Business Model Canvas: From Idea to Reality
Imagine this: Airbnb, a company that began as a simple idea to rent out air mattresses in a San Francisco apartment, is now a global hospitality giant. How did they transform this modest concept into a billion-dollar enterprise? The answer lies in a powerful tool called the business model canvas. By mapping out your start-up idea, you are able to pinpoint your strengths, opportunities, and best strategies.
The business model canvas is an essential tool for entrepreneurs, designed to help your team understand and map out how your business idea functions. This powerful framework allows you to condense your entire startup into a single page, covering nine crucial components: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partners, and cost structure.
To highlight how this tool can be used effectively, we turned to one our of own colleagues. StellarPH’s team consists of seasoned entrepreneurs with decades of experience in startups and the generation of business ideas. We interviewed one of our founders, Tino Zwirs, to gain insight into his experience and tips on the business model canvas! Tino has co-founded 10+ start-ups, acts as an Advisory Board Member of the largest community for young entrepreneurial talent in the Netherlands, and is an Entrepreneurship lecturer - easily conveying his expertise and knowledge in the field. In this article you’ll find practical tips and tricks to help you create a perfect business model canvas for your startup. Can’t wait to get started? Click here to scroll down and download the StellarPH Business Model Canvas Template!
Content of this blog:
What is the Business Model Canvas?
When to use the Business Model Canvas
Filling in your Business Model Canvas: Best Practices
Extra tips and tricks on filling in your Business Model Canvas
An example of a complete Business Model Canvas
Business Model Canvas template
What is the Business Model Canvas?
The business model canvas contains 9 parts, with the left side focusing on the internal environment (such as key activities) of the business and the right side on the external environment (such as customer segments). This way, when reading your filled-in canvas, you can see how your business runs and reaches customers.
Tino: Business model canvasses are not magical puzzle pieces, but they do give you a simple and logical structure to think about the individual parts that make up your company. The more critical you are about each of these elements, the better the whole will be. A business model canvas, or any canvas in general, should be used as a tool, but not as a result.
When to use the Business Model Canvas
The canvas is mostly used in the beginning stages of your startup because it gives you a clear and comprehensive overview of your business. However, it's also useful when making big changes or if you feel "stuck." For example, when Airbnb decided to expand from just renting air mattresses to offering a wide range of accommodations, they likely revisited their canvas to rethink their strategy. In those situations, grabbing some pens and post-it notes and filling in the template again can help you see things more clearly.
Tino: I personally do not always use a canvas. It really depends on the complexity of the business. If you don’t need to brainstorm and are starting a bakery for example, it’s not really needed. In that case, it would be quite logical where your costs and revenues are coming from. Also, when I do use a canvas, I always fill in a customer empathy map before starting on the business model canvas, as it helps to get a clear picture of the customer segments.
Filling in your Business Model Canvas: Best Practices
Tino: I normally start with the customer segments, followed by value propositions, channels and customer relationships. After this side is complete, I start on the left side and finally end with the bottom parts: cost and revenue streams. If you don’t know your customer segments, just start with the components that you are absolutely certain of, just like you would do in an exam at school. While you officially have to do the revenue streams section before moving on to the left side of the canvas, I personally like to focus on all the other building blocks before looking at the finances.
1: Customer segments
Your customer segments should be very specific (e.g. B2B software for hospitality, with a specific focus on companies with 25-50 employees). Think of the typical person who would purchase your product or service: What is their age, occupation, living situation, income, etc.? Who is the person that experiences the problem that you are trying to solve? And why are they interested in your product? Consider each customer group that could be interested and try to understand why they are - consider that every segment may be interested for their different reasons! And, as always crucial in starting a business, validate your thoughts by actually talking to and understanding your potential customers. The best way to validate is to just go out and talk to your customer segment(s) in the wild. Try not to interview friends, family or acquaintances as they tend to be biased.
Need some more help with your customer segmentation? Consider reading this blog: Hubspot - Customer Segmentation
2. Value propositions
The value propositions component is by far the most important component of your entire business as it expresses why you should have a reason to exist as a company. It goes into: what makes your product unique? And why does it add value for your customer segments? Your value proposition may come from a unique design, secured with a patent, yet it may also stem from multiple sources, such as the combination of great customer service, high product quality and speedy delivery. Try to be critical and never forget to validate your thoughts! Three more questions to keep in mind are: why would a customer choose your product and not another alternative? And which problem are you solving for them? How are you different from all of the other direct and indirect competitors out there?
3: Channels
Channels is about how and through which channels you deliver you value proposition your customer segment(s). Examples could be direct sales, social media, or a mobile application. Keep in mind that you can leverage multiple channels for different uses: social media for marketing, direct in-person contact for feedback, or an app for sales.
Tino: It is dangerous to focus too deeply on theory: don’t forget that everything eventually revolves around people. It is easy to say that social media will be used for marketing, but your customers may be much more attracted to another type of marketing. Always validate your assumptions by going out and talking to your customers yourself.
4. Customer relationships
The customer relationships section focuses on what type of relationship your are going to have/create with your customer segment(s). Your relationship could be online, offline, very personal, or more general. It is all about how you will manage your relationships. Keep in mind that you may have multiple customer segments with different needs - that would mean that you might need to have multiple relationship strategies.
5: Key partners
This part of the canvas is about your key partners. Ask yourself: what knowledge and expertise do I need to serve my customers? What essential components do I need, like flour for a bakery? Startups might partner with incubators or accelerators, or those with specific expertise, like universities that can license certain rights. Partnerships can take many forms: some might be central to your business model, like the restaurants and drivers for Uber Eats. Others might be where you outsource tasks to improve your business.
