"Business Model Canvas: Developing and Testing the Business Concept" provides an overview of value creation and value capture concepts and introduces the basic framework of Ash Maurya's Lean Business Model Canvas template.

1. Business Model Canvas: Developing
and Testing the Business Concept
Entrepreneurship –
New Venture Creation

2. 2
Topic Objectives
 What is a business model canvas? How is it
used?
 Why is value creation and capture so important?
 How do I use a canvas to “document my plan A”?
What are the key questions I should pay
attention to?

3. What is a business
model canvas?
Why is it
important?

4. A business model describes the rationale
of how a [startup] creates, delivers, and
captures value.
~from Osterwalder, A. and Pigneur, Y. 2010. Business Model Generation:
A Handbook for Visionaries, Game Changers, and Challengers. John
Wiley & Sons Inc., Hoboken, New Jersey
4
What is a business model?

5. Value creation and value capture:
5
A conceptual foundation
An economic view of value creation
“… the concept of value creation lies at the heart of entrepreneurship”
VALUE
Product A
Total value created includes the real economic value realized and
the subjective benefits realized by the customer whether the
customer is the end-consumer or another business
PRICE
Total price includes the economic considerations for
the customer as well as for the company
COST Total cost includes economic costs and other
resources used in producing and delivering the
product/service

6. Value creation and value capture:
A conceptual foundation (cont.)
 Value creation occurs when a consumer consumes a
product or service
 B as the perceived benefit to the final consumer
6
 C as the costs of inputs
all economic inputs including opportunity costs
 Total value created = B – C
 Value capture is a function of bargaining and
negotiation. To the entrepreneur, value capture is
the price of the product or service relative to its cost
to produce

7. Value creation and value capture:
A conceptual foundation (cont.)
 Why do customer’s choose your product over
the other choices they have?
 How do production, distribution, and sales
technology affect your ability to create value?
 What is your underlying cost structure?
7
 Are there economies of scale or scope?
 How do non-production costs affect your overall cost
structure? (production, distribution, sales?)
 How do costs change with experience?

8. Value creation and value capture:
A conceptual foundation (cont.)
Value-created = Benefits – Costs or Consumer Surplus + Producer Surplus
Assume the P of a unit is $55, then:
8
Firm’s
Cost
$30
C
Consumer’s
Maximum
Willingness
to pay
$100
B
Firm’s
Cost
$30
C
Consumer
Surplus
$45
B-P
Producer
Surplus
$25
P-C
Value
Created
$70
B-C
B – Benefits (price at which the consumer is
indifferent between buying the product or
service and going without it). Also known to
as the maximum-willingness-to-pay
P – Price paid (price the customer
ultimately pays for the product or service,
including ‘other’ costs)
C – Costs (total cost incurred by the
business to produce, market, and deliver
the product or service)
How value is created

9. Value creation and value capture:
A conceptual foundation (cont.)
 Value is split into consumer surplus + producer
surplus
 Producer surplus is contribution margin or profit
9
 Consumer surplus is
the difference between what the consumer pays for
a product and the perceived benefits by the
consumer
consumers buy products which maximize their
consumer surplus

10. Value creation and value capture:
A conceptual foundation (cont.)
10
 What factors affect customers’
value (benefits) perceptions?
 price/performance
 cost reduction/risk reduction
 reliability/durability/usability
 design/functionality
 convenience/accessibility
 brand/image/status
 others?
 In addition to price, what costs
affect the consumer surplus?
 installation costs
 learning costs
 operations costs
 maintenance costs
 disposal costs
 others?

11. What is a business model canvas?
A business model canvas is a simple graphical
template describing the building blocks of
business models. The individual elements
prompt consideration of a business’ full scope,
while the layout encourages thought about
how the pieces fit together …
~from Forbes, January 31, 2012
11

12. 9 basic building blocks of business models
12
Problem
statement
1
Solution
3
Unique value
proposition
4
Unfair
advantage
5
Revenue
streams
6
Cost
structures
7
Key
metrics
8
Customer
segments
2
9
Channels

13. Problem Solution
3 5
Key
Metrics
Unique
Value
Proposition
Customer
Segments
Unfair
Advantage
Channels
What are the key
metrics that tell you
how well you’re doing?
1 4
2
8 9
Cost Structure Revenue Streams
7 6
What problem(s) are
we trying to solve?
What is the basis
for/source of each
problem?
How painful is each
problem to potential
customers? Who is
experiencing the
most pain?
Who is likely to be
your competition?
Whose problem are
you trying to solve
(i.e., your target
customers)?
Who is experiencing
the most pain (i.e.,
early adopters)?
What are the
possible solutions?
What are the
features? How is your solution
different and worth
your customers’
attention?
What about your
problem/solution
can’t be easily copied
or bought?
How much are customers willing to pay for the value that
you plan to offer?
What will it cost you to acquire and activate customers,
design/develop product, distribute/sell the product, etc.?
What are the best
pathways to reach
your target
customer(s)?
The
lean
canvas
Source: Adapted from
Maurya, A. 2012. Running
Lean: Iterate from Plan A to
a Plan that Works. O’Reilly
Media Inc., Sebastopol, CA,

