How To Use The Business Model Canvas – A Step by Step Guide

STEP BY STEP GUIDE

What’s the Business Model Canvas?
How do I get started?
Different ways of using the business model canvas?
Step 1 (of 10): Customer Segments
Step 2 (of 10): Value Propositions
Step 3 (of 10): Channels
Step 4 (of 10): Customer Relationships
Step 5 (of 10): Revenue Streams
Step 6 (of 10): Key Activities
Step 7 (of 10): Key Resources
Step 8 (of 10): Key Partnerships
Step 9 (of 10): Cost Structure
Step 10 (of 10): Applications, Review & Next Steps

The Business Model Canvas (BMC)

The Business Model Canvas (BMC) gives you a structured way to design a business. The goal is to create a business model that is unique and compete in the market. It is an ideal way to check the business logic of why customers will buy your product or service. It also provides a way to understand how all the different elements come together to deliver your products or services, the cost structure, value proposition, customer segments and profits.

How To Get Started?

Identify the overarching purpose of the business

I suggest that to start with you print out several copies of the business model canvas (see above for high-quality PDF print versions). Fill out the elements and start to get a feel with how the different elements sit together and whether they make sense.

Keep copies of them and also mark on each the version (1.0, 1.1…) that way you can refer back to ideas and also see how your thoughts have progressed.

Different Ways Of Using The Business Model Canvas?

The business model canvas can be used to not only develop your business model but also analyze potential competitors. How do you know if your business model is unique and difficult to replicate if you don’t know the market?

I’m not suggesting mapping every competitor. Quite often you find many have similar, if not the same, business model, which makes it hard to differentiate them.

Remember that that sometimes different cost structures can make a huge difference in a market – Aldi vs Sainsbury’s. Needless to say, that using a business model canvas on a known company can help you build out your own ideas to compete.

Step 1 (of 10): Customer Segments

This sounds obvious, but when you get into the detail many people overly simply the customer and don’t create a clear picture of who they are. As a result, the tendency is to make generalizations.

business model canvas guide to how to use it
Sections of the Business Model Canvas

1. Customers Segments

Understanding who you are aiming your business at is critical to success. As an example, HR directors – they are an identifiable group of people that use the label HR Directors to identify themselves and their role. You can find HR directors on Linkedin for instance as individuals and through Linkedin Groups.

2. Segment Composition

A Segment is the maco level of a potential customer base. Understanding the composition of the customers – how they vary, how many are there in different sub-segments helps you to determine the market potential and viability.

The traditional way of looking and understanding these sub-segments is to use Marketing Personas. This is where you should be able to visualize the people that are actually going to buy your product and how. It is the detail and depth of understanding here that counts. We are talking here about observations not just theory or statistics cleaned from a marketing report.

You need to understand what they think, see, feel, and do in your product area. Be sure to list both buyers and users of your product (many Personas will be both).

3. Problems, Needs, Behaviours & Current Alternatives

Many customers have hidden needs. In other words when you watch and observe them trying to do things they have to do workarounds or take a long route to accomplish their task. Understanding what customers are trying to achieve and observing how they achieve things provides valuable insights into why and how you can help them

Make sure that you identify their existing needs/problems and identify the alternatives that they currently use. If you’re not sure, go out and observe, talk to some people. You’ll want to be able to clearly link your Value Propositions back to these in the next section.

Outcome

You should as a result of completing this section be able to clearly define your segment and have a number of personas for the different sub-segments that describe the profile of your customer, their behaviours, their problems, and current workarounds or alternatives

Step 2 (of 10): Value Propositions

how to use the business model canvas section customers
The Business Model Canvas – Connecting Value Propositions to Customer Segments

The Problems or Needs that you identified earlier and used to build your Marketing Personas now come into play.

The Value Proposition Canvas describes the details of how the value proposition and customer segments interact.

In its simplest terms, a value proposition is a positioning statement that explains what benefits you provide for who and how you do it uniquely well. It describes your target customer, the pain point you solve, and why you’re distinctly better than the alternatives.

What is Value?

It means seem a bit odd asking this but there are many different dimensions to value? Equally, there are often hidden barriers people do not see the value the same as you

What is important at this stage to challenge yourself your Value Propositions and why does your customer might prefer them to their Current Alternatives?

Quite often you will have multiple value propositions. They are not the same benefits. Remember that value propositions are the sum of benefits you offer. A value proposition clearly aims at defining how it solves a problem and presents a new way of doing it compared to existing solutions.

Use a whiteboard or index cars for each value proposition. What things can you do that actually will make the biggest difference to the customer and be unique and better than the competition?

Outcome

You should now have a clear link between value propositions and your personas. The value propositions should clearly tie in with the customer and why they will buy.

Step 3 (of 10): Channels

Business Model Canvas Channels
Business Model Canvas Channels – Linking channels to your customer segments

Channels include the methods that you are going to use to reach your customers. Are there clear customer communities, what labels or job titles refer to your customers, what interests groups do they have that can help you identify them?

