Of all of the start-up tools out there, the Business Model Canvas is one of the most well-known and relied-upon to help entrepreneurs transform an idea into an organized strategy and an actionable business plan.
The Business Model Canvas gives entrepreneurs a wide snapshot of every aspect of their business – everything from the value proposition and customer segments to operations and the financials. The tool itself, however, is no more complex than a series of nine boxes representing business segments drawn across one sheet of paper. A large part of its effectiveness is in its simplicity. The exercise forces owners to stay focused and concise as they map out their business according to each of the boxes to hone in on their business strategy and plan.
A Business Model Canvas lets you put your entire business down on paper and assess your strategy, planning gaps and exposure to risk.
According to Bruce Gitlin, SCORE mentor and business development expert, the Business Model Canvas can help entrepreneurs address specific risks and acquire more information about competitors, costs, customer segments or a market niche.
"Many start-up entrepreneurs and small businesses are so busy trying to get started and survive that they spend little time planning. When they do try to plan, they are often confused and don't know where to start,” explains Gitlin. “This tool sets an overarching framework for developing a business strategy, a detailed business plan, and/or a prioritized action plan.”
You can easily create your own Business Model Canvas and go through the exercise yourself.
When planning your start-up, go through your own Business Model Canvas exercise and integrate your completed canvas into your business plan. If your business is already operating, going through the exercise is just as valuable. You’ll have the opportunity to assess your business plan using actual data and refine your strategy to get closer to your goals.
Here is a breakdown of the nine Business Model Canvas building blocks and how to think through each one as you create your own canvas.
- Key Partners
Who are the buyers and suppliers you need to form relationships with? What other alliances will help you accomplish core business activities and fulfill your value proposition to customers?
- Key Activities
What are the most important activities you must engage in to fulfill your value proposition, to secure distribution channels, to create and strengthen customer relationships, to optimize revenue streams, and more?
- Key Resources
What resources do you need to create value for your customers and sustain your business?
- Value Proposition
What core problem does your business solve? What benefits does your business deliver? And, what products or services will you offer to meet the needs of your customers?
- Customer Segments
Who will your business serve? Will you serve a single customer type or multiple customer segments? Which customers are the most critical for your business’ success?
- Customer Relationships
What types of relationships will you forge with your customers? What are the relationship expectations from each customer segment?
- Sales Channels
Through what means will you reach your targeted customers and deliver your products and services to them? Which will be the most cost-effective? How are your sales channels integrated?
- Cost Structure
What are all of the costs that you’ll incur while operating your business? There are two primary types of cost structures: value-driven and cost-driven. A part of this block is determining which structure makes the most sense for your business and factoring that into your cost strategy.
- Revenue Stream
How will you charge for our product or service? What are customers willing to spend? And, how much will each revenue stream contribute to your overall annual revenue?
Identifying planning gaps between these nine building blocks is the real value of the Business Model Canvas.
According to Gitlin, gaps in planning stand out when using the tool, making it effective for entrepreneurs who are new to starting and running a business.
"The Business Model Canvas helps visualize what is important and forces users to address key areas,” he says. “It can also be used by a team (employees and/or advisors) to understand relationships and reach agreements."
Completing your own Business Model Canvas is one of the most valuable planning steps in your overall business plan. Whether you’re a new business owner crafting a business plan for the first time or an owner looking to address planning gaps in a current business, going through the Business Model Canvas exercise is even more valuable with a SCORE mentor by your side.