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      Vaughan Broderick

      Vaughan Broderick

      Have you been trying to innovate, but you’re not sure what to do? Is your business losing competitive advantage? Have you wanted to create and communicate a business idea easily?

      If these questions sound familiar, then the Business Model Canvas for Innovation – Ultimate Guide can help.

      What is the Business Model Canvas?

      Business Model Canvas for innovation

      The Business Model Canvas (BMC), invented by Alex Osterwalder of Strategyzer, is a tool to describe and visualise how a business creates, delivers and captures value all in an easy to understand, one-page document.

      It’s a way to organise and present assumptions regarding the nine inter-related building blocks, customer segments, value proposition, channels, customer relationships, key partners, key resources, key activities, cost structure and revenue.

      Most importantly, the BMC maps a story of how the nine inter-related and essential business components provide a business strategy and lean startup innovation template. For example, how infrastructure (‘back stage’) supports customer facing value (‘front stage’).

      Why Use the Business Model Canvas?

      The BMC is used for three main reasons:

      1. A BMC is useful for mapping existing business models to visualise and explain what currently happens. The approach can also be taken to map out competitors to have an understanding of the ‘current state’, differences, similarities and identify some opportunities.
      2. Often, the BMC is used to design new business models. Whether, a company is a startup or established business, using the BMC for innovation is an effective method to find competitive advantage.
      3. The BMC can also be used to manage an innovation portfolio or pipeline. Because of the ease of use and visual nature, many promising innovations can be explored during the startup and incubation phase using innovation approaches. Then, during exploration ideas are either ‘killed’ or moved on to be exploited in a growth and business management style.

      Benefits of the Business Model Canvas

      There are several key benefits to the Business Model Canvas:

      • Clarity – The BMC provides a clear picture of either your current business model or the business model that you are innovating towards.
      • Communication – Having everyone on the same page is essential in any transformation or innovation process, and the BMC is an ideal way to communicate essential information to all stakeholders. Think of it as a living, one page business plan.
      • Collaboration – Now that your team have clarity and a standard communication tool, the BMC allows a unifying platform to collaborate on ideas. Ideas can easily be mapped and explored in a matter of minutes.
      • Risk reduction – Building a startup or innovating an existing business is risky. The BMC, helps to understand the risks and prioritise the riskiest factors to then approach validation in a logical way to minimise risk.
      • Proven innovation model – The Business Model Canvas has been around for about 15 years, and during that time, thousands of companies have used the BMC for innovation. The BMC has become a standard tool for innovation and strategy.
      • Customer-centric – It’s no surprise that the Value Proposition is in the centre of the canvas. When designing your BMC, also use the Value Proposition Canvas (VPC) to oscillate or zoom in and out between the BMC and the VPC. Doing so helps to continually evolve a BMC from within the lens of ‘creating value for the business’ and creating value for the customer’.
      • Simple, not simplistic – You don’t need an MBA to pick up the BMC and start to innovate. The critical approach is to make your business model visual, ideate, test and learn as you innovate and develop a business model with competitive advantage.
      • Speed – Given the simplicity and practicality of the BMC, many iterations can be made in a short space of time. 

      Are There Any Disadvantages of the Business Model Canvas?

      There may be some conjecture online that the BMC does not consider the environmental forces shaping a sector and, therefore, your business. Or, that it has limitations for start-ups.

      While it is true that environmental forces are critical to consider, such as competitors, technology or legal changes, trends or macro-economic factors.

      The forces are not part of your business model and, as such, is best understood through other strategy tools such as Porters 5 Forces or the Blue Ocean Strategy.

      As far as limitations for start-ups, there may be a preference to use the Lean Canvas because some of the focus and terminology may be specifically tailored towards start-ups.

      But, on the other hand, the BMC continues to be used effectively in the start-up phase of a business. 

      But, even more so, if an existing company is exploring new business models and exploiting existing models, then my preference would be to use the consistency of the BMC.

      Essentially, the BMC is a proven tool for both startups and existing businesses.