14. The lean canvas: Customer segments
14
Problem Solution
Key
Metrics
Unique
Value Proposition Customer
Segments
Unfair Advantage
Channels
Cost Structure Revenue Streams
 For whom are we creating value?
 Distinguish between customers and users
 Split broader segments into smaller ones that
share a common need, problem, behavior, or
attribute
 Separate segments if:
 Their needs require and justify a unique solution
 They are reached through a different channel
 They require different types of relationships
 They have substantially different value propositions
(i.e., pricing, profitability)
 Identify early adopters first
 How you will appeal to their needs?
2

15. The lean canvas: Customer segments (cont.)
Craft a Unique
Value Proposition
15
Segment
the Market
What groups of
consumers are similar
enough that the same
or similar solution will
appeal to all of them?
Select a
Target Group
What specific group
holds the most promise
to be an early adopter?
Why?
What will each group
value most? For what
reason(s) will each
group turn to your
solution over others?
For example, Dell can segment its customers by
product type (i.e., handheld computers, laptops,
PCs, microcomputers, and mainframes), by
customer type (i.e., individuals, businesses,
schools, and government), or by region/location
Establish a “position” with your solution in
the market that differentiates it from
others.

16. The lean canvas: Unique value position
16
Problem Solution
Key
Metrics
Unique
Value
Proposition
Customer
Segments
Unfair Advantage
Channels
Cost Structure Revenue Streams
 Study other UVPs
 Be different, but make sure your
differences matter
 Focus on benefits of the finished story
 A good UVP focuses on the benefits your
customers will derive after consuming your
product
 Pick your words carefully, i.e.,
performance, design, prestige, price
 Answer what (is your product), who (is
your customer), and why (is your product
valuable)
4

17. The lean canvas: Revenue streams
17
Problem Solution
Key
Metrics
Unique
Value Proposition
Customer
Segments
Unfair Advantage
Channels
Cost Structure Revenue Streams
 How will you make money? (monetize
the value)
 sale, usage fee, subscription fee, rent/lease,
or licensing fee
 transaction (one-time payment) vs.
recurring (ongoing payments)
 Is pricing fixed or will you bargain?
 fixed price: predefined based on static
factors, is volume dependent
 dynamic pricing: price changes based on
market conditions, is negotiated, is outcome
of competitive bidding (i.e., services, airline
tickets/yield management, etc.)
6
Ways to generate revenues:
• Asset sale (selling ownership
rights to a product) (i.e., Amazon)
• Usage sale (i.e., Hilton)
• Subscription sale (i.e., Pandora)
• Renting/leasing (Zipcar, Bike
share)
• Licensing, brokerage (i.e., real
estate), etc.

18. 18
The lean canvas: Channels
 How will you create “touch points” with your
customers?
 Direct (i.e., personal) vs. indirect (i.e., partners)
 Inbound (i.e., blogs, SEO, webinars, etc.) vs.
outbound (i.e., print/TV ads, cold calling, etc.)
 How to justify cost of outbound wo tested UVP?
 Touch points serve multiple purposes:
 how do we build awareness?
 how do we help customers evaluate our product’s
value proposition (i.e., the 1st consumption)?
 how do we allow customers to purchase our
product?
 how do we deliver a value proposition?
 how do we provide post-purchase support?
Problem Solution
Key
Metrics
Unique
Value Proposition
Customer
Segments
Unfair Advantage
Channels
9
Cost Structure Revenue Streams
Partner Own
Indirect Direct
In-house sales force
Website sales
Retail stores
(owned or operated)
Partner stores
Wholesaler/exporter/etc.

19. 19
Where do I start?
 Focus on the customer pain you intend to solve (problem)
 Prioritize customers that you believe need your product most; look for early
adopters
 Develop/test features of your product that address the pain
 Clearly identify what makes you unique (value proposition)
 Assess the ease of reach (channels)
 Determine how you will make money
 Pick a segment that allows you to maximize your margins; the more money
you keep, the fewer customers you have to reach
 Revise solution assumptions and test feasibility
 Now, sketch an initial canvas
 It’s ok to leave sections blank!