Updated: Feb 15
Regardless of the size and industry, a business needs to have a model that establishes its value, particularly the kind of value it wants to create, capture, and deliver. As such, this business model serves as the foundation the business will be built on and will determine its future, especially its growth, and identify opportunities in their internal and external environment that will help achieve such goals.
That being said, the business model is not necessarily a constant. It can and should evolve as the needs of the business change, especially in response to the changes in the landscape. However, such changes should not be done by the CEO alone. Such decisions should be discussed with colleagues, partners, and other stakeholders in the business.
Given that this model involves so many details that can be overwhelming to document in itself, the business model canvas serves to illustrate and break down the model in a manner that is more comprehensible and visually appealing enough for those looking at the canvas to easily understand the information conveyed in the canvas.
The business model canvas, just like the business model, is all encompassing as it covers four main areas: customers, offering, infrastructure, and financial viability.
The Building Blocks of the Business Model Canvas
There are nine building blocks that make up and define a company’s business model canvas. These are the following:
Customer segments: It goes without saying that customers are the lifeline of any business and it is important to understand their needs in order to provide them with the right solutions they are looking for, alongside providing exemplary customer service that will make them loyal customers. As such, businesses need to identify the particular set of customers to target for effective marketing, hence the need of segmenting them, whether for instance to target a particular niche or segment or reach as many segments as possible.
Value propositions: One important element that draws a customer to a particular company is the company’s value propositions. They can come in many forms such as their philosophy or beliefs, the way they address a customer’s particular needs, how their products or services are priced, or how they’re readily available or accessible to the customer, just to name a few.
Channels: Channels provide the communication and distribution by which the company delivers its value proposition to the customer. In doing this, the company can make use of its own sales force or make web sales as part of its internal efforts. Externally, it can make use of its own store front, or tie up with its partner stores or with wholesalers as well.
Customer relationships: It is a given that companies need to maintain relationships with their customers not only to attain customer loyalty but also to attract new customers as well. Each company has their own approach in fostering customer relationships, from providing general personal assistance or having a dedicated personal assistance for particular customers who provide higher value to the business.
Revenue streams: Revenue is a crucial element for a business’ success and growth. Thus it is important for the business to have one or multiple reliable revenue streams. These streams can come in the form of one-time payments or recurring transactions and are either fixed or dynamic in their pricing schemes. Businesses can generate fees from product sales, service fees, or other fees and charges.
Key resources: Resources are essential for the business to produce and distribute their products or services to their customers as well as to sustain their operations These resources can be physical, intellectual, financial, or human.
Key activities: These are the critical tasks, from production to problem-solving to those related to their platform/network, that a company does in order to achieve growth and sustainability.
Key partnerships: Partnerships are essential for companies so they can achieve optimization of the business, reduce risk, or gain resources more easily. Companies may partner with their distributors/suppliers, non-competitors, or even with their competitors through a strategic alliance.
Cost structure: All businesses incur costs through operation, whether fixed or variable. They may also face economies of scale and scope. Companies consider their cost structures in two strategies—cost-driven, where all costs are reduced wherever possible, and value-driven, where the focus is on greater value creation.
The Business Model Canvas in Action
To understand how the business model canvas comes together, BCampus offers as an example one well-known company, Apple, and how it its business model canvas is set up:
Customer segments: Apple targets the mass market consumer segment across the globe. These customers tend to have similar needs and problems that can be addressed through globally standardized offerings encompassing both hardware and software.
Value proposition: Apple markets their products and services not just as standalone offerings but one where they are tied together in a single ecosystem controlled by Apple. For many customers, this provides a great deal of convenience wherein products work well with one another and that they don’t have to search elsewhere for services from apps on their devices to content to be played on these devices.
Channels: Customers are able to interact with Apple in person, through Apple stores and accredited retailers, as well as online.
Customer relationships: Apple is known for its dedicated customer base that many companies can only dream to have. And this particular customer base is devoted to the brand that they have multiple Apple products such as iPhones, iPads, and MacBooks.
Revenue streams: Apple earns most of its revenues from selling products such as iPhones, iPads, and MacBooks, services such as Apple TV and Apple Music, as well as a share in the sales of the apps being sold on its App Store, which has been a source of controversy as of late.
Key resources: As one of the most valuable brands in the world, the Apple brand is itself a key resource, alongside its hardware and software. Content such as the apps in the App Store, songs in Apple Music, and films and TV shows on Apple TV (produced by Apple or by outside studios) are important resources as well.
Key activities: Apple is involved in all aspects of the product design, from the components used to the software the products are running, and the external design, the latter of which Apple is much known for. Marketing is
Key partnerships: Apple partners with app developers for their App Store, content providers for their media services, and suppliers for the hardware components of their products.
Cost structure: Most of Apple’s costs come through manufacturing and marketing, including employee salaries.
The business model canvas empowers everyone in the organization in having a greater stake in the business by providing a common language through which they can easily understand the business’ values and are able to better evaluate the effectivity of current processes and introduce innovations that bring innovation that can improve upon the business model.