Tino: A common mistake that people make is to add companies here that are not actual partners. If you use DHL for your delivery, this doesn’t always mean that you need to fill in DHL in the key partner section. The real question to ask here is: which partners are essential to delivering your value proposition to your customer segments? Leave out the ones of which the services are interchangeable. For example, your car needs gas to run, but that doesn’t mean that all gas stations are your key partners. On the other side, if you lease your company cars from a car dealer that also performs maintenance, and these cars are essential to delivering your value proposition to your customer segments, then you might decide to list them as a key partner as they are not (easily) interchangeable.
6: Key activities
Key activities concern the most important activities that allow your to deliver your value propositon to your customer segments. This entirely depends on what type of business your are planning on starting. Something that may be a key activity for one company may not be key for another. For example, washing your company car is not a key activity for someone who runs an accounting firm. However, it can be considered a key activity for someone who runs a taxi company as it directly impacts the delivery of the value proposition to the end customer. When looking at the key activities, it can sometimes be somewhat confusing on where to start. To help you get started, first start with listing all activities that would be happening in your company once it is fully operational. Now, ones you have done that, you substract the activities that may be performed by your key partners. This can be anything from outsourced processes and projects to ready-made resources that you acquire without having to do anything with it.
Tino: Just like I mentioned about partners, people also often mistake key activities for “activities” - you don’t need to fill in every single activity here. For instance, employees showing up to work is not considered a key activity. Start by listing everything, and then subtract things that are not key until you end up with a few of your core processes and activities.
7: Key resources
Every business needs resources that allows them to deliver their unique value proposition. These resources could for instance take the shape of capital, patents,manufacturing facilities or even human capital and experience - this entirely depends on the nature of your business. An e-commerce startup will need completely different resources than a sari-sari store!
8: Cost structure
The cost structure is usually filled in at the end of your journey through the canvas. This makes it easier to consider the costs of each component of your business plan. Fill in both your fixed and variable costs. This also allows you to take a step back and see if there might be any potential savings. Keep in mind that your fixed costs are overhead, meaning that if you suddenly stop producing and selling, these are the costs that will always keep going. Examples of fixed costs are wages, office rental, loan payments, asset depreciation and much more. On the other hand, variable costs are entirely associated with the production and selling the goods or services. This means that everything you have to acquire before being able to deliver your service or produce and sell your product will be attributed to this. This can include anything from purchasing the raw materials and transforming them into the final product to the costs associated to shipment and delivery.
9: Revenue streams
There are many possible revenue structures - think of subscriptions, one-time products, or services. Consider your customer segments when determining prices and try to see whether your revenues, costs and your estimated profits seem realistic. Don’t be afraid to reach out for feedback when dealing with this. There is absolutely nothing wrong with asking your customer segment whether they feel if your pricing matches the value that you bring to them. In the end, there’s only one way to find out and that is to go out and talk to them.
Tino: If you think your canvas is complete, get together with your friends for an evening, have some drinks and discuss the model. Make sure to istruct them to ask their most critical questions and tell them to skip the nuances. It’s much better to get these critical (and sometimes unpleasant) questions from a friend first, instead of having an investor ask them to you later. Someone will undoubtly ask you these tough and unpleasant questions at some point in your startup journey. It is up to you to come prepared, or be surprised, when it happens.
Extra tips and tricks on filling in your Business Model Canvas
Post-its and color
Tino: I would always recommend using post-its instead of a pen! When going through the model, you will probably change a lot of big and small details. Also, try to use color: red for things that you are unvalidated and, green for things that are 100% validated. This gives you an overview of how certain you are of each part, and most important, which elements need some extra attention.
Challenge yourself to not be vague
Tino: A common mistake that people make is that they quickly think their canvas is done, while it is still vague and far from actionable. For example, you might fill in “product development” in key activities. What does that mean? Are you going to develop your product to be more efficient or more sustainable? And if your target group is women aged 20 to 40, why is that so? And why not women aged 20 to 30? Be critical of what you wrote down afterwards, because this will make your canvas much more practical and actionable.
Don’t do this
Tino: As mentioned earlier, the Business Model Canvas is a tool to help you create and validation your business model. That’s why I always tell people not to present it as a canvas, but rather as the contents converted into a proper slide deck. For example, when you hire a contractor that uses a special drill as a tool, you don’t want him to explain how the drill works when you’re discussing a renovation, right? Exactly. That’s kind of the same with a canvas. It’s nice that you use the canvas (drill) to manage the operations (renovation), but people tend to be more interested in what you do and why you do it. An amazing example is the old TED Talk by Simon Sinek about the Golden Circle. Watch this super informative and helpful video here
An example of a complete Canvas
CONCLUSION
The Business Model Canvas is a vital tool for entrepreneurs, providing a one-page overview of a business's key elements. It includes nine components - by mapping out these elements, startups can identify strengths, opportunities, and strategies. Don't forget that the canvas is a tool and not a result: it allows you to really stand still and look at your business model, allowing you to find gaps and solve problems.
Business Model Canvas template
Before downloading your template, maybe you want to consider meeting like-minded founders, sharing inspiring business ideas and getting feedback from entrepreneurs? Join the StellarPH community on Facebook! Click here to join -> https://www.facebook.com/groups/3711069172444288
Click here to download the template!
This template is based on the original Business Model Canvas Poster by Strategyzer.com
More resources
Can’t get enough of reading about the business model canvas? We listed some other helpful resources for you here.
This article provides an alternative explanation of the entire canvas:
Medium - How to: The Business Model Canvas Explained
Or what about the entire canvas explained in a video under two minutes?
