Primer on the business model canvas v5

by: Michael Lachapelle - Business Model Fulcrum v5
Primer on the
building blocks of
the canvas
A guide to the 9 building
blocks of the canvas and
key considerations in
describing the components
of your business model
Business
Model
Canvas

by: Michael Lachapelle - Business Model Fulcrum v5 1
This document is intended as a companion to presentations and workshops on the
Business Model Generation approach to business design and innovation. It can also
be used as a stand alone introduction to the business model canvas.
It was created with the permission and support of Alexander Osterwalder and Yves
Pigneur. My continuing thanks go out to them both for all they have taught me. The
content was reviewed by members of the Strategyzer certified trainer cohort, and
colleagues in the business design and business analysis community. My appreciation
to them as well for their valuable input.
Michael Lachapelle
Business Model Fulcrum
Strategyzer/Business Model Generation
Certified Trainer
michael@businessmodelfumcrum.com
PREFACE

Business Model Canvas
Overview
Business Model Canvas available under Creative Commons license at : www.businessmodelgeneration.com
The version of the canvas used here was generated through Strategyzer, the online tool and learning support www.Strategyzer.com

Business Model Canvas
A business model is defined as the rationale of how an
organization creates and delivers value to its customers
and captures value in return. .
An organization’s business model is a description of the logic of
how the business creates and delivers value important to their
customers, clients or members and how they capture a return
value to ensure the sustainability of the organization.
Alexander Osterwalder, in his PHD thesis and in the book
Business Model Generation, described a set of nine elements to
serve as a common language for discussing business models,
and a tool, the business model canvas, to understand, analyse
and change business models..
Overview

Customer Segments (CS)
Customer segments are the different groups of people
or organizations an enterprise aims to reach and serve.
A business model may define one or more ‘segments’ of
customers that are differentiated by their needs. Customer
segments and their needs should be defined by the outcomes
they are trying to achieve, most effectively indicated by the
‘jobs’ they are trying to get done, or the ‘problems’ they are
trying to solve.
The needs that each segment has to get its job done or problem
solved become the drivers of the value proposition design. One
should avoid differentiating customers by their demographics or
their characteristics as this can lead to false segmentation.
Building blocks
Key Question on CS
? For whom are you
creating value
? What is the job-to-be-
done of your customers
? What problems are they
trying to solve
? How will you group
(segment) your
customers, based on
their jobs and problems

Value Proposition (VP)
Value Proposition is the product or service (bundle) that
creates value for a specific customer segment.
A value proposition is defined as how the business goes about
designing and delivering an offer (product and service) that
solves the needs of the customers.
The value proposition addresses the pains (barriers) the
customers may have in getting their job done or in solving their
problem. Additionally, the value proposition creates the gains
(outcomes) the customers are hoping to achieve in getting the
job done or solving the problem, or delivering value that
exceeds the expectations of the customer.
Building blocks
Key Question on VP
? What are you delivering
that is of value to the
customer
? What need are you
satisfying that helps
the customer get a job
done or solve a
problem
? What are the key pains
and gains you are
addressing for the
customer.

Channels (CH)
Channels are how the enterprise communicates and
transact business with the customer segments.
Channels represent the mechanisms the business will use to
interact with its customers. There are two aspects to be
concerned with in the channels.
The first is what channels will be used to communicate with the
customers to let them know what the business has on offer and
how to access the offers.
The second aspect is the mechanisms used to transact
business with customers. A bricks and mortar business will have
its store locations or a sales force, whereas a web-based
business will be concerned with sales transactions and delivery
mechanisms.
Building blocks
Key Question on CH
? How do you
communicatewith your
customers
? How are products and
services delivered or
distributed
? How is business
transacted with
customers
? Which channels are
direct or indirect

Customer Relations (CR)
Customer relations include the types of relationship a
company establishes with its customers, and its
customer acquisition, retention strategies.
The business must consider what the nature of the relationship
will be with the customers; short or long term, electronic or
personal.
In addition the Customer Relationships component includes the
strategies the business will use to bring in new customers, keep
their current customers engaged, and increase the customers
interaction with the business and get others to connect to the
business.
These are commonly referred to as the GET-KEEP-GROW
strategies of the business.
Building blocks
Key Question on CR
? What kind of
relationship does your
customer want –
personal, automated
? What are your
strategies to attract
new customers
? How will you retain your
customer’s
participation
? How will you get them
to increase their
interaction

Customer Relationships (CR) and Channels (CH) differ in
that CR is about the strategies the business will follow
in GET-KEEP-GROW (e.g. social media networking) and
CH is about the mechanisms to be used to deliver on
those strategies (e.g. Facebook or Twitter)

Revenue Streams (R$)
Revenue streams are the value the business captures
from its customers.
Revenue streams are concerned with the ‘types’ of revenues
captured as the return value rather than the specific pricing
strategy.
The revenue streams can be transactional (each payment is
separate) or recurring (ongoing payments from recurring
interaction such as subscriptions, memberships, ongoing
services).
Revenue streams can be fixed price, negotiated, or dynamic.
Building blocks
Key Question on R$
? For what value are
customers willing to
pay
? How often will they pay
– transaction or
recurring
? What is the revenue
type – sales,
subscription, use ,
license, advertising…
? To what segment-value
is the revenue
connected

Customer Revenue streams must be connected to a specific
Customer Segment and Value Proposition. Likewise each
customer-value proposition must be tied to a revenue stream,
even if that stream is identified as ‘free’, as in the case of
Skype where there is no charge for calls, or Dropbox where
basic features are free.

