred to operate the business model.

What are the most important costs inherent in the business model.

The costs of the business are derived from a consideration of the other components of the model – activities, resources, and partnerships.

The type of costs should also be considered. Costs may be fixed or variable.

Building blocks

Key Question on CS

? What are the most important cost centres in the business

? What type of costs are they, fixed or variable

? Which Key Activities & Resources are most expensive

? What are the costs inherent in our Key Partnerships


Cost Structure is another area that is susceptible to too much information. Like Revenue Streams you should be concerned with types (or centres) of costs rather than a budgetary view. Like Key Activities you want to focus on a strategic view of the costs rather than a line-item listing.


Front Stage

The front stage of the canvas represents the customer facing perspective of the business.The front stage of the business represents those key components that are visible and interact with customers. These customer-facing components include the Customer Segments, Value Propositions, Revenue Streams, Channels and Customer Relationships.

Canvas structure


Back Stage

The back stage of the canvas represents the components necessary to create and support the front stage.The back stage of the business represents the key components required to create and deliver the value proposition to the customers. These infrastructure components include Key Activities, Key Resources, Key Partnerships and the Cost Structure .

Canvas structure


Ground RulesUsing the canvas

Source: www.strategyzer.com


Best PracticesUsing the canvas

Source: www.strategyzer.com