      And, like any tool the benefits are realised from mastering its use.

      The 9 Components of the Business Model Canvas

      Business Model Canvas

      The nine components best understood across the lens of Desirability, Feasibility and Viability.


      Customer Segments – This section describes who value is created for and who are our most important customers. For example, who is using the product or service, or whose problems are being resolved or  needs satisfied.

      The customer segment is the ‘customer profile’ from the Value Proposition Canvas. An organisation makes a conscious decision of which customer segment is most important to the business.

      Also, customer segments are more than demographics, they consist of common behaviours, needs and attributes.

      Value Proposition – The Value Proposition describes how your products and services create value for the customer segments.

      What is it that attracts customers, or what fundamental problems or needs are resolved?

      Ultimately, value propositions are the bundle of products and services and is often why customers may choose business over another.

      Channels – Channels describe the various means that you reach customer segments and communicate with them.

      Examples might be directly through a website or a salesforce or indirectly through third-party stores or wholesalers. the purpose of channels is to:

      • Raise awareness
      • Help customers to evaluate products and services
      • Provide a way for customers to purchase 
      • Deliver the value proposition
      • Provide ongoing customer service

      Customer Relationships – This section details your acquisition, retention and growth strategies for each channel.

      Importantly, there should be a relationship to support each customer segment. Examples of relationships include: automated, personal, direct or indirect.


      Key Partners – What network of partners and suppliers can be leveraged to make the business model work?

      Partners are often strategic to provide a necessary capability that the business does not possess or to help scale the business.

      And, they may often take the form of partnerships between competitors or non-competitors, joint ventures or buyer-supplier relationships.

      Key Resources – What essential resources do you need to make the business model work either internally or acquired?

      Resources are often, physical, financial, intellectual or human and are what is essential to support the delivery of  the value proposition, relationships and reach customer segments.

      Key Activities – What are the essential activities that drive success for your business model? These are the things that you will need to be good at.

      Activities will be different for different product types and may include problem-solving, production, customer relations.


      Cost Structure – The cost structure is an outline of all the costs that will be incurred when executing the business. Costs are either fixed or variable.

      Costs will be different for a value driven or cost driven business and costs are important to understand to determine what drives your business.

      Revenue Streams – Revenue Streams describes how each segment will pay for the value that is delivered.

      They are either, one-off transactions or recurring such as monthly subscriptions. Revenue can have different pricing mechanisms, such as negotiation, auction or real-time.

      The Business Model Canvas

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        How to Use the Business Model Canvas - Step by Step Guide

        There are seven main steps to complete the BMC:

        Step 1 – Zoom Out. Ideally, best practice is to firstly research the environment that the business operates in.

        There are four main areas to research – industry forces, market forces, macro economic forces, key trends.

        With the industry forces, research your competitors, potential competitors, what are the substitute products or services, stakeholders, value chain actors.

        Within the market forces, research market issues, segments, customer needs, switching costs and revenue attractiveness.

        For key trends, research technology and regulatory rends, socio-economic, societal, cultural trends.

        For macro-economic forces, research global market conditions, capital markets, resources and infrastructure.

        The big idea here is to raise awareness of the environment that will influence the business and the resultant BMC and strategy.

        Step 2 – Create your ‘as is’ business model. Then, working through the 9 components, map out how your current business model looks like using post-it notes.

        The BMC can be completed in any order. However, I suggest to start the on the ‘front stage” with completing 1) customer segments, then 2) value proposition, 3) customer relationships, 4)channels, 5) revenue streams.

        Then completing the ‘backstage’ components, 6) key partners, 7) key activities, 8) key resources, and lastly, 9) cost structure.

        Some important things to keep in mind are to: keep the map high level by only documenting the ‘critical’ pieces, make sure there are clear and necessary linkages between the components and that each component supports the model and is not redundant.

        And, if there are multiple segments, use different coloured post-it notes to see how the BMC components deliver value to each segment.

        Alternatively, use different maps for each different segment.