Key Activities (KA)
The Key Activities are the most important things the
business must do make the business model successful.
Key Activities are the capabilities necessary to operate
successfully. The focus in this component should be on the
primary activities necessary for the business, not the secondary,
or functional capabilities of the business (e.g. financial reporting
or human resources).
The key capabilities required of a business are dependent on
the type of business – value added (manufacturing, retail),
solution (consulting, health services), network (multi-sided
platforms, marketplaces).
Building blocks
Key Question on KA
? What are the core
activities that must be
done by the business
? What type of business
is it – value-added,
problem solving, or
networking
? Which Key Activities
will be done in the
business

KA is susceptible to too much information. It is very
easy to get bogged down in detail when looking at
activities. KAs must be kept at a strategic level,
capabilities not processes, and those KAs specific to the
success and type of business being run, not a shopping
list of the things done in running a business.

 Value-added businesses (manufacturing, retail)
need to concern themselves with supply chain,
product or service creation, marketing, and
distribution. (value chain activities)
 Solution businesses (consulting, health services)
need to be concerned with problem acquisition,
finding and choosing solutions and implementing
those solutions. (value shop activities)
 Networking businesses (marketplaces, multi-sided
platforms) must consider connecting customers,
the services provided to the network and the
infrastructure to run the network. (value network
activities)
The KAs of a
business are
dependent
on the type
of business
My references to types of businesses and their primary
activities are derived from: Porter (value chain model)
and Stabell & Fjeldstad (value shop and value network
models)

Key Resources (KR)
The Key Resources are the most important assets
required to make the business work.
There are are four types of Key Resources the business has to
consider. Intangible resources are those intellectual or virtual
things needed to run the business (intellectual property, patents
and copyrights, data). Tangible resources are the physical
things needed to run the business (facilities, vehicles,
machines, IT infrastructure). Human resources are comprised of
people and expertise (sales force, subject matter expertise).
The last is financial resources. These resources are different
from revenue in they are specific to capital investment (loans,
guarantees, line of credit, stock) used to launch or expand the
business.
Building blocks
Key Question on KR
? What tangible
resources do you need
(plants, stores, IT)
? What intangible
resources do you need
(data, licenses)
? What human resource
is critical (expertise,
people)
? What finances do you
need to build, launch or
grow

Key Partnerships (KP)
The network of suppliers and partners that are needed
to make the business successful..
Businesses very rarely have all the things they need to run the
business independently. Very often partnerships are required to
acquire resources needed for the business to operate, reduce
risks inherent in the business, or to optimize the business by
providing scale.
Partnerships can be built on strategic alliances, joint ventures or
buyer-supplier relationships. But in every partnership it is
important to understand the reciprocal value created for each
partner.
Building blocks
Key Question on KP
? Who are your suppliers
? Who is providing
resources you need for
your business
? Who is integratedinto
your activities
? Who is providing
support to your Key
Activities (outsourced,
open innovation)

Cost Structure (C$)
Cost Structure is about the costs incurred to operate
the business model.
What are the most important costs inherent in the business
model.
The costs of the business are derived from a consideration of
the other components of the model – activities, resources, and
partnerships.
The type of costs should also be considered. Costs may be
fixed or variable.
Building blocks
Key Question on CS
? What are the most
important cost centres
in the business
? What type of costs are
they, fixed or variable
? Which Key Activities &
Resources are most
expensive
? What are the costs
inherent in our Key
Partnerships

Cost Structure is another area that is susceptible to too
much information. Like Revenue Streams you should
be concerned with types (or centres) of costs rather than
a budgetary view. Like Key Activities you want to focus
on a strategic view of the costs rather than a line-item
listing.

Front Stage
The front stage of the canvas represents the customer
facing perspective of the business.
The front stage of the business represents those key
components that are visible and interact with customers. These
customer-facing components include the Customer Segments,
Value Propositions, Revenue Streams, Channels and Customer
Relationships.
Canvas structure

Back Stage
The back stage of the canvas represents the
components necessary to create and support the front
stage.
The back stage of the business represents the key components
required to create and deliver the value proposition to the
customers. These infrastructure components include Key
Activities, Key Resources, Key Partnerships and the Cost
Structure .
Canvas structure

Ground Rules
Using the canvas
Source: www.strategyzer.com

Best Practices
Using the canvas
Source: www.strategyzer.com

Primer on the business model canvas v5

Primer on the business model canvas v5

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