What is Business Model Canvas? 9 key elements you need to know

A business model is a way to express how a company builds, delivers, and captures value. Every business professional may view this model differently. After countless debates, there arose a need for a unified template to define the business model, applicable to both established companies and startups, as long as they share some business similarities.

The Business Model Canvas is a widely recognized and effective solution that meets this need.

What is Business Model Canvas?

The Business Model Canvas was developed by Alexander Osterwalder as a modern, visual tool that provides a comprehensive overview of a business through 9 key pillars.

These 9 pillars represent the four main aspects of a business (customers, value, infrastructure, and finances), including:

• Customer segments
• Value propositions
• Channels
• Customer relationships
• Revenue streams
• Key resources
• Key activities
• Key partnerships
• Cost structure

The Business Model Canvas serves as a common language, allowing businesses to assess traditional processes and improve their business model.

This model is beneficial when a company needs to analyze and compare the impact of increased investment on any specific factor.

9 pillars of Business Model Canvas

The Business Model Canvas organizes a company’s internal processes and activities into key areas involved in creating a product or service.

Here’s a breakdown of the 9 pillars of the Business Model Canvas:

Customer segments

Customer segmentsCustomers are classified into segments based on the specific needs that your product or service addresses. Defining customer segments is essential, ensuring the product features align with the characteristics and demands of each group.

To segment your customers effectively, you first need to understand them by identifying their current and future needs. Then, you should list and prioritize your customers, including potential future clients. Finally, evaluate them thoroughly by identifying their strengths and weaknesses while exploring other customer groups that could bring more value if your company focuses on them.

Common segmentation methods include:

• Mass market: Focuses on reaching a broad, general audience with similar needs. Companies like Coca-Cola or Apple cater to a wide range of consumers, offering products that appeal to many people without much customization.
• Niche market: Focuses on serving a highly specific, small group of customers with unique needs (e.g., luxury fashion brands like Hermes).
• Segmented market: Targets multiple distinct customer groups with different needs, offering slightly varied products or services for each segment. For example, a bank might offer different financial products tailored for students, small businesses, and high-net-worth individuals.
• Diversified market: Refers to a business strategy where a company serves multiple, distinct customer segments with different needs. For example, Sony sells both consumer electronics (like PlayStation) and professional equipment (like medical devices), catering to distinct customer groups.
• Multi-sided platform/ market (MSP): Connects two or more distinct groups of users, benefiting all parties involved by facilitating interactions between them. Examples include E-commerce platforms like Amazon, which connect buyers and sellers.

Value propositions

The value proposition represents the combination of products and services offered to customers. These must be unique and stand out from competitors.

Value propositions can be:

• Quantitative: Focused on price or efficiency.
• Qualitative: Focused on customer experience and usability.

A value proposition delivers value through attributes like flexible customization, performance, task efficiency, brand reputation, design, innovation, price, cost, risk reduction, and multi-dimensional interaction.

When building a value proposition, the key question is: What problem are you solving with your product or service? Then, look for ways to improve the product, service, or overall customer experience to offer more value than your competitors. Lastly, the business must identify its core values.

One way to define core values is to clarify what you want customers to remember from their interactions with your company.

Channels

Distribution channels are the bridge between your organization's value proposition and customer segments. There are countless options for distribution channels, and the choice should be based on criteria such as speed, efficiency, and cost-effectiveness.

There are two types of channels:

• Company-owned channels (e.g., company stores).
• Partner channels (e.g., distributors).

A company can choose one type or combine both distribution methods.

For startups, the first step in establishing distribution channels is identifying where the customers are. Customer touchpoints can either be limited or highly diverse, depending on the company’s strategy. Next, you should perform a SWOT analysis to evaluate the strengths of these distribution channels. Finally, the business can identify and build new customer channels.

Customer relationships

Businesses must choose the type of relationship they want to establish with their customer segments to ensure financial success and sustainability. Customer relationships can be categorized as follows:

• Personal assistance: This is a business model where a company provides individual support to customers, typically through human interaction. 
• Dedicated personal assistance: This refers to a business model where a company assigns a specific individual or team to provide personalized support to a particular client or customer. 
• Self-service: Customers are provided with the tools and resources to serve themselves without direct human interaction.
• Automated services: Services that are provided through automation, allowing customers to interact with systems or technology instead of a person, often through algorithms, bots, or AI.
• Communities: Companies build and foster communities around their brand, allowing customers to interact with each other, share experiences, and help one another.
• Co-creation: Customers are directly involved in the product creation process, such as designing new products or services together based on customer feedback and insights.

You should prioritize identifying the type of customer relationships you want to build, and then assess customer value based on their purchase frequency. It's important to invest in relationships with loyal customers, as they provide a stable source of revenue.

