Business Model Canvas and Lean Canvas Components
Learning Objective 6.5: Business Model Canvas and Lean Canvas
Introduction to Business Models and Canvases
Learning Objective 6.5: To explore the components of the Business Model Canvas (BMC) and the Lean Canvas.
Four Major Parts of a Business Model: Before diving into the canvases, it's essential to recall the four fundamental parts of any business model:
The Offering: What value is being provided to customers.
The Customers: Who the business serves.
The Infrastructure: How the business operates to deliver the offering.
The Financial Viability: How the business ensures its economic sustainability.
These canvases serve as tools to understand how a company creates, delivers, and captures value for its customers.
The Business Model Canvas (BMC)
Origin: Introduced in by Swiss business theorist Alexander Osterwalder.
Purpose: Divides the business model's four major parts into nine distinct components, offering a comprehensive overview of the business model's logic.
Applicability: Suitable for both startups and existing companies (e.g., corporate entrepreneurship).
Structure: Figure visually illustrates these nine components:
The Offering is represented by the (1) Value Proposition.
Customers are covered by (2) Customer Segments, (3) Channels, and (4) Customer Relationships.
Infrastructure comprises (5) Key Activities, (6) Key Resources, and (7) Key Partners.
Financial Viability includes (8) Cost Structure and (9) Revenue Streams.
Detailed Components of the BMC (with T-shirt Store Example)
Value Proposition (CVP):
Description: Designed to solve a customer problem or meet a need.
Questions: What value do we deliver? What bundle of products and services are we offering? What are we helping customers achieve (e.g., by providing a new range of trendy T-shirts with original designs by emerging artists)?
Customer Segments:
Description: A specific group of customers within a market (e.g., "gluten-free" customers vs. "lactose intolerant" customers in food).
Questions: Who are your most important customers? Which market segment is most likely to buy your T-shirts?
Channels:
Description: How the value proposition is communicated, distributed, and sold.
Questions: What are all the ways you can reach your customers (e.g., online, brick-and-mortar store, word-of-mouth)?
Customer Relationships:
Description: Goes beyond transactional buying/selling; focuses on fostering positive feelings, building customer identity (e.g., "I am a T-shirt customer"), and encouraging referrals.
Questions: How do you establish and maintain relationships with your customers (e.g., one-to-one in-store service, automated online processes)?
Key Activities:
Description: The most critical tasks a company performs to "get the job done."
Questions: What are these activities for a T-shirt business (e.g., stock management, sales management, T-shirt design selection)?
Key Resources:
Description: What is needed to develop the business, create products/services, and deliver the CVP, including people, technology, information, equipment, and finances.
Questions: How many and which resources are needed for or customers? What resources are required for key activities (e.g., store location/size, sales staff, inventory storage, artists providing designs, startup capital, necessary skills/knowledge)?
Key Partners:
Description: Collaborations with suppliers, associates, and distributors for strategic purposes and efficiency.
Questions: Could some activities be outsourced? Do you have a network of suppliers/buyers? Who could you partner with (e.g., a designer for artwork advice and network access)?
Revenue Streams:
Description: How the business generates income through the successful delivery of its value proposition.
Questions: How much are customers willing to pay? How many customers are needed? How much cash can be generated from T-shirt sales (in-store, online)? How much does each stream contribute to the total? (Further exploration in Chapter ).
Cost Structure:
Description: All expenses essential for executing and running the business model.
Questions: What are the most important costs? Which resources or activities are the most expensive (e.g., store rental, employee salaries, material/design purchase, sales/marketing costs)?
Adaptations and Strategic Implications of BMC
Social/Environmental Adaptations: The BMC has been adapted to include "Social and Environmental Costs" under cost structure and "Social and Environmental Benefits" under revenue structure for social or environmentally driven companies or nonprofits. These areas can also drive differentiation, innovation, or disruption.
Value Creation vs. Value Delivery: An imaginary line down the middle of the BMC (Figure ) clarifies its two sides:
Right Side: Focuses on creating value for the customer (Value Proposition, Customer Segments, Channels, Customer Relationships).
Left Side: Focuses on delivering value efficiently (Key Activities, Key Resources, Key Partners, Cost Structure, Revenue Streams).
Iterative Process: The BMC encourages structured thinking and creativity, involving constant iteration and movement between components as ideas are tested.
Importance of Testing Assumptions: The canvas helps lay out assumptions for testing through experimentation. Business models are dynamic and must be continuously refined.
Consequences of Stagnation: Examples like BlackBerry, Blockbuster, and Kodak demonstrate that failure to adapt and refine a business model can lead to business failure.
Interconnectedness: Understanding all nine components shows how they work together to create value, implement processes, acquire resources, and generate revenue.
Customization: Successful companies like Shopify and Tata Motors have created their own tailored processes and resource models to suit their unique Customer Value Propositions (CVP) and industries, emphasizing sound revenue models.
The Lean Canvas
Origin: A popular adaptation of the BMC, particularly beneficial for entrepreneurs.
Applicability: Works best at the very early stages of a startup, especially when a solution to a problem hasn't been chosen yet, a product hasn't been developed, or few actions have been taken.
Core Principle: Every box represents a hypothesis that needs testing, validation, or modification to achieve a sustainable business.
Key Differences from BMC:
Less Emphasis on Customer Segments: More focus on identifying likely first adopters.
Problem-First Approach: Begins with identifying a problem rather than a value proposition.
Eliminated BMC Components: Key Activities, Key Resources, Customer Relationships, and Key Partners are removed.
Key Activities: Covered within the Solutions box.
Customer Relationships: Covered within the Channels box.
Key Partners: Eliminated, as it might be too early for strategic partnerships in the initial startup phase.
New Boxes/Emphasis: Introduces or re-emphasizes specific components (Figure ):
Detailed Components of the Lean Canvas
Problem:
Description: Acknowledges that startups often build solutions without fully understanding the underlying problem. Emphasizes problem understanding and validation, which is crucial and discussed in Chapters and .
Approach: Start with the problem first, validate its existence, and then create a solution.
Solution:
Description: Where potential solutions to identified problems are noted. This box is intentionally kept small to prevent over-attachment to an idea and encourage early testing.
Key Metrics:
Description: Encourages identifying and tracking only what is most important for the current stage of the business to avoid information overload.
Examples: Cost of acquiring a new customer, revenue, activating new users, or retention rate.
Unfair Advantage:
Description: Synonymous with competitive advantage, but phrased to resonate more with entrepreneurs. Crucial for long-term success, as it is likely to emerge as solutions are tested.
Sources: User-friendliness, product design, service experience, influence on social media, or price.
Resources
Leanstack.com: A free online resource that guides users through creating their own Lean Canvas.