Business Model Canvas 101

If there’s one particular resource that almost every startup founder has used in their career, it has to be the Business Model Canvas. The Business Model Canvas is a cornerstone in many entrepreneurial education curriculums. This is for good reason - the business model canvas lays out an entire business one single page.

In this post, I’ll give a brief overview of what the business model canvas is and the components that make up the business model canvas. In addition to checking out this blog post, I highly recommend grabbing a copy of the Business Model Generation that will help you fill out the business model canvas in a helpful way.

Overview

Before we get into the details of the Business Model Canvas, let’s give a brief overview of the 9 Building Blocks of the Business Model Canvas. These are what compose the business model canvas and they are:

• Customer Segments
• Value Propositions
• Channels
• Customer Relationships
• Revenue Streams
• Key Resources
• Key Activities
• Key Partnerships
• Cost Structure

As you work through the business model canvas, it’s really important to remember that you might not have a good answer to each building block. The business model canvas is there to help point out the flaws in your business, so don’t feel like you have to have it all together. Hopefully one day you’ll have a flawless business model canvas, but knowing how these types of things go, it may never happen. That’s okay.

Now that we have that out of the way, let’s get into the details of each of the business model canvas’ building blocks.

Customer Segments

In the business model canvas, they call “target markets” customer segments. One of the points that the Business Model Generation brings up is that you should be splitting up customer segments if “their needs require and justify a distinct offer”. This way of thinking of customer segments is really helpful as if you’re wondering whether or not to split up a potential target market into two segments, the statement above can help you determine that.

If you’re of doubting even just a little bit that they’re two different customer segments, you should split them into different customer segments. It’s better to have too many customer segments at first. It’s significantly easier to put them together rather than splitting them out later on.

To fill out the customer segments portion of the business model canvas, keep it simple! Even if it’s just “college students in the midwest” or “soccer dads” that’s completely okay. The narrower you can get on your customer segments, the better, but it’s okay if they’re not super narrow for the time being. You can define these better as your company matures.

Value Propositions

The best way to understand what your value proposition is to define how your solution solves the problem that your customer has. If you have multiple products, you could say you have multiple value propositions.

Value proposition is just the “how” of your solution. Don’t overthink how your solution solves the problem your customer has! Keep it simple.

Some examples that the Business Model Generation uses for value proposition are:

• Performance
• Accessibility
• Risk Reduction
• Convenience
• Design
• Brand

Channels

The channels portion of the business model canvas might be the most important part of the canvas, however, it can also be the channel that’s the easiest to breeze over.

Channels are the ways you are reaching your customer segments. This can be seen as marketing, customer service, or both! Channels can also be seen as how you communicate with those that give you revenue. It might be email marketing, social media, retail channels, or many other channels.

If you’re struggling with deciding on what channels you should be using to work with potential customers, check out the book, Traction: How Any Startup Can Achieve Explosive Customer Growth by Gabriel Weinberg and Justin Mares. This book does a great job at walking through which channels you should be using and hopefully will spark a lot of creative thoughts.

Customer Relationships

The customer relationships block of the business model canvas is where you define the types of relationships that you want with your customers. Do you want them be part of a community that is within your company? Do you just want them to receive automated email from you? Or do you want a personal relationship with each individual customer that you have?

This section depends heavily on the stage of the company and what type of company you have! When you’re first starting out, you’ll most likely have an individual relationship with each and every customer you have. As you grow, that will most likely change.

Revenue Streams

Revenue streams are the ways you make money for your company.

If you’re an early stage company, keep this as simple as possible. It’s much better to be focused on one particular revenue stream rather than diversifying to a lot of revenue streams at the beginning. The more focused your company is, the better it will do. If you have a lot of revenue streams where most of them don’t bring in a lot of revenue, get rid of them for the time being. You can always bring them back for experimenting down the road.

The revenue streams portion of the business model canvas is a good check on how focused your startup is!

Key Resources

The key resources building block of the business model canvas is a block that ties your business together in a lot of ways. A key resource in the business model canvas framework is something that your business needs to function.

A key resource example would be specific knowledge that your company has, intellectual property that your business owns, or even financial resources.

When filling out this part of the business model canvas, you don’t want to put factors in that are not required for your business to function. You only put in factors that are needed for your business to function for key resources.

Key Activities

Key activities in the business model canvas are the actions that are most important for your business to function. This section is similar to the one above, key resources. They might even play into one another.

If you’re a software company, software development would be considered a key activity in this business model canvas framework.

For us, this section seems unimportant and redundant. If there’s a section of the business model canvas that you don’t spend a lot of time on, it would be this building block.

Key Partnerships

In this section of the business model canvas, you want to put down organizations that might help your business. These can be non-competitors, joint ventures, or even suppliers to your business.

In this section, we recommend putting down partnerships that you already have and ones that you would love to have in some capacity. This can be a great section to generation asks to mentors or anyone helping you to see if anyone can make an introduction. You never know what might happen if you ask!

However, as you think through key partnerships, remember that even if you get the dream partnership you’ve always wanted, it will not make your business magically great. You still have to put in a lot of work and make sure what your company does is still great. Having one great partnership will not solve all of the problems within your business. Please don’t treat partnerships as this magical cure-all.

Cost Structure

The last section of the business model canvas that we’ll cover is cost structure. Now, it can be really easy to put a bunch of costs in this section that don’t matter too much. In this section, all you want to put down are the key costs to your business. Especially ones that are a bit variable.

So, if you manufacture a product, that would be a key cost. If you can break down that product into key components, that’s a great start.

You want to put down the costs that are crucial to your business succeeding. If the costs are key to a key partnership, are a crucial part of your product, or are necessary to your business succeeding, put those costs down in this section of the business model canvas.

That’s an introduction to the business model canvas. It can be a great tool for your startup, especially if you’re a first time entrepreneur just starting out. However, just realize that the business model canvas won’t solve all of the hurdles that you’ll face on your journey to getting your business off the ground.