Create Your Business Model Canvas

Get Familiar With the Components of Osterwalder’s BMC

Alex Osterwalder created the very first iteration of a Business Model Canvas in 2005. Developed in partnership with Yves Pigneur, it grew in popularity due to the success of their book - Business Model Generation. 

According to the book, “The Business Model Canvas is a strategic management and entrepreneurial tool. It allows you to describe, design, challenge, invent, and pivot your business model.”

Osterwalder’s model can be used for various businesses due to its flexibility and easy availability, which is why we are using it in this course.

Let’s have a closer look at Alex Osterwalder’s Business Model Canvas.

When completing the Business Model Canvas, you work your way around the nine blocks as you go, using your knowledge of the opportunity and your assumptions (which you will prove or disprove later on).

Working clockwise from the top left, the nine blocks are:

Key Partners

This section describes the network of suppliers and partners that make the business model work. Companies forge partnerships for many reasons, which are the cornerstone of many business models.

Key Activities

This describes the most important things a company must do to make its business model work. Every model calls for several key activities. These are the most important actions a company must take to operate successfully.

Key Resources

Here you describe the most important assets required to make any business model work. These resources allow an enterprise to create and offer a value proposition, reach markets, maintain relationships with customer segments, and earn revenue.

Value Propositions

Value proposition is the core element of the canvas that connects external and internal factors. This section relates to the bundle of products and services that create value for a specific customer segment. The value proposition is the reason why customers turn to one company over another. It solves a customer’s problem or satisfies a need.

Customer Relationships

This refers to the types of relationships a company establishes with specific customer segments. A company should clarify the kind of relationship it wants with each customer segment.

Channels

This block describes how a company communicates with and reaches its customer segments.

Customer Segments

Here we define the different groups of people or organizations an enterprise aims to reach and serve. They are the heart of any business model. Without (profitable) customers, no company can survive for long. In addition, many companies have multiple segments that must be captured in the canvas.

Revenue Streams

This represents the cash a company generates from each customer segment (costs must be subtracted from revenue to create earnings).

Cost Structure

Here we describes all costs involved in operating a business model. This building block represents the most important costs under a particular business model.

Discover Other Types of BMC

While focusing on the Alex Osterwalder Business Model Canvas, we should recognize it isn’t the only one.

Ttwo other well-known types of Business Model Canvas include those proposed by Patrick Stähler and the Lean Canvas, adapted from Alex Osterwalder’s version by Ash Maurya. The Lean Canvas uses the same nine blocks, but the focus is more appropriate for a lean startup.

Lean startup methodology favors experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional long-term planning.

Consider the advantages and disadvantages of each to hone your critical thinking on the subject. As you may have understood, some BMCs can be more suitable than others for certain situations. It’s up to you to determine which one you feel is best and most comfortable.

You may encounter others in your own research or in your workplace. The important thing to remember is that they all focus on the same core objective: to define, clarify, and visually display your business model.

But for now, let’s get to work together using Alex Osterwalder’s BMC!

Let’s Recap!

• As mentioned by the founder, Alex Osterwalder, the BMC helps “describe, design, challenge, invent, and pivot your business model.”

• It comprises nine blocks designed to represent the core elements of any business model.

• Choose the type of BMC that suits you best.

• Developing your critical thinking around the advantages and drawbacks of each BMC can help ensure you choose the best one for your circumstances.  

Now that you have a clear understanding of the canvas, you might be thinking, “This is all great, but what exactly is a business model, and what are the different types?” Well, you’ll be pleased to know - that’s what we’re covering in the next chapter!