        Step 3 – Zoom in. Create your ‘as is’ value proposition canvas. Similar to the BMC, we need to understand the current state of the VPC.

        Using post-it notes, map out the segments jobs, pains and gains, then the products and services that currently relieve pains and increase gains.

        Step 4 Business Model Scorecard. The business model scorecard is a set of seven key business model design factors.

        The scorecard can be used to assess the competitive advantage of your business model, a competitors and any business model that is being explored.

        Step 5 – Innovate. Taking into account what you have learned so far, are there any key insights that have emerged from the research and indicate potential opportunities or obstacles?

        Then, use design thinking to innovate new business model ideas.

        Design thinking is a a proven process for innovation and problem-solving and aligns perfectly with the desirability, feasibility and viability of a BMC.

        There are several business model factors to explore. however, my starting point is often understanding customers needs and pain points (desirability).

        Then, exploring ways to alleviate the pains and increase gains. To learn more about design thinking, I’ve written a comprehensive post on here.

        To explore the seven business model factors, try using trigger questions such as – How might we increase scalability? Or, how might we create more recurring revenue? The objective here is to create many different business model ideas.

        Step 6 – Experiment. Starting with the model that indicates the most significant opportunity based off using the Business Model Scorecard, start testing all the hypotheses by running experiments for the most riskiest assumption.

        The process follows three main steps, 1) what is your idea (BMC hypothesis) 2) What needs to be true for the idea to work? (riskiest assumption) 3) How can the assumption be tested? 4) Have any insights changed the assumption?

        Step 7 – Stay lean. Traditional innovation was a lengthy and risky process of R&D, business planning, building a product and taking to market before getting real evidence of a customers interest in a product, willingness to pay, preferences and priorities.

        Instead, making small calculated risks to test and learn about every part of a business model is far more effective.

        Remaining open to change, getting insight from experiments and failure is a sure-fire way to improve the odds of success.

        The Business Model Scorecard

        There are seven key business model design factors to consider for a more competitive business model.

        Each factor can be ranked on a scale of 1 (poor) to 10 (excellent) for ‘as is’ and ‘to be’ BMC prototypes.

        • Is your business model scalable?
        • What percentage of your business model revenues is recurring?
        • How competitive is your cost structure compared to your competitors?
        • How well protected from the competition is my business model?
        • How much of the value (and therefore costs) are incurred internally by me versus created for free externally? Can more work be done externally?
        • Are there significant switching costs?
        • What percentage of revenues are earned before spending on costs?

        Business Model Canvas Example - Airbnb

        Airbnb business model canvas

        Airbnb’s business model is based on connecting travellers looking for unique and interesting places to stay and matching those needs with property owners that have spare space or complete homes for rent.

        The underlying success of the business model is that Airbnb is avoiding the resource cost of the properties and therefore significantly reducing its cost structure.

        Airbnb is using what is called a double-sided platform:

        • avoidanceThey provide a way for home owners to monetise their spare property by listing on the platform which has a large pool of travellers.
        • Travellers find a desirable place to stay and also become part of a community of Airbnb users. Although each property is potentially a different experience, trust has been established through the community and brand.

        To  explore this type of resource diversion business model, here are some key points:

        1. Identify your businesses / sectors most costly resources. Airbnb have avoided the most costly resources in the accommodation business, property, staff, vacancies.
        2. Identify what potential resource owners might provide the required resources. Airbnb found that there are many property owners with spare rooms or complete properties that are under-utilised. And, for short-term stays it would be a hassle for individual property owners to manage the process.
        3. Design an innovative VP for the partners that you need the resources from. By providing access to a large pool of travellers, home owners can make significant extra income.
        4. Establish the new cost structure. Airbnb have found a lower cost model compared to traditional hotels because it does not pay property or staffing costs, while its overheads are mostly platform development and maintenance, marketing and promotion.

        The Business Model Canvas

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          In summary, the Business Model Canvas is a powerful, flexible and simple template to innovate any business model or idea, whether your business is established or a start-up.

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