Revenue streams

Revenue streams represent how the company earns income from its customer segments, including:

• Asset sales: Selling ownership of goods.
• Usage fees: Charging for product or service use.
• Subscription fees: Ongoing payments for access.
• Lending/leasing/renting: Temporary access to products.
• Licensing: Charging for the use of intellectual property.
• Brokerage fees: Fees for services between parties.
• Advertising: Charging for promotional space.

After establishing your revenue streams, it's crucial to determine the optimal pricing for your product or service through a process of elimination. Any price adjustments should be recorded and reviewed. You also need to keep thinking about possible next steps for your business as it continues to operate.

Key resources

These are the essential assets of the business that deliver value to customers. Resources can be categorized into human, financial, physical, and intellectual resources.

Listing out your company’s resources is crucial. It gives you a clear understanding of the key products or services you need to provide customers and identify unnecessary resources, allowing you to save costs.

Once you’ve completed the list, you can then decide how much investment is needed for these key resources to ensure sustainable business operations.

Key activities

Key activities are the crucial actions a company must perform to operate effectively and deliver its value proposition to customers.  These activities are necessary for the business to function and meet its strategic objectives, such as generating revenue, maintaining operations, and ensuring customer satisfaction.

Key partnerships

For a business model to operate efficiently and reduce risks, companies should establish partnerships with high-quality suppliers. These partners will complement your business to help create value-driven solutions.

For a business model to operate efficiently and reduce risks, companies should establish partnerships with high-quality suppliers. These partners will complement your business to help create value-driven solutions.

Business partnerships generally fall into three categories:

• Strategic alliances between competitors (also known as coopetition)
• Joint ventures
• Buyer-supplier relationships

Start by identifying your key partners and then plan for future partnerships. Leverage these relationships to assess what challenges need to be addressed and what types of partnerships will be necessary moving forward.

Cost structure

Cost structure refers to the expenses involved in running a business. Companies can focus on reducing costs either by lowering capital investment or by maximizing the value of their product, such as delivering the most value possible to customers.

Here are some common features of a cost structure:

• Fixed costs: Expenses that remain constant over a certain period.
• Variable costs: These costs fluctuate depending on production levels.
• Economies of scale: Costs decrease as production volume increases.
• Economies of scope: Costs decrease by investing in activities related to the main product.

Naturally, the first step is to identify all costs related to your business. A clear understanding of these expenses is essential for developing a strong business model.

After identifying the costs, listing them out in your Business Model Canvas is critical to visualizing them and planning for each category. You may be able to cut some costs through specific measures, while other costs may need to be increased if you decide to invest in areas that could improve future profitability.

Now you can easily find Business Model Canvas templates to customize on many visual tools like Canva.com 

Why should companies use the Business Model Canvas?

• Visual thinking: The Business Model Canvas provides a clear, visual overview that helps you easily evaluate and make decisions. It offers a concise analysis of the key factors influencing your business and clarifies the company’s direction through the model.
• Quick and convenient: If you print the Canvas model on a poster, employees can use sticky notes to add key terms and monitor their impact on the business model over time. It’s a quick, hands-on tool for tracking progress and adjustments.
• Easy to visualize the relationships between the 9 pillars: The Canvas model helps you see the connection between the 9 key pillars, allowing you to explore how changing relationships among them can improve performance. With this tool, it’s easier to discover new opportunities or areas for improvement.
• Easy to share and distribute: Canvas is a portable and accessible tool, making it easy to share and collaborate with others. You can redraw a complete Canvas model or pass it around so everyone can grasp the main points and add more information as needed.

Example: Apple’s Business Model Canvas

Let's see how the Business Model Canvas works in action in the case of Apple.

Apple revolutionized the global market with the introduction of the iPod. Through iTunes, Apple seamlessly integrated devices, software, and an online store into a unified experience, earning recognition as a game-changer in the music industry.

Although Apple wasn’t the first to enter the MP3 player market, its uniquely executed business model brought long-term success.

The essence of Apple's Business Model Canvas lies in its ability to cohesively combine core elements and capitalize on its distinctive value propositions. Apple secured long-term partnerships through negotiation agreements with music producers, enabling the sale of their music on its iTunes store.

While Apple’s revenue stream initially came from iPod sales, the success of the App Store applied considerable pressure to its competitors, further establishing Apple's dominance in the market.

Conclusion

The Canvas model is not just a theoretical framework—it’s a practical tool you can apply directly to your business. By mastering the nine key pillars and approaching each one with purpose, you’ll build a solid strategic foundation that drives real results. Countless companies have already leveraged this model to sharpen their focus and achieve success, and with the right approach, yours can do the same.