Business Model Canvas: How do you develop a business model for your strategy?

The business model is the machine with which you practise your future direction—specifically your mission, positioning and vision—in day-to-day business. You must not remain vague when describing your business model. Your business model must clarify all the necessary details of how your company works, so that someone who is new to your company can understand and apply it. If you wanted to, you could take this to the extreme and develop the description of your business model into a company manual with precise descriptions of all systems and processes. Alexander Osterwalder pioneered this field by developing the Business Model Canvas.

OSTERWALDER'S BUSINESS MODEL CANVAS

How do you describe a business model?

The word Canvas is derived from the Old French word Canevas ("canvas"), the Latin word Cannapaceus ("made of hemp") and the Greek word Cannabis. Canvas is synonymous with cloth or canvas. Osterwalder deliberately chose this association and writes: "this tool is like a painter's canvas, on which you can paint pictures of business models". It is intended as a tool for describing a business model graphically and thereby promoting understanding, analysis and creativity. Nine building blocks form the content framework. You will find the Business Model Canvas template in the graphic below.

Is the Business Model Canvas suitable for medium-sized companies?

For use in medium-sized and established companies, however, Osterwalder's Canvas is rather too rough and not precise enough. For example, products and services and around a dozen other elements of a business model are missing. Established companies need an extended model for business models. The central criticisms are set out in detail below.

KEY PARTNERS

Key Partners is not a separate element, although including it does no harm. For every other element, you should ask which partners you could work with in order to use their resources, channels, know-how and capabilities.

KEY ACTIVITIES

Key Activities represent the entire value chain. We believe that the value chain is more important than it appears here and should be considered in separate fields. For example, development and production should be separate elements.

KEY RESOURCES

Resources can consist of capital, things, know-how, people and more. If you look more closely here, you will see your strategy more clearly and recognise opportunities and threats more effectively.

VALUE PROPOSITION

Value Proposition encompasses both the promised impact and the solution (product, etc.). Yet this combination often contains major opportunities and major risks precisely because of the way it varies. Failing to distinguish conceptually between impact and solution is a major and dangerous mistake made by many companies. This is why Osterwalder subsequently developed the Value Proposition Canvas, although that is a separate model. It is better to integrate everything into one model.

CUSTOMER RELATIONSHIPS

Customer Relationships is intended to describe the nature of customer relationships, for example whether they are personal or automated. This overlaps with one part of Channels, namely communication channels, as explained below. It also refers to customer acquisition, which we must consider separately as well.

CHANNELS

Channels brings together both communication channels and delivery channels (distribution). We believe these are very different elements of a business model and therefore absolutely must be considered separately.

CUSTOMER SEGMENTS

Customer Segments is not sufficient for multi-stage systems involving partners in processing, trade, sales, distribution, installation or service. These intermediary customers should be differentiated because they usually have very different problems and wishes and require different solutions. A separate model may be necessary for each group. Or they may simply be partners.

COST STRUCTURE AND REVENUE STREAMS

Cost efficiency and flexibility matter more than the cost structure. Important business model elements such as scaling, pricing and delivery are also entirely missing. Meta-factors such as positioning must not be absent from a business model description either.

CONCLUSION

The Business Model Canvas is useful for superficial design and discussion of simple business models. For complex business models, particularly those of existing companies and not just start-ups, Osterwalder's model is rarely sufficient. The key arguments are summarised below.

Strengths of the Business Model Canvas

• First widely used model for describing business models
• Very simple and therefore easy to use
• Can be used free of charge under the "Creative Commons" licence

Weaknesses of the Business Model Canvas

• Some fields encompass very different elements of a business model
• Some essential elements of a business model are missing
• Rarely sufficient for larger companies and more complex business models

BUSINESS MODEL GENERATOR

The Business Model Generator is our extended model for business models, with five core questions and 24 fields that, in our view, established companies need. The five core questions provide the starting point for discussing and describing the business model. Each of the five core questions then has clearly defined elements for description. Together, these form the universal structure for your business model.

The five core questions of a business model, starting with the customers, are:

1. Who do we offer value to?
   1. Dacia addresses people with its cars for whom prestige in a car is completely irrelevant. Here too, there is a clear strategic decision about whom you are there for and whom you are not.
   2. Ikea focuses on people who are willing to exchange their time for savings in money. They consciously do not target those who want to exchange their money for saved time.
2. Why do we operate our business?
1. SpaceX: "We make humanity multiplanetary!" Hubspot: "We want to make the world inbound!" Hubspot is therefore opposed to pushy marketing and hard selling. It wants to help us attract customers instead of dragging them in.
3. What do we offer to deliver the value?
   1. Tesla offers attractive electric cars, energy storage systems and photovoltaic products to deliver on its promise of sustainable mobility and energy.
   2. Ikea offers furniture that is very affordable thanks to savings in logistics and production and to customers assembling it themselves. 
4. How do we create and deliver the value?
   1. Nike does not produce anything itself, but has it produced.
   2. Tesla builds 70% of its cars itself, unlike conventional manufacturers, which make only around 20% of a car themselves and source the rest from suppliers.
   3. Morningstar, tomatoes, has completely dispensed with traditional managers and allows teams to make agreements among themselves and organise themselves. Such an organisational principle is also part of the "How?" of a business.
5. With what do we deliver the value?
   1. BMW, Daimler and Audi cooperate in procuring navigation maps. Together, they bought a supplier.
   2. Tesla worked with Panasonic for a long time as the manufacturer of battery cells. 
   3. Google is financed predominantly through advertising revenue.

Recognising future opportunities in the business model

In addition to describing your business model, the Business Model Generator offers another advantage: its structure is a checklist of the elements in your business model that you need to consider. In this way, you can carry out a complete future analysis of your current business. You can think passively: How do trends affect the elements of your business model? Or think actively: How can you use trends and technologies to improve the elements of your business model?

So, when we talk about artificial intelligence, for example, the opportunity question is: In which elements of our business model can we use AI to our advantage? You could use artificial intelligence to identify your best customers more effectively, solve their problems better and more efficiently, advise them automatically and free of charge, develop more powerful solutions, make your organisation more agile, organise procurement more rationally and, as a basis for all this, bring in a partner with AI expertise to work with you.

I wish you a brilliant future!

Have a bright future!