Being able to reach your customers through marketing channels is crucial to being able to make them aware of your product and test your value propositions. Some typical channels are paid search (e.g. Google Adwords), social media ads (e.g. Facebook ads, Instagram ads), SEO (long term), PR…

Outcome
For each Persona or Segments, if they differ substantially. Make a clear note of potential channels that can be used to reach to the customer. In the marketing growth blueprint, I cover in more detail how to design and develop a clear marketing strategy for your business model.

Step 4 (of 10): Customer Relationships

How to use the business model canvas customer relationship block
How to use the business model canvas and link customer segments to customer relationships

Some questions to help guide you on this block of the business model canvas:

  • How do you develop a customer relationship?
  • How will the customer interact with you through the sales and product lifecycle?
  • What is the customer journey?
  • What are the most critical elements of the customer journey?
  • How much do you use automation and what do you make personal?
  • Do you use outbound reach and calls?

The value proposition should link closely to the level of service and touchpoints you use to interact with customers?

The costs associated with how you deliver your communications, service the customer will be reflected in costs.

Use storyboard and customer journey maps to map the current customer journey. Then map how your value proposition will be delivered and make a note of the critical points in the journey and the overall lifecycle.

Outcome
A description of the type of customer relationship for each segment/persona.

Step 5 (of 10): Revenue Streams

The most important thing is to map the number of each segment and potential revenue. Don’t overestimate this. Remember you have to often out early adopters vs. the mainstream of regular buyers who are often harder to convert. Try and be realistic – use a spreadsheet and calculate your variables.

How To Use The Business Model Canvas - A Step by Step Guide
The Business Model Canvas – Revenue Streams

Outcome
A list of Revenue Streams, linked (mutually) to Personas (or Segments if the mappings are the same within a set of Personas) and Value Propositions.

Step 6 (of 10): Key Activities

business mode canvas key resources section
The Business Model Canvas Activities and Resources

These are the essential things the business needs to do to deliver on its propositions and make the rest of the business work.

For a product-driven business, this will involve learning about users and new techniques to build and test new products. Rarely does the first design go straight through to production? In particular, with products, you need to consider how much time is involved between new design sand prototypes to test. There are lots of new ways to get prototypes developed fast and therefore speed up the innovation process.

If you’re focused on doing a set of services for customers, then include maintaining superior expertise on the segment(s) and creating or acquiring products and services that are a good fit, whatever that entails.

Outcome

A list of Key Activities linked to your business Value Propositions.

Step 7 (of 10): Key Resources

how to use the business model canvas key resources section
How to use the business model canvas key resources section

Key resources are the strategic assets you need in place, and you need in place to a greater or more targeted degree than your competitors. The Business Model Canvas proposes that there are three core business types: product, scope, and infrastructure. These tend to have similar types of Key Resources.

Outcome

A list of Key Resources linked to your business’s Key Activities.

Step 8 (of 10): Key Partnerships

business model canvas key partnerships section
Business Model Canvas – The Key Partnerships block

At this point, hopefully, the Canvas has helped you sharpen and articulate your business’s focal points. What Activities and Resources are important but not aligned with what’s a unique strategy for you? What’s outside of your business type? Could partners do some of those? Why? Which?

I recommend mapping Key Partners to Key Activities. If an activity is key, it’s still part of your business model. This is a way to denote which specific Partners are handling various Key Activities for you.

Outcome

The left of the business model has blocks that logically support and fit together. Understanding costs associated with yoru activities is a key part of your business modelling. A list of Key Partnerships with notes on their relationship to Key Activities.

Step 9 (of 10): Cost Structure

business model canvas cost structure
The Business Model Canvas – linking activities to costs

You’ve worked to understand how your Key Activities drive your propositions and hence your revenue. The key questions to ask at this stage of the business model canvas are:

  • How do they drive costs?
  • Are those costs well aligned with the key Value Propositions?
  • Are the costs more fixed or variable as you test different business models?
  • Are they more linear with your scaling or more fixed?

You’ll want to have these in mind as you tweak your model.

Outcome

If you’re a startup then knowing your costs and predicting a run rate for costs is critical. The business model canvas helps to focus on the resources and activities that are associated with your business design.

As an outcome, you should have a list of Cost Structure elements with notes on their relationship to Key Activities.

Step 10 (of 10): Applications, Review & Next Steps

Core Applications

The most core and obvious applications of the Canvas are to ask:
– Does it make sense?
– Could it be better?
– Does the rest of my team understand and agree? Have additional ideas?
– Rinse and repeat at least quarterly

Competitiveness

The business model canvas does a good job of helping you figure out your business, which is a good place to start. You also want to look at the competitive environment and think about whether you how you have and can maintain a long term competitive advantage.

Business Model Canvas Examples

spotify business model
Spotify Business Model Canvas Example
Uber business model canvas
Uber Business Model Canvas

Next Steps

Every business is a work in progress. As you go through the canvas, you may encounter areas that give you trouble. Reach out if you need any help with the business model canvas.

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